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9Round Franchise Financials and Customer Value Proposition

9Round FDD Financials and customer value

9Round has carved out a niche in the relatively new high intensity interval training (HIIT) franchise space, offering a full body 9-circuit workout system in a short 30-minute block of time.

Focused on a boxing theme, the founders, a husband-wife team, have a nice story to share which contributes to their success.

The franchise fee to buy a 9Round is $18,000 plus a $4,600 advertising fee. If you want to fully develop a territory, you can buy three locations at a discounted rate of $48,000 for the bundle (FDD 2015). For one location, the $18k fee contributes to a relatively low total average investment of $85,000 (9Round.com)

Boasting 400 clubs and a member profile of 60% women, and 40% men while operating in 1,000-1,500 square feet, 9Round customers train in a high energy environment.  With minimal equipment and low staffing needs, fixed costs are kept low and a breakeven can occur quickly with minimum membership numbers.

The Competition

9Round FDD Financials and customer value9Round competes in an intensely competitive marketplace, as stated in their FDD. Nationwide clubs like Anytime Fitness, Planet Fitness, Snap, YMCA and independents provide a plethora of options all competing for customers attention. But it doesn’t stop there. Substitutes solutions also provide a source for taking away customers such as recreation facilities, Fitbits, home training videos such as Insanity, tennis clubs, meet up groups, hiking and running groups, on and on.

This is the fitness industry.

But like all quality franchise models, 9Round has methods for acquiring customers and makes this plan available to their franchisees.

While they do require franchise owners to contribute to a national marketing fee of just $75 a month, they also suggest a local advertising spend of $200 a month to be spread across direct mail, digital campaigns and special promotions. $200 a month seems like a thin marketing budget in order to compete, let alone aggressively.

Here are two important points that require more investigation;

  • On their website located on their Franchise information page, under Fact #9 (https://www.9round.com/fitness-franchises) they say that the FTC says they cannot make earnings claims . This is not the entire truth. They can make earning claims under Item 19 Financial Performance Representations, they just have to support the claims being made with a reasonable case usually based upon the Financial Statements of operating franchises. This usually means the revenue or income earned by franchisees is weak, or the franchisor truly has no/little information to share, or both. With 400 locations, there should be more than adequate information (data) to gain a statistically relevant answer to the earnings question. Here’s an article by JUX law firm that does a decent job explaining Item 19: http://jux.law/franchise-disclosure-documents-item-19-financial-performance-representations/
  • The 9Round website is almost 100% in reverse print, white text on black background. This is a clear violation of core direct marketing strategies, and literally guarantees a decline in readership, conversion rates and low “page stickability”. This is important because most quality marketing in today’s environment (whether print, digital, radio, TV, etc.), especially for smaller companies and for franchisors is direct marketing.  This has been proven time and time again — because reverse print is so hard to read, really the only time you want to use reverse is: a.) you want to emphasis a brief phrase, such as “TODAY ONLY“, or b.) you don’t actually want (or care) if the reader reads the reverse print.  This is important because if corporate does this, then the advertising and marketing materials being passed on to their franchise network for local use is guaranteed to break core marketing rules too — a leading indicator of the franchisor being irresponsible with franchisee resources, causing lower response rates and thereby forcing a higher spend to acquire valuable customers.

Let’s now look deeper into 9Round’s value propositions.

About 9Round’s Customer Value Proposition — for a review of the three Customer Value Propositions that each Franchise model chooses to provide (whether by design or not), please read this page first, then come back to this section.

Customer Intimacy as 9Round’s Value Proposition

The first paragraph of the 9Round FDD says:

9Round offers a “… boxing and kick boxing center that provides a customized physical fitness training program, which includes a proprietary system of challenging work out stations.”

If individualized fitness training was the objective to lead in this market space by Customer Intimacy, then 9Round is just left of this target. Simply because a pre-defined group circuit training program caters to the community, not the individual.

9Round’s floor trainers can help modify existing group routines per individual, i.e., to help an ex-athlete work around an old hip flexor injury by doing jump rope training for 3 minutes instead of lateral squats per the group model, this is still group training overall and not one-on-one training.  While this extra personal attention keeps them within industry standards, they earn a middle of the range Customer Intimacy score. Not leading the niche but definitely meeting industry standards — which is a prerequisite for a leading model such  as 9Round.

Now, it’s possible that 9Round’s Customer Intimacy Value Proposition is stronger between the franchisor and the franchisee, within the boundaries of the FDD.  There is evidence of this because on the website in Fact #9 on the franchise info page they report that the “9Round community of owners is a tight family and they love to help.” If you are a franchisee or a candidate we would love to hear your feedback. Please share your thoughts with others in the discussion below.

Operational Excellence as 9Round‘s Value Proposition

If 9Round can say they deliver their services faster, more conveniently and at a better price than the competition, they may be able to lead the market space with Operational Excellence as their Value Proposition.

A full-body 30-minute workout seems as though it fits the criteria for a faster, more convenient service delivered to the marketplace. But an $80 a month fee plus an activation cost puts them in the higher than average gym membership category, for the consumer side. Again, 9Round meets industry expectations for Operational Excellence indicative of an efficient workout plan, designed to help the customer save valuable time so they can spend more of it with their families, at the office or simply enjoying life (outside of the gym).

The big value they provide to a franchisee is a low cost business model that let’s them compete in the group fitness and HIIT training environment, catering to a customer that values a fast and efficient workout.

Overall, 9Round earns a solid score for operational Excellence as the Value Proposition, both passed on to the end use customer, and to the franchise owner. There is still room for another player to lead the field by offering a low cost option, which could provide added value (in the form of a lower price point) in order to bring in more customers due to price elasticity in a competitive marketplace.

Product Leadership as 9Round‘s Value Proposition

Because there are minimal equipment needs, the franchise owner of a 9Round business model can be agile and flexible to respond to the demands of the market quickly, with minimal risk.

If 9Round can say they offer a higher quality product than the competition, they can lead through Product Leadership. While being close, a variable for a higher quality product for a franchisee is net income. After all, the reason to buy a franchise is to ultimately earn income, while following a proven roadmap.

In this category of circuit training, Orange Theory may be the leader (review coming soon) not only because they offer a membership to their customers at a higher price point, but their business model may earn more income to the Franchisee.

9Round Franchise Financial Ratios

These financial ratios are excellent analysis tools. And if you happen to be on the franchisor side, then these are great bench marketing tools to see how your group compares. For a better understanding of each of these ratios go here for an explanation.

9Rounds’s current ratio is very good, one of the highest in the industry (Even beats Anytime Fitness and Yum! Brands).  As you may know, when the company is over a value of “1” they have a good handle on their ability to pay their short term obligations.  Kudos to 9Round.

Their debt ratio is higher than many competitors, saying that 61.5% of their assets are financed by debt.  This can be a problem as expenses eat into profit and if/when interest rates rise this can create a burden on the ability to meet obligations.

Their ‘times interest earned ratio’  is extremely healthy, suggesting that they have plenty of earnings to cover their interest payments.  Since they are holding more debt, this is a wise move on behalf of their accounting team — another indicator of a well-managed financial department.

Although lower than others in the franchise space, their gross profit margin is also healthy, indicative of room to pay for additional fixed expenses.  And their net profit is excellent  at 51.1% income for every dollar earned — this means they are doing a great job in keeping their fixed expenses manageable.

Their return on total assets is 44.8%.

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