nav
Business Operations Business Models

How Does Planet Fitness Make Money (Business and Revenue Model)

The Planet Fitness business model

How Does Planet Fitness Make Money?
Here’s what you should know:
  • What is Planet Fitness, and how does Planet Fitness work?
  • How does Planet Fitness make money?
  • Franchise Royalty Fees
  • Membership Fees
  • Selling Equipment to Franchisees
  • National Advertising Fund (NAF) Revenue
  • Placement Services
  • Vendor Commissions
  • Planet Fitness’ profit and revenue
  • What is the Planet Fitness business and revenue model?
  • Planet Fitness’ funding and valuation

How does Planet Fitness make money if it’s so cheap? Here is a full, in-depth, breakdown of their six (6) revenue streams and the different products and services they offer, as well as the Planet Fitness business model, their year-over-year revenue, and how Planet Fitness works.

What is Planet Fitness, and how does Planet Fitness work?

Planet Fitness is a franchisor and operator of fitness centers located throughout in the United States, as well as Canada, Dominican Republic, Panama, Mexico, and Australia.

Founded in 1992 by Michael Grondahl and Marc Grondahl, Planet Fitness is now one of the largest fitness club franchises with more than 14.8 million members and 2,170 stores in all 50 states, as of June 30, 2021.

How Planet Fitness works is: Planet Fitness is a members-only gym and requires a membership to use their facilities. Once signed up, members have 24/7 access to the gym(s) along with access to tanning beds, HydroMassages, Massage Chairs, and more depending on the type of membership they have.

Some of Planet Fitness’ competitors include LA Fitness, Gold’s Gym, Anytime Fitness, and other franchise fitness centers.

Planet Fitness App in Apple App Store | Planet Fitness Business Model | How Does Planet Fitness Make Money?
Source: Apple App Store

How does Planet Fitness make money?

According to page 25 of Planet Fitness’ 2021 Q2 Form 10-Q, Planet Fitness had more than 14.8 million members and 2,170 stores in all 50 states, as of June 30, 2021. So how does Planet Fitness make money off of all these members and locations?

Below is a breakdown of how much money Planet Fitness makes and its revenue model. Including all revenue streams and how much they charge for their services.

Here are the 6 ways of how Planet Fitness makes money (in 2021):

Planet Fitness has a revenue model that makes money in six (6) ways – franchise royalty fees, membership fees, selling equipment to franchisees, National Advertising Fund (NAF) revenue, placement services, and vendor commissions.

#1. Franchise Royalty Fees

Planet Fitness makes a bulk of its money through royalty fees. In fact, $142.5 million or 35% of Planet Fitness’ total revenue came from royalty fees in 2020.

What are franchise royalty fees? Planet Fitness, as the Franchisor, collects an ongoing fee, known as “royalties”, from the Planet Fitness franchisees.

According to Entrepreneur, the initial franchise setup fee is $20,000. Thereafter, all franchisee owners pay an ongoing 7% monthly royalty fee of gross sales to Planet Fitness Inc.

Note: 35% of Planet Fitness’ total revenue came from royalty fees in 2020.

#2. Membership Fees

One of the most recognizable sources of income for Planet Fitness is their $10 per month memberships.

Planet Fitness offers two (2) membership tiers: the Classic Membership and PF Black Card® Membership. On top of membership fees, all members are also billed enrollment fees and annual fees.

Combined, Planet Fitness currently has more than 14.8 million members (13.5 million at the end of 2020). Of which, 60.5% of total memberships are Black Card members, bringing their average monthly dues per member to $17.01 as of December 31, 2020.

The company doesn’t directly state on its 2020 Form 10-K how much revenue membership fees accounted for in 2020, but if we multiply the total members (2020 years end) by the average monthly dues per member, we can estimate membership revenue brought in an estimated $229.6 million of revenue.

Planet Fitness Membership Cost:

  • Membership Fees: $10 to $22.99 per month (Classic or PF Black Card® Mebership)
  • Annual Fees: $39
  • Enrollment Fees: $0 to $59

Note: An estimated $229.6 million of Planet Fitness’ $406.6 million of total revenue came from membership fees in 2020.

#3. Selling Equipment to Franchisees

Planet Fitness also makes money by selling branded equipment purchased from third-part manufactures to new and existing U.S franchise store owners. In fact, $83.3 million or 20.48% of Planet Fitness’ total revenue came from equipment sales in 2020.

According to page 45 of Planet Fitness’ 2020 Form 10-K, Planet Fitness says “franchisee-owned stores are generally required to replace their equipment every five to seven years.

Planet Fitness Equipment | Planet Fitness Business Model | How Does Planet Fitness Make Money?

Note: 20.48% of Planet Fitness’ total revenue came from equipment sales in 2020.

#4. National Advertising Fund (NAF) Revenue

On July 26, 2011, Planet Fitness established the NAF to handle marketing, advertising, and other related programs and requires franchisees to contribute 2% of their monthly membership dues annually to the fund.

Although it’s unclear how Planet Fitness makes money from this exactly, the company reported earning $43.3 million from National Advertising Fund (“NAF”) revenue in 2020.

#5. Placement Services

On top of making money from selling the equipment to franchisees, Planet Fitness also makes money from the assembly and placement of the equipment at these franchise locations.

According to page 108 of Planet Fitness’ 2020 Form 10-K, placement services resulted in $6.9 million of revenue in 2020.

Note: Planet Fitness makes money from both the selling of and the placement of equipment.

#6. Vendor Commissions

Planet Fitness earns a commission from the sales of equipment through their approved vendors. Those vendor commissions totaled $696 thousand in 2020.

“Franchisees are required to purchase fitness equipment from us (or our required vendors in the case of franchisees located in certain international markets) and are
required to purchase various other items from vendors that we approve,” according to page 12 of Planet Fitness’ 2020 Form 10-K.

Planet Fitness’ profit and revenue

In 2020, Planet Fitness reported $406.6 million in revenue.

Note: Because Planet Fitness, Inc is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Planet Fitness’ publicly released financial reports, including annual reports, through Planet Fitness’ investor section on their website.

What is the Planet Fitness business and revenue model?

Planet Fitness makes money through a few revenue models that they combine within their company, they are:

  • Franchise business model
  • Royalty business model
  • Subscription based business model
  • Transaction based business model
  • Fee-for-service (FFS) business model
  • Commission based business model

Planet Fitness’ funding and market cap

According to Planet Fitness’ Crunchbase profile, Planet Fitness has raised $550 million over 4 rounds and has a market cap of $6.07 billion as of August 2021.