No-Franchise Joint-Venture Gym Expansion Model (Part 2) (Interview with Kisa Davison)

 

 

What you’ll learn from this episode

How to buy your next gym location with only $5K down and no loan from the bank!

What Kisa’s well-run gyms net profit margins are (so that’s the Net amount of profit that she takes home after all expenses)

Her process to track her conversion from lead to new sign up accurately & with no fancy computer software

You’ll learn about her optimized risk expansion model. Have you ever thought about growing your gym to another location but didn’t want to take on a whole ‘nother gym by yourself? And creating a franchise was also not appetizing for you?

Then make sure to take out your notepad because she will share this amazing different type of expansion strategy for your gym, which we’ll call the Joint Venture Model 

 

Highlights from the interview

[04:12] – How to buy your next gym location with only $5K down and no loan from the bank!

[10:39] – What Kisa’s well-run gyms net profit margins are (so that’s the Net amount of profit that she takes home after all expenses)

[13:14] – Her process to track her conversion from lead to new sign up accurately & with no fancy computer software

[27:32] – You’ll learn about her optimized risk expansion model. Have you ever thought about growing your gym to another location but didn’t want to take on a whole ‘nother gym by yourself? And creating a franchise was also not appetizing for you?

 


About our Guest

I’m excited because we’re going to listen to part two of my interview with Kisa Davison, the co-founder and head coach at Straight Blast Gym of Montana, which actually has three locations. 

In addition, she coaches other fitness entrepreneurs and has four nearly grown kids on her plate. She also manages her family’s residential construction company and investment properties, and is really big into charity. 

Eleven years ago in the middle of a recession, a personal crisis, and career crisis, she and her husband with four kids, opened a brand new gym and they haven’t looked back since. Here’s part two of my interview with Kisa. 

 


Edited transcription of Fitness Business Secrets Podcast, Episode 27

How to buy your next gym location with only $5K down and no loan from the bank!  

[04:12] Kristy: I love it. I think you’re really going back to how you bring so much experience because that’s a unique way to buy a commercial building.

Just to help our listeners who might not be as familiar with search in real estate terms. When you say carry a contract, what does that mean? What is the relationship with the seller?

Kisa: That means that the seller is financing the property purchase. The terminology is a little bit different state to state, but basically I would purchase a building from you and we record that as a purchase. So, I now own the building, but then we file a trust indenture. 

Now, there’s a piece of paper that’s filed at the courthouse that says you are in first position. You basically have an interest in this property because you’ve lent me the money to purchase this property, and you are acting as the bank.

In the case of the owner’s carrying contract, what it does is it’s really great for owners who are at that stage of retirement. Maybe they purchased the building 10 or 20 years ago, or it’s been in the family for however many decades now. 

Instead of having this lump sum payment that they now have to claim on their taxes, they’re getting a monthly income as interest in principal. So, they’re making interest, and then the principal amount of that payment is also paying down the loan.

Instead of having this lump sum payment that they now have to claim on their taxes, they’re getting a monthly income as interest in principal. So, they’re making interest, and then the principal amount of that payment is also paying down the loan. 

Eventually, when we refinance, then the owner obviously is going to see a profit from that in theory. 

Kristy: That’s great. So, the seller kind of gives you a seller finance loan, so you could buy the property. Do you put any money down or do you do a large down payment?  

Kisa: Yes. We’ve done down payments. We’ve actually done a lot of owner financing over the years, and typically you’re still looking at a 20% to 25% down payment. What’s nice is because of the owner’s financing, they can give some flexibility. So, maybe if I’m in to buy a building from you that’s just for round numbers, let’s say it’s a hundred thousand dollar building. 20% of that would be $20,000.

Well, if I don’t have $20,000, I might say, “Hey, Kristy. I’ve got $5,000. Will you take $5,000 today? I’ll start my monthly payments right away, but three months from now, I’m going to give you another $5,000. Then three months later, another $5,000. So, within the first year, you’ll have your $20,000 down. I’m going to pay you 6% or 5% interest.”

It’s usually one or two points above what you could get from a bank. So, you can be really flexible.

Kristy: Oh, so you even do interests. You’ll do a payment plan and put some interest on that too, in addition to the regular payments.

Kisa: Exactly. 

Kristy: That’s cool. With the agreement with the seller, do you guys pre-agree on a balloon payment at some point where they expect to be refinanced? 

Kisa: Yeah. Usually a two to five-year balloon is the term that we work with because typically within two to five years, we’ve established enough equity. 

Like I said, not just equity, but a bigger picture. Now, we’ve got a business that’s been profitable in this location for two to five years, and that’s what a bank wants to see in a commercial. That you’re not just going to purchase this commercial building that’s been vacant for 10 years, but you’re going to purchase this building that has a thriving business in it.

There’s some guaranteed income, and so that balloon payment is typically two to five years.

Kristy: That’s really neat. For the interest rate for the regular monthly payments, you mentioned 5% to 6%. What’s an example? Let’s say a month ago, it was 3.5% Or 4% that you would get from a bank, or maybe 4.5% on a commercial. Would you basically offer to pay 1% to 2% above that?

Kisa: Yeah. I’m usually 1% on a secured, and 2% to 3% on an unsecured. We’ve had private financers who have just lent us money for business ventures or for just whatever it is that we’re doing or developing. That percentage can be anywhere from 6% to 8% on unsecured, but for secure, meaning there’s something that they can have if you leave town and split.  

For secured, the security of the collateral would be the building itself. In that case, if the interest rate is 4%, we usually offer 5%. So, we usually offer a percentage above.  

Kristy: For the properties that you’re buying for your gyms, those were secured with the building.

Kisa: Correct.  

Kristy: That is so brilliant. I’m so happy that you’re talking about the real estate angle in the gym business because I don’t think most people have talked about it. That’s really creative. You’re even talking about partnering at some point with your JV partners.

Let’s say they put the 20% in and it’s $60,000 or $100,000. How much do you usually need? Do you need to put in more than that to get all the equipment and to fix the buildout for it? 

Kisa: Sometimes, but not typically. Our biggest expense when we open a gym is really the tatami type mats that we purchase. They can cost anywhere from $60 to $100 per mat. So, we’re usually talking about $10,000 to $20,000 in just mat costs to outfit a new location. That’s just the jiu jitsu mats. 

Then, a couple thousand dollars more for yoga equipment. Maybe another $10,000 to $20,000 for weight equipment, depending on what kind of weight equipment you get.

You’ve obviously got a sales and marketing budget upfront. That really is quite important in addition to your payroll costs. Insurance is also a big line item, but those are the biggest ones. 

Net Profit Margins for Her Gym & How to Keep an Eye on These Key Performance Indicators

[10:39] Kristy: I’m just curious because I’ve come to the idea and it’s different per market and rent, and if you own the building.

What do you generally consider a healthy profit margin? So, that’s after you take out pretty much all expenses, including rent and insurance. How much as a percentage do you think is healthy from your experience from your gym? What do you usually see? 

Kisa: So, we shoot for 20% average over the course of the last 12 months.

Ideally, what we want is for every month to hit a 20% margin. If it’s at 15%, it’s time that we have to make some changes. Anything less than 10%, you’re going backwards. 

I think this is a really important habit for every business owner, but particularly in the fitness business where seasons can change what you’re looking at for your revenue. We have a monthly meeting of the minds, but it’s basically a monthly financial meeting on the second Tuesday, Thursday, and Friday of every month. 

I think this is a really important habit for every business owner, but particularly in the fitness business where seasons can change what you’re looking at for your revenue. We have a monthly meeting of the minds, but it’s basically a monthly financial meeting on the second Tuesday, Thursday, and Friday of every month.  

 

We sit down with our accountants and look at the books for the month prior. We look at what all of our revenue and expenses are. Then, we also sit down and look at our sales stats and operational stats. If I have 457 students that are supposed to be showing up to classes two to three times a week, how many of those students are actually showing up to those classes? Which are retention stats.

We have averages because we’ve been running by stats for the last eight or nine years. We have such historical data that we know 50% of every of all the leads we get end up being signups. There’s all these steps that happen between the time someone calls and the time they actually sign up for a membership. Every one of those steps has an average stat. 

In our monthly financial meetings, we’re not only reviewing what happened in the money sense, but we’re also reviewing what’s happened in the sales and marketing statistics, and also in the operational statistics. 

 


How to Be Accurate & Keep it Simple with Processes to Track Conversions

[13:14] Kristy: That’s awesome. My other question is how do you track that?

We were using Infusionsoft and we were doing different forms, but one of the reasons why I didn’t always trust my stats was because it would rely on a sales person to do something, and I don’t know if they would always do it. Maybe I didn’t have as invested in a tribe as you.

What software do you use to make sure every number is correct? 

Kisa: Human error is always an issue. Even as committed as our tribe is, people just forget. In fact, I forget sometimes to log my students into classes. We’re currently using Mindbody.

We are actively in conversations for Kicksite because they have some some features that we’re very interested in that Mindbody doesn’t have. Kicksite’s a little bit smaller of a company and I appreciate how much they are willing to work to develop and modify the software to be the way we want it.

With that said, we have a paper and automated system for stats. Our sales stats are handled literally on a clipboard at the front desk, and then every week those stats are scanned and emailed to one of our admins, and she puts everything into an Excel workbook that we’ve developed over the years. 

I’m not saying it’s a foolproof system. We have the same human error issues, but I try to remind myself and my husband that that’s the job of a manager. For example, if we are the managers as we are of our Kalispell location, then we become the one neck to grab when the stats are wrong. 

Once a week, I usually will look back through our Mindbody and make sure that the coaches are checking their students.

If they’re not, I text them and say, “Please remember a lot of your students for your Tuesday 8:00 AM class,” and that just helps make my job easier. Then, at the end of the month, when I compile all those stats together in Mindbody, the actual attendance stats are very easy to pull.

We’ve got a report that makes it really easy, but the sales and marketing stats are mostly done the old fashioned way. 

Kristy: I see. When they come in, call or email, you put down their name. 

Kisa: Exactly. Every lead gets plugged in. It’s always with the initial of the person who captured that lead. 

We have consultation appointments where people come in and they get a free private lesson and a tour of the gym. We sit down and talk about what their goals are, and figure out what kind of a program is going to work for them. We present to them different pricing options, depending on what kind of a program they’re looking for.

Whoever does that appointment would put their initial, and if they enrolled from that appointment, that’s a separate category. If I have five consultations on one day, I’m always hoping to get at least three signups out of those five consultations. Four signups is ideal.

If I get five out of five signups, then it’s probably either a really good day or something’s wrong because we usually see about a 65% to 80% sign up from consultation appointments. 

Kristy: Those are good numbers. I’m just curious how that paperwork works because it sounds like it generally works good. So, it must not be too complicated, which I have to remind myself not to do. 

For the paper, regarding the prospect from the phone call to the consultation to maybe even the followup, do they stay on one piece of paper and you kind of mark off?  

Kisa: No. I think this is where I started to overcomplicate this process as well when we were developing it. I felt like I needed to drill down and see exactly what happened to John Doe when he called it.

Instead, we don’t worry about who it is. It’s just the initial of the employee who has accepted that, has been the lead on that, or did the consultation. 

For example, if Ryan takes a phone call, he writes an R next to ‘phone call’, meaning it’s a lead that came in by a phone call. Then, from that phone call, if he schedules an appointment, he writes an R next to ‘scheduled appointment.’ 

Let’s say that same day, Leah has an appointment, but it’s somebody different who scheduled their appointment two days ago. She still writes on that same day that she has the appointment L consult for Leah. Then, if she signed that person up, she would write an L for enrollment.

Sometimes people will have their consult appointments and they don’t actually come in and enroll for a couple of days. We’re not interested in tying those pieces together. I think you hit on a really good point that I think we have a tendency to overcomplicate things.

If you can take a step back and say what’s necessary here, what’s unnecessary, and let go of the things that are unnecessary and bottle down or double down on the things that are necessary. 

It would be nice to have to be able to track that individual lead through the whole process, but in 11 years of doing this, I’ve never actually done that. I’ve just found that my effort is better spent doing other things.

Kristy: That makes sense. It sounds like it’s working. So, Ryan has a piece of paper when somebody calls in, does the lead get their own piece of paper and you don’t necessarily put the name on it? 

Kisa: When somebody calls in, we have a conversation with them about what it is that they’re looking for. If they decide that they’re going to schedule an appointment, Ryan then is immediately putting that information into our Mindbody system. There’s lots of notes in there as well, so that that person doesn’t have to repeat themselves over and over again. After Ryan schedules that appointment, he will notify the consultant that he scheduled that appointment with. 

We use BAND as our back office communication system because group texts get so lost. So, BAND is just an app that everybody downloads on their phone, and we have different groups for different reasons.

We use BAND as our back office communication system because group texts get so lost. So, BAND is just an app that everybody downloads on their phone, and we have different groups for different reasons.

Ryan would then send out a message in our BAND application. “Hey, Leah. I scheduled you an appointment at 10 o’clock on Thursday with so and so. She’s looking for this. She’s a friend of another one of our members. Here’s her phone number.” 

Then, Leah knows. She then makes a followup phone call. A reminder call 24 hours prior to that appointment to make sure that Jane remembers that she has an appointment. It’s comfortable. She knows what she needs to do. 

Then, Leah is able to connect with her as well. This really goes back to how we’re not just a facility where people work out. We’re a tribe. We want people to feel like they’re not only welcome, but that they’re valued, appreciated, and that we’re excited to have them as part of our growing tribe.

Kristy: So, Leah connects with the prospect, creates that sense of the tribe, and puts the notes in Mindbody. Is that right? 

Kisa: Yeah. She might put some notes in Mindbody if there’s new information.  She’s using Mndbody really as just a reminder of who this person is and what they’re looking for.

Remember that the hardest thing for the people who need us the most are the people who will have the hardest time getting out of their car, opening the front door and walking in. So, we put in a lot of effort. Honestly, more effort goes into new members and prospective members than into our listing members because of that.

In the beginning, they really have to be handheld. They have to be reassured so that they continue to build this habit of coming back, and it all starts with that very first encounter. 

Kristy: Absolutely. It’s scary. I think even for me, if I were to go to a new gym, I have the same fears. Even if I had a gym, I’m still scared.

Kisa: I do that. When I travel, I’ll drop into a yoga class. I’ve been training with this anger community for 16 years and I still drop into a class. It’s the cold sweat right before I opened the front door, but to embrace that humanity is a key to success for any of our businesses.

Kristy: I like it. It’s so great that you are so clear on what the experience of this prospect is. Your team is really addressing it and taking the time because I don’t think that the pain that the prospect is feeling is so clear to everyone. So, you’re able to really sell it and make them feel part of the tribe.

Kisa: Absolutely. 

How Kisa Makes Sure Her MMA Gym Appeals to the Yoga Clientele Also

Kristy: When I first heard about this gym, it’s MMA and jiu jitsu. The person’s first impression is that this is a tough gym. There’s a lot of guys and sweat here, but then you come from a yoga background. 

How many people come to call in because of yoga? How do you overcome the initial stereotype that if I’m looking for yoga, this is not the yoga place?

Kisa: A couple of things. I think that what we’ve done worldwide as an organization is pretty incredible and it’s very important for the development not just of our individual gyms, but for the development of all of humanity.

We tell people this all the time. “If you walk into a jiu jitsu or an MMA gym anywhere in the world, and you want to see what they’re really about, walk in and look at the mat and who’s on the mat.” 

The gym that I want to belong to and the gym that I want to cultivate is a gym that has all ages, sizes, shapes, abilities, backgrounds, men and women, grandmas and 22-year old hard body MMA fighters. 

The demographic on that mat should represent the demographic of society as a whole. I say that emphatically because I think the work that we do on the mats in jujitsu and on the mats in yoga is key to all of us developing individually.

When we can all come together and train together and not just get along, but learn from each other, I know that the work that we all do within that gym will make our communities better and the larger societies better. 

Now, with that said, it happens all the time. We had a big rift actually at our Kalispell location because when we started, we were SBG, but they would always call it the yoga room because I literally taught at that first 750 square foot location. 

I was teaching yoga in this cinder block kind of storage room with no windows. The only bit of the fresh air that we had was because of the wall. The corner of the cinder block wall was separated, and the snow would sometimes fly through. It was so awful. With my beginning students, I was referring to it as ‘yoga room.’ 

The problem became as we developed that we had these two separate identities, and we’ve worked really hard over the last few years to merge those two identities for all the same reasons I just described. I want for people to understand that it’s important for us to come together as a whole, regardless of what our backgrounds are and what we think it is that we need. 

Then, it boils down to the coach’s responsibility to make sure that everyone who shows up for their class feels like they belong there. Making sure that they connect and set up an environment that is focused more on the essence of the practice rather than being the cool kid or working with fancy moves. 

The underlying model of teaching that I was talking about before– aliveness. What makes aliveness work is that we really focus on fundamentals. My coach, Matt, says a lot more eloquently than I will, but he says, “A fundamental transcends the zip code, the age, the location, and what all the individual attributes are that someone would bring to them.”

For example, in a yoga posture, I’m going to do a Trikonasana triangle pose. No matter how flexible I am or how stiff I am, I should be able to still touch on the essence of the pose. A good coach can look out across a room of all different ages, sizes and abilities, and teach in a way that everyone can understand the essence of that pose. 

I realized I’ve rambled a little bit there, but I think that method of coaching creates a welcoming environment.

 


It’s Not a Franchise & It’s Not Their Own New Location: The Joint Venture Partnership Expansion Model

[27:32] Kristy: What I’m hearing is just so much attention to detail to culture and conveying that culture and repeating that. Since you’ve been able to really get that through to your students, you now even have these mentees who are opening gyms.

They already have that culture and the welcomingness kind of blends the yoga and the mixed martial arts part together. So, I think that’s brilliant. I had one more question that I just thought was so interesting. 

You mentioned the 20% that the JV partner would put down between $60,000 to $100,000, and it sounds like usually that amount will cover the startup costs for the gym. Then, you mentioned a tiered thing where if they reach certain milestones, they get a bigger percentage. How does that work?

Kisa: Correct. So, the milestones we look at are really our key indicators which would be, for example, gross revenue, number of students, net profit, and then a cancellation rate. Those are kind of our four big key indicators that we’re looking at. 

We set milestones for the junior partners. They start maybe at 20%. They meet a certain milestone for three months in a row because remember they’re managing as well. They’re not just silent owners. They’re managing the day-to-day operations.

We set milestones for the junior partners. They start maybe at 20%. They meet a certain milestone for three months in a row because remember they’re managing as well. They’re not just silent owners. They’re managing the day-to-day operations.

 

We are not managing the day-to-day operations at all. We’re simply training them and mentoring them to manage the day-to-day operations. We say, “Here’s how you do it. Now, we’re going to check in every week and make sure that you’re doing it the way it needs to be done, or every day if that’s what is needed.”

If they meet those milestones for three months in a row, they bump up to 30% owners with no additional funds required. Basically, it’s sweat equity that they’ve put into it that now gives them an additional 10% and ownership. 

Then, they meet the next set of milestones, but it’s gotta be three consecutive months. Now, they’re going to bump up to 40%. Then, they meet the last set of milestones after three consecutive months, now they’re gonna bump up to 49%. They’re never more than 49% at this point. 

At some time in the future, we might decide to sell out our remaining 51% to them, but it was important to my husband and I that we were the senior partners because we started this from scratch and the reputation of SBG is very important to us. 

Kristy: Absolutely. That is so interesting. I think I learned a lot, just like that specific structure. It’s brilliant because it’s so helpful to have a partner that’s invested and how it is structured. Wow. That’s awesome.

This JV partner can go in and in a total of nine months, if they reach these milestones every three consecutive months, they can get to 49%, which is pretty much almost 50%, but you guys are the final decision makers. If they don’t make a milestone, do they just say, “Okay. Next?”

Once you start over and if you get it in three months, then you can reach that. 

Kisa: Absolutely. Let me be clear that we give them the tools, the training, and the support, but we don’t just stand back and say, “Let’s watch you hit your milestone.”

We are very much a part of meeting those milestones with them. We are 100% invested in them meeting all their milestones, and I think that’s really important. It’s a question that we asked ourselves before we went into business with these partners, “Do we want to be 51/49 with this particular person?”

“We do.”

“Are we committed to coaching them to get their milestones and to hit their 49% or is there any animosity? What’s the rub here?” 

Because I think you have to be your partners’ number one cheerleader. I think that applies not just to business partnerships, but also marriage and any partnerships you have. 

If you can’t be your partner’s number one cheerleader, then you have to ask yourself why and you’ve got to figure that out, or you got to cut your losses and go. 

Kristy: Did you guys think of the structure partially because it’s hard to predict everything, and if there’s a situation where you guys are not agreeing, they don’t reach the 40%, and they’re at 30%, then it allows you guys to buy them out if you felt like it?

Kisa: Yes. Absolutely. 

Kristy: That’s smart. Do they take a salary or is it up to them? During the first few months, do they get paid for these because it’s a startup?

Kisa: It depends, but in all cases, we’ve all bypassed the salary for the first few months until we’ve got revenue coming in. Even in that case, a salary is stepped up based on the revenue that’s coming in. 

For example, Gus and Becca are partners in Missoula, I’m their number one cheerleader. I’m not gonna ask them to give their blood, sweat, and tears and then go home and eat fried beans out of a can.  

We’re looking at them as whole individuals and as a whole family. They have a child that is a godsend to me in many ways, and so I’m committed to making sure that we’ve set this situation up so that they can be successful, happy and healthy.

Kristy: That makes sense. It sounds like maybe you set it up where everyone’s kind of bypassing some profit in the beginning. Then, after a few months, hopefully when you guys have done it right, you guys can start taking a salary, and then you’ll also get that percentage of profit if the business is throwing off any profits.

Kisa: Exactly.  

Kristy: That is so cool. Brilliant. Well, I know I’ve taken up a lot of your time a bit longer than I thought, but I am fascinated with how creative and smart you guys have been from a real estate perspective and from partnership. If anybody wants to reach out to you and maybe has more questions about coaching, how can they reach you?

Kisa: Email is best, but I am accessible on Facebook and Instagram as well. Kisa Davison. I’m not very creative when it comes to my name. It’s just my first name and last name. I welcome any and all inquiries. I just think that the more we come together and the more we learn, the better we all become.

Kristy: Absolutely. I completely agree. It sounds like that’s your mantra for your gyms as a tribe of about touching so many lives and also for yourself. 

Thanks so much for sharing your positive energy and your really smart experience.

Stay connected with Kisa!

Kisa Davison

Facebook: Kisa Davison
Personal Website: Kisa Davison
Website: SBG Montana

 

Kisa: Absolutely. You’re welcome. Thank you so much for the invitation.

Kristy: Thanks, Kisa. Take care.

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