Hotworx Franchise Cost Takes 5 Years To Recoup | Hotworx Reviews
Written by: Patrick Findaro
Last Updated by Rocio Torres: July 28, 2022Free Download Our Exclusive E2 Visa Business Guide
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Mr.Smithinvented a new infrared fitness sauna which is patented by Hotworx in 2014. He opened the first Hotworx fitness studio in 2017 and the franchise was developed in the same year.
The CEO/ Founder, Stephen Smith, entered the franchising world in 1996 when he founded Planet Beach.
“We made tons of mistakes with franchising, with Planet Beach,” Smith said about his first brand, Planet Beach in a Franchise Times interview. “It got us prepared to launch the brand HotWorx.”
Over the past three years, 50+ Planet Beach franchise units have closed or have terminated their franchise agreement. The Planet Beach unit count has fallen by 100+ locations over the prior 5 years to 43 left as of the end of 2020.
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Have you ever heard of working out in a sauna?
Hotworx’s Franchise cost
The initial franchise fee is $19,950 for a single-unit license. Although if you decide to purchase an express studio then it will cost $12,950.
Estimated Initial Investment
| Type of Expenditure | Estimate Amount or Low-High Range |
|---|---|
| Initial Franchise Fee | $12,950 to $19,950 |
| Sauna and workout equipment, computer, phone, and internet equipment, exterior. signage, security cameras, water fountain, vending, machine, chairs, and washer/dryer | $110,500 to $169,500 |
| Leasehold Improvements | $15,000 to $225,000 |
| CAD Fee/Engineering & Architect Fees | $3,200 to $12,000 |
| Trade Dress Items and Finish Out | $28,000 to $45,000 |
| Utility, phone, real estate, and real estate lease deposits | $5,000 to $19,000 |
| Insurance initial payment | $2,000 to $18,750 |
| Printing, Marketing, and Advertising | $10,000 |
| Wholesale Goods/Inventory to begin operating | $20,000 |
| Professional Fees | $1,000 to $3,000 |
| Additional funds during startup period, such as for first three months, initial operations, and working capital | $35,500 to $54,500 |
| Out-of-Pocket initial training expenses, including travel and lodging | $600 to $3,500 |
| Totals | $ 240,750 to $600,200 |
The initial investment to run your own Hotworx
It will cost between $240k to $600k to open a Hotworx franchise. This consists of equipment such as the sauna, workout equipment, technology, and other appliances. The midpoint Hotworx franchise cost is $420,000 for 2022 including working capital for the first three months.
The equipment will cost you around $110,500 to $169,500 and there isn’t much leeway with this cost because these are required as a necessity to the business. Another cost that takes up most of the initial cost is the leasehold improvements. The leasehold improvements cost $15,000 to $225,000. This is a large gap and this is because it depends on the landlord. The landlord or tenant improvements have a large range depending on location, necessary leasehold improvements, and how much involvement the landlord has.
Hotworx offers franchises where you can own and run your workout studio.
Keep reading to learn more about Hotworx and how much it will cost you.
Looking at the chart you are probably curious about what trade dress items and finish out is. This is one of the more expensive initial costs which is priced from $28,000 to $45,000. The trade dress items and finish out is building material such as interior branding components, lighting, and flooring. This is a small detail in owning a franchise that many new franchisees often dismiss. It’s very important to make sure you have an exact estimate when opening up a new franchise because costs can be added up quickly.
Hotworx’s Ongoing Costs and Fees
Required Fees
| Type of Fee | Amount |
|---|---|
| DMA or Development Area Transfer | $5,000 |
| Resale/Transfer Fee | $10,000 – $19,950 |
| Monthly Royalty Fee | $550.00 per month |
| Annual Convention | $590.00 – $790.00 |
| Credit Card Processing Fee | 3% of Amount Charged |
| Technology Fee | $0 – $150.00 per month or $1,800 lump sum |
| POS Software Fee | $129.00 per month |
| Virtual Instructor Software Fee | $10.00 per sauna per month |
| “SAIL” – Customer Relations Management (CRM) Fee | $125.00 per month per studio location |
| Secret Shop Inspections | $100.00 per month per studio location |
| Site Visit Fee | $200.00 per day |
Hotworx Franchise Royalty Fee
The Royalty fee is monthly and it is $550 per month. Usually, franchises do percentages on your gross income this can be good or bad depending on how much profit you make.
How much do Hotworx franchise owners make?
Notes on the chart above
The chart shows the financial performance of 2021 for the Hotworx franchise outlets. The chart is organized by the top, middle, and bottom franchises and then all of them together. The average total revenue of all Hotworx franchises is $341,000 for the 2021 year.
High Margin Business And High Revenue For Top Performers
High earnings for top performers can be expected but the range is wide.
The Hotworx EBITA (Earnings before interest, taxes, and amortization) expectations range from $11,000 to $204,000. This can be concerning because it will take you at least a few years to earn back your initial cost unless if you are at the top of the franchises. Although from these small earnings this could be due to COVID19 which shut down many workout studios and significantly impacted the sales of many businesses. Especially for workout places like this where you need to be in-person to get the full experience Hotworx could have taken a big hit which affected their earnings.
Franchise Outlets Financial Performance Representations
| Top Third | Middle Third | Bottom Third | All Locations | |||||
|---|---|---|---|---|---|---|---|---|
| Average | Median | Average | Median | Average | Median | Average | Median | |
| Revenue | ||||||||
| Membership | $419,286.59 | $397,690.84 | $289,099.16 | $285,262.58 | $206,809.85 | $205,798.33 | $305,065.20 | $286,623.31 |
| Retail | $52,513.37 | $51,136.37 | $33,690.01 | $30,894.69 | $21,687.29 | $19,479.11 | $35,963.55 | $31,612.90 |
| Total Revenue | $471,799.96 | $448,827,21 | $322,789.17 | $316,157.27 | $228,497.14 | $225,277.44 | $341,028.76 | $318,236.21 |
| Costs of Goods Sold | $41,738.29 | $36,341.89 | $27,867.13 | $26,436.34 | $18,357.04 | $18,501.98 | $29,320.82 | $26,097.86 |
| Gross Profit | $430,061.67 | $412,485.32 | $294,922.04 | $289,720.93 | $210,140.10 | $206,775.46 | $311,707.93 | $292,138.35 |
Operating Costs/Expenses |
||||||||
| Payroll | $77,744.90 | $77,591.51 | $69,427.20 | $71,042.27 | $62,463.96 | $63,289.79 | $69,878.69 | $69,754.32 |
| Rent | $57,864.23 | $58,219.50 | $61,434.88 | $62,961.40 | $66,237.12 | $62,493.29 | $61,845.41 | $61,659.79 |
| Royalties | $6,478.84 | $6,600.00 | $6,347.69 | $6,600.00 | $6,413.06 | $6,500.00 | $6,413.19 | $6,600.00 |
| Accounting | $2,329.41 | $1,787.49 | $1,941.73 | $1,400.64 | $1,281.36 | $928.90 | $1,850.83 | $1,207.33 |
| Bank Charges | $12,809.06 | $13,682.92 | $8,941.90 | $9,777.12 | $6,843.45 | $7,458.80 | $9,531.47 | $9,749.68 |
| Insurance | $5,584.27 | $5,403.46 | $5,732.92 | $5,481.81 | $5,154.79 | $4,498.64 | $5,490.66 | $5,384.05 |
| Maintenance and Repairs | $2,927.09 | $2,310.85 | $2,816.11 | $2,339.86 | $2,032.29 | $1,618.58 | $2,591.83 | $2,061.90 |
| Marketing | $24,944.76 | $24,877.62 | $24,510.49 | $24,077.50 | $23,044.08 | $22,197.04 | $24,166.44 | $23,924.76 |
| Miscellaneous | $2,575.05 | $1,943.49 | $2,601.88 | $2,481.33 | $2,292.94 | $1,880.32 | $2,489.95 | $2,097.63 |
| POS Fee | $1,568.78 | $1,548.00 | $1,548.80 | $1,548.00 | $1,566.74 | $1,548.00 | $1,561.44 | $1,548.00 |
| Staff Incentives | $715.07 | $227.00 | $584.15 | $151.33 | $346.59 | – | $548.60 | $97.42 |
| Supplies | $4,955.30 | $4969.49 | $4,292.22 | $3,650.99 | $2,947.81 | $2,736.10 | $4,065.11 | $3,539.86 |
| Taxes and Licenses | $1,886.01 | $400.81 | $1,285.34 | $550,99 | $1,537.32 | $15.00 | $1,569.56 | $371.69 |
| Telephone and Internet | $4,494.01 | $2,918.59 | $3,327.89 | $2,880.29 | $3,161.75 | $3186.80 | $3,327.88 | $2,984.39 |
| Travel | $2,186.63 | $1,465.66 | $1,924.77 | $1,705.68 | $1,294.10 | $690.00 | $1,801.83 | $1,260.38 |
| Utilities | $16,805.88 | $16,274.98 | $15,471.88 | $15,063.34 | $14,831.06 | $15,152.95 | $15,702.94 | $15,373.53 |
| VI Fee | $1,064.71 | $989.50 | $1,037.22 | $960.00 | $1,052.68 | $1,080.00 | $1,051.54 | $989.00 |
| Expense Totals | $225,933.99 | $221,282.83 | $213,227.07 | $212,672.52 | $202,501.12 | $195,274.28 | $213,887.39 | $208,604.23 |
| EBITDA | $204,127.68 | $191,202.49 | $81,694.97 | $77,048.41 | $7,638.98 | $11,501.18 | $97,820.54 | $83,534.12 |
2020 vs 2019 Same-Store Sales Comparison
| 2020 | 2019 | Year over Year Growth | ||||
|---|---|---|---|---|---|---|
| Average | Median | Average | Median | Average | Median | |
| Revenue | ||||||
| Membership | $229,071.02 | $234,061.24 | $276,499.82 | $288,623.37 | -17% | -19% |
| Retail | $23,503.99 | $12,628.72 | $34,832.72 | $37,089.38 | -33% | -36% |
| Total Revenue | $252,575.01 | $260,961.69 | $311,332.55 | $320,892.93 | -19% | -19% |
| Costs of Goods Sold | $18,678.84 | $19,086.56 | $21,083.79 | $21,211.18 | -11% | -10% |
| Gross Profit | $233,896.17 | $246,171.98 | $290,248.76 | $299,681.75 | -19% | -18% |
| Operating Costs/Expenses | ||||||
| Payroll | $59,917.28 | $61,997.50 | $71,049.42 | $73,605.91 | -16% | -16% |
| Rent | $53,108.91 | $56,445.34 | $59,316.36 | $59,640.89 | -10% | -5% |
| Royalties | $5,193.65 | $5,161.29 | $5,973.84 | $6,000.00 | -13% | -14% |
| Accounting | $1,872.34 | $1,599.74 | $2,700.65 | $1,820.91 | -31% | -12% |
| Bank Charges | $7,308.11 | $7,815.19 | $9,046.66 | $8,109.86 | -19% | -3% |
| Insurance | $5,372.36 | $5,402.58 | $4,748.47 | $4,970.08 | 13% | 9% |
| Maintenance and Repairs | $3,039.01 | $2,849.23 | $3,241.51 | $2,250.95 | -6% | 27% |
| Marketing | $17,745.22 | $17,815.19 | $25,708.67 | $24,905.30 | -31% | -12% |
| Miscellaneous | $2,192.53 | $1,608.80 | $2,903.23 | $2,512.03 | -24% | -36% |
| POS Fee | $1,550.67 | $1,548.00 | $1,551.46 | $1,548.00 | 0% | 0% |
| Staff Incentives | $693.36 | $228.64 | $636.70 | $150.00 | 9% | 52% |
| Supplies | $3,829.08 | $3,195.60 | $4,242.06 | $3,130.69 | -10% | 2% |
| Taxes and Licenses | $1,681.51 | $713.95 | $83,72 | – | 1908% | – |
| Telephone and Internet | $3,227.48 | $2,823.00 | $3,105.02 | $2,642.91 | 4% | 7% |
| Travel | $524.40 | $250.00 | $2,693.69 | $1,536.05 | -81% | -84% |
| Utilities | $16,062.98 | $15,777.89 | $19,496.88 | $18,916.93 | -18% | -17% |
| VI Fee | $902.90 | $900.00 | $1,061.60 | $1,080.00 | -15% | 17% |
| Expense Totals | $184,221.79 | $189,163.79 | $217,559.95 | $221,778.84 | -15% | -15% |
| EBITA | $49,674.38 | $48,257.89 | $72,688.81 | $50,541.17 | -32% | -5% |
Comparison of the sales in 2019 and 2020.
The chart above shows this data. The revenue and EBITA are much higher in 2019 than in 2020 which makes sense because of COVID. The average EBITA in 2019 is $72,688 and in 2020 the average is $49,674. This is a large difference and this industry heavily depends on the pandemic and whether or not it will get better. This is very unpredictable and it all depends on whether you are willing to risk financial gain on uncertainty.
Hotworx Units Opened and Closed
System-wide Outlet Summary
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2018 | 3 | 31 | +28 |
| 2019 | 31 | 84 | +53 | |
| 2020 | 84 | 153 | +69 | |
| Company-Owned | 2018 | 1 | 2 | +1 |
| 2019 | 2 | 3 | +1 | |
| 2020 | 3 | 3 | 0 | |
| Total Outlets | 2018 | 4 | 33 | +29 |
| 2019 | 33 | 87 | +54 | |
| 2020 | 87 | 156 | +69 |
Number of company-owned and franchised outlets.
The chart above shows this data. The number of franchise outlets is significantly increasing each year which shows Hotworx puts their focus on growing their franchises. Each year from 2018-2020 has increased the number of franchised outlets, Even with the pandemic, Hotwork opened 53 outlets in 2019 and 69 in 2020. There are only a few company-owned outlets which shows they don’t put as much money into them. Hotworx only had 3 at the beginning of 2018 and now has 153 outlets which show it is a booming business that is in high demand.
How much do the owners of Hotworx make?
Hotworx’s LLC Income statement
Statements of Income and Changes in Members’ Equity
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Revenue: | |||
| Franchise Fee | $2,396,456 | $1,588,784 | $1,169,910 |
| Royalties and Other Retted Fees | $932,861 | $406,386 | $173,043 |
| Vendor Rebates | $20,036 | $57,147 | $5,577 |
| $3,349,353 | $2,052,317 | $1,348,530 | |
| Expenses: | |||
| Operating Expenses | $927,401 | $404,112 | $344,351 |
| Selling and Marketing | $449,417 | $286,268 | $294,988 |
| Payroll and Rebated Payroll Taxes | $906,755 | $635,101 | $481,134 |
| Commissions | $456,938 | $279,613 | $803,193 |
| Depreciation and Amortization | $10,641 | $10,641 | $9,070 |
| $2,751,152 | $1,635,735 | $1,932,736 | |
| Operating Income (Loss) | $598,201 | $416,582 | $(584,206) |
| Loss on Disposal of Property and Equipment | $(1,424) | – | – |
| Realized Gain on Equity Securities | $14,371 | – | – |
| Unrealized Gain on Equity Securities | $52,451 | – | – |
| Interest and Dividends | $2,826 | – | – |
| Other Income | – | $7,550 | $1,314 |
| $68,224 | $7,550 | $1,314 | |
| Net Income (Loss) | $666,425 | $424,132 | $(582,892) |
| Members’ Equity (Deficit), Beginning of Year | $355,409 | $(636,838) | $(34,741) |
| Cumulative Effect Adjustment of Top 606 | – | $596,365 | – |
| Member Distributions | – | $(28,250) | $(19,205) |
| Members’ Equity (Deficit), End of Year | $1,021,834 | $355,409 | $(636,838) |
Hotworx franchisor revenue in 2018 was $1.3 million and increased to $3.3 million in 2020. The revenue is from franchise fees, and vendor rebates. This shows that their profits are increasing every year this is most likely due to the increase of franchise outlets. But with the increase in revenue caused an increase in expenses which is $2.7 million. With this, they are losing money and there is a deficit each year.
Hotworx Cash flow
Statements of Cash Flow
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Cash Flows from Operating Activities: | |||
| Net Income (Loss) | $666,425 | $424,132 | $(582,892) |
| Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: | |||
| Depreciation and Amortization | $10,641 | $10,641 | $9,070 |
| Cumulative Effect Adjustments Top 606 | – | $596,365 | – |
| Realized Gains on Equity Securities | $14,371 | – | – |
| Unrealized Gains on Equity Securities | $52,451 | $7,076 | – |
| Loss on Disposal of Property and Equipment | $1,424 | – | – |
| Changes in Assets and Liabilities: | |||
| (Increase) Decrease in Receivables | $(25,001) | $(48,353) | $(18,560) |
| (Increase) Decrease in Deferred Commissions Expense | $(1,197,641) | $(2,133,700) | $(220,394) |
| Increase (Decrease) in Accounts Payable | $48,790 | – | – |
| Increase (Decrease) in Deferred Franchise Fees | $1,318,941 | $2,104,263 | $728,190 |
| Increase (Decrease) in Acerved Lisbities | $(14,512) | $13,249 | $(78,753) |
| Net Cash Provided by Operating Activities | $875,889 | $959,521 | $(163,339) |
| Cash Flows from Investing Activities: | |||
| Purchases of Property and Equipment | – | – | $(39,992) |
| Net Proceeds from Affiliates | $536,034 | $(902,261) | $113,524 |
| Net Purchases of Equity Securities | $(291,649) | $(95,000) | – |
| Net Cash Provided by (Used in) Investing Activities | $244,385 | $(997,261) | $73,532 |
| Cash Flows from Financing Activities: | |||
| Member Distributions | – | $(28,250) | $(19,205) |
| Net Cash Used in Financing Activities | – | $(28,250) | $(19,205) |
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $1,120,274 | $(65,990) | $(109,012) |
| Cash, Cash Equivalents and Restricted Cash – Beginning of Year | $38,264 | $104,254 | $213,266 |
| Cash, Cash Equivalents and Restricted Cash – End of Year | $1,158,538 | $38,264 | $104,254 |
Although Hotworx’s net income is in the negatives, they do have cash at the end of the year. In 2020, Hotworx has $1.2 million in cash which is due to investing and an increase in deferred franchise fees. This is a good sign where Hotworx has cash on hand to keep growing their business and to recover from losses such as from the pandemic.
Conclusion
Hotworx is a unique idea that from the looks of it is very trendy and in high demand. At Vetted Biz, we estimate it probably will take 4 to 7 years to earn back the money you invested.
Are you thinking about investing in Hotworx, or interested in exploring more options?
Make sure to check out Vetted Biz’s website for listings of other similar franchises in the Gym Industry.
