417 - Case Study Prompt

.pdf
School
California State University, San Marcos **We aren't endorsed by this school
Course
MATH 260
Subject
Management
Date
Oct 10, 2023
Pages
4
Uploaded by GeneralBook12091 on coursehero.com
Operations Components Prompt SPMG 417 Case Study Directions are on page 3 Mark Orlando
2 M. Orlando Back Story In 2015, Terry Winston, a 15-year fi tness trainer in Berry City, California, proposed an investment opportunity to his long-time client and friend Frank Columbo (a millionaire investor who primarily lived in Las Vegas, Nevada). Th e proposed idea was for Frank to be a majority silent partner and invest his money into a performance facility (to be located in Berry City, California) that would house two key fi tness/sport related programs: CROSSFIT - a high intensity fi tness program incorporating elements from several sports and types of exercise. Consumer Data Nationwide: * Primary Demographics - 18 - 24 = 6% 25 - 34 = 42% 35 - 44 = 19% 45 - 54 = 8 % 55 - 64 = less than 3% 65+ = less than 3% * Gender - equal representation * Ethnicity - is 86% white * Earnings - over half of participants have an annual household income of $150k or greater * Families - 59% of participants have children * Education - 40% of participants have a post-graduate degree PARISI SPEED SCHOOL - a speed and agility technique program for youth athletes. Consumer Data Nationwide: * Primary Demographics - 6 - 8 = 10% 9 - 12 = 26% 13 - 18 = 42% Note that the school works with collegiate and professional athletes, but on a much smaller scale of 3% or less * Gender - 65% boys and 35% girls * Ethnicity - 60% white - 22% black - 18% other * Earnings - parents have a median household income of $142k * Families - 59% of participants have children * Education - 40% of participants have a post-graduate degree The ZONE Performance After hearing the proposed idea from Terry, Frank agreed to be the sole silent investor (90% equity) for this new endeavor. However, Frank informed Terry that he was not familiar with the market space of fi tness/sport related programs or operating fi tness/sport facilities. Th us, he agreed to allow Terry to make all decisions pertaining to the building of the corporation (supplied by a 5 million dollar investment) under the condition that the business could show signs of making pro fi t (based on net pro fi ts) by its fi fth year. Terry comprehended the task and elected to build the basic business principles on the following: Signed a fi ve-year lease on a 6000 sq. ft. facility on July 16, 2015 to end on July 15, 2020 - could not relinquish the lease at anytime; in addition, the facility was located near other local industries which shared limited parking spaces (leaving 30 spots available for the facility) Facility lease costs ran on a fi xed monthly payment of $21,000 Initial gym equipment for Cross fi t activities expensed at $18,500 Parisi Speed School indoor track installed at $8,500 O cial franchise/license agreements for both Cross fi t and Parisi were priced at $10,000 a piece. *No royalties involved. Building material installation - mats, turf, paint, etc. - $26,000 Terry set a monthly salary for himself at $15,000 with no bonuses. However, held 10% equity. He employeed 4 trainers priced on the following tiers: Steve at $22 per hour to teach either Cross fi t or Parisi classes Mary at $22 per hour to teach either Cross fi t or Parisi classes Mike at $18 per hour to teach Cross fi t classes Tristan at $18 per hour to teach Parisi classes General liability insurance fees expensed at $1,283 per year - lowest quote Marketing costs set at $5,000 per month - printed ad door hangers and ad space in local magazines Price points for programs we re as follows (no variance on experience level): Cross fi t individual session @ $50 per hour Cross fi t once a week package @ 190 per month Cross fi t twice a week package @ $342 per month Cross fi t unlimited @ $399 per month Parisi Speed School individual session @ $35 per hour Parisi Speed School once a week package @ 135 per month Parisi Speed School twice a week package @ 225 per month Parisi Speed School unlimited @ 299 per month
3 M. Orlando THINGS TO KNOW: Operating Hours - Cross fi t related programs: Monday thru Friday 6am to 7am - Expert level 7am to 8am - Moderate level 8am to 9am - Beginner level 9am to 10am - Beginner level 4pm to 5pm - Beginner level 5pm to 6pm - Moderate level 6pm to 7pm - Expert level Saturday 7am to 8am - Moderate level 8am to 9am - Beginner level 9am to 10am - Beginner level Parisi Speed School related programs Monday thru Friday 3pm to 4pm - youth 6 - 8 4pm to 5pm - youth 9 - 12 5pm to 6pm -youth 13 - 18 Saturday 9am to 10am - youth 6-8 10am to 11am - youth 9 - 12 11am to 12pm -youth 13 - 18 Th e Problem After the facility's fi rst quarter of operation, the facility's earnings were not stellar as they only brought in $12,500 in gross pro fi t per month for the fi rst three months ($37,500). Frank, upset at the margins, was calmed by Terry stating, " Th is is part of the business, as it takes time to build a committed and consistent consumer base ." During their second and third quarters, margins increased, but not enough to cover all operational costs per month/ fi scal year. Th e ZONE Performance would make an average gross pro fi t of $20,600 per month and an overall total of $111,600. Infuriated again by the slow increase, Frank told Terry that if they did not show any sort of signi fi cant pro fi t margin (including misusing operational and additional expenses) via the fi nal quarter of the corporation's fi scal year, then Terry would be asked to cut ties. Moreover, Frank asked Terry why he ever needed a 6,000 sq. ft. facility if he was only using less than half of its o ff ered space ( see map on next page ). Terry responded that he thought the class o ff erings would have doubled by now, prospecting the need for the additional space. By the conclusion of the last quarter, the facility only increased upon its average gross pro fi t margin by $1,000 ($21,600 per month) (based on leasing a portion of the facility to a Brazilian Futsal Academy for $1,000 per month - contract was on a month to month basis) . As a result, Terry resigned from his position, and was bought out by Frank who now had sole ownership of ZONE Performance. Now being stuck with a business that he was not familiar with, Frank surveyed his members to see what they loved about the facility. Based on the vast amount of responses, members stated they loved the positive culture of the trainers. Th ey also loved the fact that the facility was not heavily saturated with members, giving additional space for members to workout, stretch, etc. In addition, many expressed to Frank that if it ever got too crowded, they would not pay the higher price points in comparison to other crowded fi tness/sport related facility options that charge $65 or less per month for unlimited access. Feeling stuck and confused on how to proceed, he decided to hire a new General Manager ( YOU at $4,500 per month ) to see if it's possible to get the corporation out of the red (debt from lack of su cient pro fi ts) in the next four years. In conjunction with this hope, a non- persuaded Frank wants YOU to lower his operational costs. Last year's - $213,900k in gross pro fi ts minus $252,000k from leasing the facility, $73,000k plus in setup fees, and $180,000 of just Terry's contract alone... DIRECTIONS What would you do to change the direction of the facility (you have four years to make it work)(make sure you understand all the inner linings of the situation): Ensuring new opportunities in revenue Lower operational costs Chip away at $300,000 plus in initial debt Make this a prosperous entity ( how does this impact sta ff and current consumers ) Please note that there is NO one correct answer You will be evaluated on the following criteria: Addresses the Prompt Quality & Clarity of Speaking and Th ought Organization & Development of Ideas Appropriate Application Berry City, California Demographics * Demographics - population is 8,443 infant -18 = 21% 18 - 24 = 5% 25 - 34 = 14% 35 - 44 = 23% 45 - 54 = 31 % 55 - 64 = less than 3% 65+ = less than 3% * Gender - equal representation * Ethnicity - is 79% white - 12% hispanic - 5% black * Earnings - median household income of $130.5k * Families - 60% of participants have children * Education - 46% of participants have a post- graduate degree
Page1of 4
Uploaded by GeneralBook12091 on coursehero.com