Evaluating Business Alternatives

Question

What I need to determine for the Hair Salon, Fitness center year one, and fitness center year two:

1. Total Fixed Cost:
2. Selling price per unit
3. Variable cost per unit
4. Break even units per year
5. Break even units per month
6. Break even units per hour
7. Break even sales in revenue per year
8. Break even in dollars per month
9. Break even dollars per hour

Information below:

Hair Salon:

Operation: Hair salon that services For men, women, and children 1000 square feet Seating area and 8 open booths.

Industry: Similar to Supercuts

Location: Any strip mall in a suburb.

Hours: 10 hours per day from 10am - 8pm, 7 days a week.

Estimated Fixed Costs:

Yearly Building Lease: $80,000

Yearly Utilities Costs: $40,000

Yearly Marketing Expense: $14,000

Owner Salary/Year: $45,000

Estimated Variable Cost:

Products used per Customer: $1.50

Commission to Stylist: 50%

Estimated Revenue:

Average Sale per Customer: $25.00

Fitness Center:

Operation: Small operation fitness center For ages 13 and up 5000 square feet.

Industry: Similar to Anytime Fitness.

Location: Any strip mall in the suburb.

Hours: 16 hours per day from 6am - 10pm, 7 days a week.

Estimated Fixed Costs:

1st Franchise Investment: $70,000

2nd Year Franchisee Investment: $30,000

One Time Equipment Fee: $120,000

Yearly Utilities Budget: $12,000

Yearly Building Lease: $30,000

Owner Salary/Year: $55,000

Estimated Variable Cost: Zero per customer.

Estimated Revensue: Monthly membership $50.00

Answer 1

Hair Salon

First calculate total annual fixed costs:

$80,000 lease + $40,000 utilities + $14,000 marketing + $45,000 owner salary = $179,000

The average sale per customer is $25.

The variable cost per customer includes both the product cost and stylist commission:

Product cost = $1.50

Stylist commission = 50% × $25 = $12.50

Therefore:

Variable cost per customer = $14.00

Contribution margin per customer = $25.00 − $14.00 = $11.00

Using Break Even Units = Fixed Costs ÷ Contribution Margin:

$179,000 ÷ $11 = 16,272.73 customers per year

Since you cannot serve a fraction of a customer, the salon would need approximately 16,273 customer visits per year to break even.

MeasureHair Salon
Total Fixed Cost	$179,000
Selling Price per Unit	$25.00
Variable Cost per Unit	$14.00
Break Even Units per Year	16,272.73
Break Even Units per Month	1,356.06
Break Even Units per Hour	4.46
Break Even Revenue per Year	$406,818.18
Break Even Revenue per Month	$33,901.52
Break Even Revenue per Hour	$111.46

The hourly calculation assumes the salon operates 10 hours per day × 365 days = 3,650 operating hours per year.

Practically, this means the salon needs about 1,357 customer visits per month and an average of approximately 4.46 customers per operating hour to break even.

Fitness Center, Year One

For Year One, I am treating the $120,000 equipment fee as a one time startup cost and the $70,000 first year franchise investment as a Year One fixed cost.

Total fixed costs are:

$70,000 franchise investment + $120,000 equipment + $12,000 utilities + $30,000 lease + $55,000 owner salary = $287,000

Variable cost per customer is given as $0.

The monthly membership price is $50, so the contribution margin per membership unit is also $50.

$287,000 ÷ $50 = 5,740 membership months per year

That equals an average of:

5,740 ÷ 12 = 478.33 active memberships per month

MeasureFitness Center Year 1
Total Fixed Cost	$287,000
Selling Price per Unit	$50.00
Variable Cost per Unit	$0.00
Break Even Units per Year	5,740
Break Even Units per Month	478.33
Break Even Units per Hour	0.98
Break Even Revenue per Year	$287,000
Break Even Revenue per Month	$23,916.67
Break Even Revenue per Hour	$49.14

Practically, the fitness center would need approximately 479 paying members per month on average to cover its Year One fixed costs.

Fitness Center, Year Two

For Year Two, I am assuming the $120,000 equipment purchase does not repeat and that the listed $30,000 second year franchise investment replaces the $70,000 first year investment.

Total fixed costs are:

$30,000 franchise investment + $12,000 utilities + $30,000 lease + $55,000 owner salary = $127,000

Break even membership units:

$127,000 ÷ $50 = 2,540 membership months per year

Monthly average:

2,540 ÷ 12 = 211.67 memberships

MeasureFitness Center Year 2
Total Fixed Cost	$127,000
Selling Price per Unit	$50.00
Variable Cost per Unit	$0.00
Break Even Units per Year	2,540
Break Even Units per Month	211.67
Break Even Units per Hour	0.43
Break Even Revenue per Year	$127,000
Break Even Revenue per Month	$10,583.33
Break Even Revenue per Hour	$21.75

The fitness center operates 16 hours per day × 365 days = 5,840 hours per year.

One important clarification is that a fitness membership is sold monthly rather than by the hour. Therefore, the monthly membership count is the more meaningful operating metric. The hourly figures are simply mathematical conversions of the annual break even requirement.

The biggest difference between the two fitness center years is the startup investment. Once the one time equipment cost and larger first year franchise investment disappear, the break even requirement drops from about 479 active monthly memberships in Year One to about 212 in Year Two.