Lifetime Fitness 2006 Annual Report Download - page 16

10
After we identify a potential site, we develop a business plan for the center on the site that requires approvals from
all areas of operations and the finance committee of our board of directors. We believe that our structured process
provides discipline and reduces the likelihood that we would develop a site that the market cannot support. As a
result of this disciplined process, our large format centers produced, on average, EBITDA in excess of 21% of
revenue and net income in excess of 2% of revenue during their first year of operation. We did, however, recognize
an asset impairment charge in 2002 related to our only executive facility, which is located in downtown
Minneapolis, Minnesota, and a restaurant that we operate in the same building. The center differs significantly from
our standard model.
Design and Construction. We have an experienced in-house design and construction team that is solely dedicated to
overseeing the design and construction of each center through opening and all subsequent remodels. Our architects
have developed a prototypical set of design and construction plans and specifications that can be easily adapted to
each new site to build our current model centers. They also assist in obtaining bids and permits in connection with
constructing each new center. We have dedicated internal personnel who work on expediting the permit process and
scheduling the project. Our bid phase specialists obtain referrals for local subcontractors and monitor project costs,
and they also coordinate compliance with safety requirements and prepare site documentation. Our project
management group oversees the construction of each new center and works with our architects to review bids and
monitor quality. Our construction procurement group bids each component of our projects to ensure cost-effective
pricing and, by using the same materials at each center to maintain a consistent look and feel, we are generally able
to purchase materials in sufficient quantities to receive favorable pricing. Each center has an on-site construction
manager responsible for coordinating the entire project. By utilizing our own dedicated design and construction
group, we are able to maximize our flexibility in the design process and retain control over the cost and timing of the
construction process.
Marketing and Sales
Overview of Marketing. Our centralized marketing agency is responsible for generating membership leads for our
sales force, supporting our corporate business and promoting our brand. Our marketing agency consists of four fully
integrated divisions, which are planning and analysis, creative development and production, public relations and
corporate communications and web development. By centralizing our marketing effort, we bring our marketing
experience and strategy to each new market we enter in a coordinated manner. We also market to corporations and,
in some situations, we offer discounted enrollment fees for persons associated with these corporations. Membership
enrollment activity is tracked to gauge the effectiveness of each marketing medium, which can be adjusted as
necessary from a center’s pre-opening phase through and including maturity.
Overview of Sales. We have a trained and certified, commissioned sales staff in each center that is responsible for
converting the leads generated by our centralized marketing agency into new memberships. During the pre-opening
and grand opening phases described below, we have up to 12 membership advisors on staff at a center. As the center
matures, we reduce the number of membership advisors on staff to between six and eight professionals. Our sales
staff also uses our customer relationship management system to understand members’ interests and to manage
existing member relationships.
Pre-Opening Phase. We generally begin selling memberships up to nine months prior to a center’s scheduled
opening. New members are attracted during this period primarily through a portfolio of broad-reach and targeted
consumer and business-to-business media as well as referral promotions. To further attract new members during this
period, we offer discounted pre-opening enrollment fees and distribute free copies of our Experience Life magazine
to households in the immediate vicinity of the new center.
Grand Opening Phase. We deploy a marketing program during the first month of a center’s operation that builds on
our pre-opening efforts. The reach and frequency of the advertising campaign culminate when all households within
a strategically designated trade area, based on local access considerations, housing density and travel patterns,
receive targeted advertising. Simultaneously, prospective members receive special invitations to grand opening
activities and educational seminars designed to assist them in their orientation to the center. Our corporate clients
receive special enrollment opportunities, as well as invitations to open house activities.
Membership Growth Phase. After the grand opening phase, marketing activities and costs decrease as drive-by
visibility and word-of-mouth marketing become more influential. The goal of each center is to achieve consistent