Lifetime Fitness 2007 Annual Report Download - page 16

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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.
Design and Construction. We have a wholly owned subsidiary, FCA Construction, which is our experienced in-
house design and construction team. This subsidiary is solely dedicated to overseeing the design and construction of
each center through opening and all remodels.
The architecture division is comprised of approximately 20 employees and includes our architects who 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. The architects also assist in obtaining bids and permits in connection
with constructing each new center.
The construction division is comprised of approximately 170 employees and includes the onsite project management
for each new site and remodel, as well as all of the other back office responsibilities, such as estimation, accounting
and sub-contractor selection. 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. In recent years, we have expanded our construction division
beyond project management to include in-house millwork for our lockers and in-house precast and concrete for the
forms of our centers.
By utilizing FCA Construction, we are able to maximize our flexibility in the design process, retain control over the
cost and timing of the construction process and realize cost savings on each project. Nearly all of the costs of the
FCA Construction subsidiary are capitalized as a part of the overall initial investment in the center or the remodel.
Any remaining unallocated costs are recognized as an expense in the period incurred. Because FCA Construction
performs services solely for us, we do not recognize any revenue or profit related to FCA Construction's operations.
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 new member acquisition, planning and analysis, creative development and
production, 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 seven 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.