Logical Extremes: Measuring the Limits of CrossFit Affiliate Growth

The CrossFit Affiliate model is a brilliant piece of social engineering.  Based on a licensing agreement, it allows the rapid proliferation of CrossFit gyms worldwide by granting both reward and responsibility to the Affiliate owner.  

This simple action, placing reward and responsibility at the lowest possible level, aligns the Affiliate's interest with the interest of the brand: whether out of moral imperative or a profit motive, the Affiliate grows, attracting more CrossFitters to the movement.  CrossFit sustains an environment in which Affiliates can thrive, creating low barriers to entry while providing a stream of educational opportunities, inspirational content, and national-level media, furthering the Affiliate's success.   

This symbiotic and co-dependent relationship is the heart of the CrossFit Revolution.  When the Affiliate grows CrossFit grows, and vice versa.

Overlayed on a simple, effective, and community-oriented training program, the model has led to rapid Affiliate growth, a phenomenon further fueled by the rise of CrossFit as an action sport and the subsequent attraction of big-name sponsors.

The question naturally emerges: is this growth sustainable?  In other words, when does the CrossFit Affiliate model reach maturity?  When does worldwide proliferation reach its peak?

We cannot answer without further differentiation between Affiliate types.  Many CrossFit Affiliates are founded on an individual trainer's desire to spread the CrossFit methodology to a small, local community, with no real growth or profit motive.  Size being of no consequence, these Affiliates exist within private residences, freeing them of the constraints facing the growth or profit motivated Affiliate.

With a minimal client base and low overhead costs, the residential Affiliate has little need for large spaces, equipment stockpiles, marketing, administration, or reinvestable profit, and therefore does not battle with zoning regulations, commercial real estate availability, financial managment, or the existence of potential competitiors.  

The nature of the residential Affiliate makes an estimation of their collective proliferation potential an exercise in futility; we might as well count hydrogen atoms in the atmosphere.  At the residential scale, Affiliates can exist in every municipality on the planet, provided they have access to the internet and the capital or ingenuity to acquire fitness equipment.

Therefore, when we discuss the limits of Affiliate Growth, we focus only on the growth-motivated Affiliate, the trainer who seeks to serve the largest possible client base, and therefore contends with the realities of running a small business.  It is worth noting that many residential Affiliates become growth-motivated not by choice, but as victims of their own success.  The efficacy of the CrossFit training methodology creates increasing demand, until the bounds of the garage gym are no longer adequate to the needs of the client base, and the trainer is impelled to seek commercial space.

Assuming that capitalization is not an issue, that the budding Affiliate has the money to cover startup costs and the subsequent journey to profitability, we can identify the real limits to growth, all of which are demographic.

In this vein, the limiters of Affiliate proliferation are real estate availability and affordability, population density, affluence, and Affiliate saturation.  All large-scale Affiliates require commercial real estate, typically a warehouse or similar industrial structure, with open space, ample parking and affordable rent.  They need an adequate population from which to draw clients, and that population must have the level of affluence necessary to pay Affiliate tuition rates.  New Affiliates also desire an area free from direct competition, seeking a non-saturated location where the nearest competing Affiliates are as far away as possible.

We can measure and compare each of these limiters to establish the logical limits of Affiliate growth in any given area, and guide the potential Affiliate owner toward locations that offer the highest probabilities of commercial success.  

Saturation is typically the new Affiliate owner's primary concern, although we'll see that the common sense understanding of "saturation" is misguided: having two or more Affiliates in one municipality does not necessarily create direct competition.  Without this understanding, new market entrants may locate in a suboptimal area, successfully avoiding conflicts with other Affiliate owners and maintaining a community feel, while permanently hamstringing their likelihood of success.  If the other factors line up; if real estate availability, affordability, population density and affluence are all acceptable, this concern is overblown.

The growth focused Affiliate usually requires somewhere between 100 and 150 clients to reach acceptable profitability levels, covering operating costs while providing a comfortable living for two to three trainers and support staff.  With ever-increasing media exposure to the CrossFit brand pushing potential clients into Affiliate gyms, most metropolitan Affiliates will have no trouble creating this size client base, even with neighboring Affiliates nearby.  The demand for CrossFit training far outstrips the existing supply.

Echos of this realization are evident in some areas, where enterprising Affiliate owners are setting up multiple gyms under a common umbrella, acknowledging that the demand for their services outstrips the resources of a single commercial facility.

While the growth potential of CrossFit is easily identified, it is not typically quantified, leaving potential Affiliate owners to guess whether new ventures are ill-advised, leaving the risk averse on the sidelines when they should be out changing lives and running productive businesses.

My intention is to correct this, demonstrating the inadequacy of supply, and allaying any fears about starting Affiliates in proximity to each other in areas that warrant such expansion.  

Rather than give a comprehensive data set, I'm aiming to provide a methodology, giving the potential Affiliate owner a toolbox from which to build an understanding of their individual situation.  We can extend this method to determine the likely limits of Affiliate growth within any size area, and by taking it to its logical extreme, determine the possible limits of Affiliate growth on a national or continental level.  This model, which I've termed the Saturation Index (SI), is limited, and I'll explain its limitations after laying it out.  

I developed the Saturation Index using the United States due to the ease of data aquisition and the comparatively high level of current Affiliate density.  The U.S. Census Bureau divides the country into metropolitan statistical areas (MSAs), providing population data and per capita income for each.  By obtaining a count of existing CrossFit Affiliates in any given MSA, we can use this population data to measure saturation in any area, defined as Affiliates per 10,000 residents, and can then compare that number to a benchmark MSA, the area that has the highest Affiliate density for any given population or per capita income level.  This allows us to determine which areas are most likely underserved.

We can then examine the remaining factors to determine the likelihood of Affiliate success: warehouse vacancy rates, affordability levels, and per capita income.

As an example, the Boulder, Colorado area has the highest saturation level of any MSA in the country, and therefore serves as a benchmark against which we can measure other areas with a similiar demographic profile.  With a population of 294,567 and 15 CrossFit Affiliates within the MSA, Boulder has a saturation level of .509 Affiliates per 10,000 residents.

If we assume that the Boulder saturation level represents the maximum number of Affliates per 10,000 residents that a similar area can support, we can create an Opportunity Index (OI), determining how many additional affilates that comparison area should be able to sustain.

Santa Cruz/Watsonville, CA is a strong comparison MSA for Boulder.  The population, at 262,382, is similiar, and both areas have comprable per capita income levels (Santa Cruz: $49,145, Boulder $48,056), indicating that potential client pools are the roughly the same size.  Anecdotally, both have strong outdoor fitness cultures and a reputation as a mecca for endurance and fringe athletes, further obviating potential objections to their pairing as comparison areas.

With 9 Affiliates, the Santa Cruz/Watsonville MSA has a saturation level of .343 Affiliates per 10,000 residents.  This is .166 less than Boulder.  Implementing the Saturation Index calculation, this indicates that Santa Cruz could sustain four more CrossFit Affiliates, assuming real estate factors are also similar.

The SI Calculation:

Opportunity Index (OI) = Benchmark MSA saturation level minus Comparison MSA Saturation level = .509 - .343 = .166

Potential Additional Affiliates = OI multiplied by (Comparison MSA Population/10,000) = .166 *(262,382/10,000) = 4.35

Once we've determined the number of additional Affiliates that any Comparison MSA can support, we'll check real estate factors like vacancy and rental rates to determine further viability.  Ideally, those rates will be similar in both the Benchmark and Comparison MSAs.  

Commercial real estate availability promises to be one of the main constraints on CrossFit Affiliate growth going forward.  According to Grubb & Ellis, a brokerage and provider of global real estate data and analysis, industrial property vacancy rates continue to fall nationwide, landing at 9.7% in Q3 2011 after peaking at 10.7% in Q1 of 2010.  

As supply diminshes, asking rents are rising, potentially limiting the financial viability of new CrossFit Affiliates.  That said, industrial real estate continues to be historically inexpensive, especially in lower grade and older buildings; rising rents should not be an overriding concern for the new Affiliate Owner in 2012.  

Still, those with a longer time horizon might do well to change plans and act on Affiliation now, securing space and rental rates while the market is still depressed, utilizing a combination of the Saturation Index Calculation and real estate data to determine the best locations.

As a further illustration of the still-lagging supply of CrossFit Affiliates, I've applied the Saturation Index methodology to the largest MSAs in the United States, limiting my sample to MSAs with a population over 1,500,000 and a per capita income above $35,000.

This restriction produces 37 MSAs, the most saturated of which is San Jose/Sunnyvale/Santa Clara at .288 Affiliates per 10,000 residents.  Using this MSA as the benchmark, we can create the San Jose Opportunity Index, detailed in the hyperlinked spreadsheet, "SanJoseOI.xls".  

The 37 MSAs currently contain 1,634 CrossFit Affiliates.  Performing the SI calculation for each, with San Jose as the benchmark, and then summing the potential increase in Affiliates results in 2,511 additional Affiliates.  This represents a 154% increase in CrossFit Affiliates in the major metropolitan areas in the United States.

The 154% increase is biased by the massive MSAs of New York, Los Angeles, Chicago, and Dallas, which represent 946 of the potential 2,511 new Affiliates.  Removing these MSAs from the sample, we still see an increase of 1,565 Affiliates, representing 95.7% increase over current levels.  At minimum, this indicates that the number of growth-focused CrossFit Affiliates in major cities could double from current levels without inciting true competition for market share.

Clearly, the Saturation Index methodology contains numerous flaws, despite its general usefulness.  Foremost among these flaws: the benchmark MSA may be  under- or oversaturated, with plenty of room to grow or one or more gyms soon to go out of business.  The SI user also risks that some of the Affiliates in the benchmark MSA are residential Affiliates, over-representing the possible saturation level, and thereby inflating the number of potential new Affiliates in the comparison MSAs.  It is also possible that the relied upon demographic data is out-of-date, as may be the case with Detroit.  The 2010 population and 2009 per capita income data that we use here are wildly incorrect for this ailing city, which has suffered rapid decreases in both figures over the last two years.

Utilizing an misrepresentative benchmark MSA would yield flawed results, and it is important to carefully consider the characteristics of the benchmark while limiting the sample of comparison MSAs to those with similar profiles.

As we observed earlier, the SI methodology does not take into account the potential growth of Affiliates outside MSAs, or growth among residential Affiliates, which we believe to be nearly unlimited, provided that the desire to run them and the demand to attend them continues.

It is also important to note that there is a single factor that overrides all others in determining the potential success of a CrossFit Affiliate: the quality of training and the degree of exhibited excellence in building community.  Even in a highly saturated market, there is room for a well-run operation with the capacity to attract new clientele to a superlative experience.  

Still, the prevailing trend is obvious.  CrossFit continues to grow quickly, and those who would open CrossFit Affiliates with an aim toward serving the largest possible client base would do well to get started.  There is room in the cities and towns of America for more Affiliates, and every garage in every house, rural or urban, is a suitable place to begin.

In writing this article, I gathered a sample set of 184 MSAs, containing 2,640 CrossFit Affiliates.  Using the Boulder MSA saturation level as the benchmark, and performing and summing the SI calculation for each of the remaining comparison MSAs yields 9,048 additional Affiliates in the United States alone.  While this number is undoubtedly an overestimation, it represents a 342% increase in CrossFit Affiliates in the United States.

If you're going to get started, now is the time.

Jon Gilson is the founder of the AF Project.  Follow him on Twitter.

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