Opening a Second Martial Arts School: When are You Ready?

Is expansion risky? 

If you’ve opened a martial arts studio, and it’s running well, you may be thinking about opening a second location. If your timing is poor, your martial arts studio faces an uphill battle—skyrocketing expenses, decreased quality, and a loss of control.   

What if it’s timed well? 

Well, the sky’s the limit. You’ll see dramatic increases in revenue, increased market share, and greater stability. Today, we’re going to answer the what, when, and how of expansion. If you’re wondering if the timing is based on hazy factors like emotion, experience, or intuition, don’t worry.

What Are the Ingredients for Expansion? 

Your expansion should be based on objective criteria. 

It shouldn’t be based on fuzzy factors like ambition, emotion, or even experience—details based on you or your team. Instead, it should be based on objective criteria with clear deliverables, milestones, and metrics. 

1. Strategic planning: This is the blueprint for your expansion. One that’s flexible enough to adapt to shifting circumstances but rigid enough to give you a clear plan of action to follow. 
2. Financial resources: How much do you need to expand? Do you have a financial buffer (e.g., cash reserves, investments, loans, grants, or investors) in place if you need it? Can you maintain the expenses for 6 to 12 months while your expansion gains traction? 
3. People and talent management: Do you have the employees and contractors you need to expand? What about the HR policies you need to have in place? 
4. Infrastructure and systems: This involves a variety of details—business systems like your CRM, POS, and payroll. Your physical location, including lease/purchase, permits, and renovations.
5. Sales and marketing: A location and audience-specific sales and marketing plan that keeps your pipeline full and your gym growing. Brand, content, and marketing guidelines that maintain presentation consistency. 
6. Legal, compliance, and protection: Establishing a legal structure that allows each location to operate as a separate entity while remaining under the organization’s control. Getting the right intellectual property protection in place is crucial. Creating legal documentation in the form of waivers, agreements, and contracts, and maintaining compliance with employment law requirements.  
7. Operational preparedness: A clear timeline with milestones and deliverables for your expansion. Quality assurance guidelines and performance standards that must be met. Consistent project management tools and a list of metrics/KPIs to measure the success of your expansion. Lastly, emergency and contingency plans are put in place in case something goes wrong. 
8. Internal Communication: First things first, you’ll need a system for communicating internally with your team (e.g., Slack, Basecamp, Asana, etc.). You’ll also need a feedback system for staff, customers, and vendors (e.g., Survey Monkey). 

If you have all of these ingredients in place, you have most of what you need to begin the expansion. Let’s take a look at the steps involved with expanding to a second location. 

Step #01: Do You Have the Right Mindset for Expansion?

This isn’t about positive affirmations. 

It’s about preparation. Once you launch a second location, everything changes. You’re not doubling your work; you’re multiplying the complexity of your business. You’re going to need to step into new roles and let go of old ones. 

As you expand, your attention will need to shift. 

You’ll need to spend less time focused on teaching and more time managing. It can be tough to let go—the black belt instructor who’s used to teaching every class in their gym. When you expand, that won’t be feasible; you’re going to have to let go to grow. 

Ask yourself these questions: 

1. Are you willing to let go of teaching and handling all of the day-to-day instruction in your gym? 
2. If you stopped teaching today, could your gym continue to run without you?
3. Can your team run your business without your day-to-day involvement?
4. Does your team rely on you to guide them through each crisis? 

If your answer to these questions is No, you’re not ready to expand. Remember, what got you to here (a successful martial arts school) won’t get you there (expanding to multiple locations).

Step #02: The Qualitative Signals of Expansion

If you have these elements, you’re properly positioned for expansion. Take the time to put these elements in place first, before you begin your expansion plan. 

A. Your leadership team

You need instructors who are willing to follow a system, but resourceful enough to think on their feet and problem-solve when needed. Here’s a short list of the things you’re looking for in your team.

• A-player candidates; these are the top 10% of talent in a given area.
• A head instructor who can run one of your locations independently. 
• Two assistant instructors who can fill in when needed. 
• An administrator who can handle inquiries, sales, customer service, and membership issues. 
• A general manager who can manage your team, scheduling, and maintenance. 

You can’t be the tie-breaker for every situation. If you’re needed to handle every problem or customer concern, expansion will multiply your problems. 

B. Battle-tested systems for your gym

Your gym should be a well-oiled machine. A school that runs on autopilot and doesn’t require your direct, day-to-day intervention. You’ll need a system to do that. A system is made of the following ingredients. 

1. Workflow (what you’re creating): The specific series of actions taken to complete a task, objective, or goal. These are repeatable and consistent, with minimal change.   
2. Procedures (how you’re creating it): These are detailed instructions and guidelines that tell your team how to do specific tasks or objectives. 
3. Resources (what you need to create it): The tools, credentials, access, documentation, and support your team will need to accomplish the task/goal.
   

This collection of workflows, procedures, and resources creates a system. Your business relies on groups of systems that maintain consistent performance and predictable results. Here’s a list of systems you’ll need to run your business.

• Cashflow management (e.g., accounting, billing, and payments)
• Communication management (e.g., sales/marketing)
• Recruitment plans 
• Lead generation and nurturing 
• Coach, student, customer, and vendor onboarding 
• Cleaning and maintenance checklist 
• Accountability systems for staff, contractors, vendors, and customers

The better your systems, the more consistent your performance, and the easier your expansion. 

C. Gym Culture that’s Built by Community 

Bernardo Faria (huge honor) wanted an answer to this question. Why do students quit jiu jitsu? He lists the anecdotal reasons behind student churn.

1. Students have had a bad experience.
2. Students don’t feel welcomed or accepted.
3. They’re frustrated with their progress.
4. Life gets in the way (e.g., work, divorce, illness, death).
5. Forced out by injuries.
6. They’re struggling to recover physically.
7. They don’t have the time.

Your gym culture should address each of these issues. The better you are at handling these issues organically, the easier it will be to retain students naturally over time. This culture makes gym growth easy and automatic. 

Step #03: Quantitative Signals that Support Expansion

Is your business ready to take on a second location? Here are a few revenue targets you’ll want to watch. 

1. Revenue targets: Your primary gym should consistently hit these revenue targets. More is obviously better, but these are the bare minimums.
   

• Gross Revenue (Monthly) $30,000 per mo. 
• Gross Revenue (Annual) $350K to $500K 

If you’re not at this level financially, your margins aren’t stable enough to support a second location without taking on large amounts of debt. 

2. Profit margins: A minimum (net) profit margin of 20% is standard in our industry. So if we’re using our $30,000 per mo. as an example, your monthly profit margin (after all expenses) should be $6,000 per mo. 

This extra cash will serve as a buffer for your second location. That’s important because it’s common for the new location to lose money for the first 3 to 6 months. Your primary location needs to be strong enough to absorb the financial hit while your secondary location finds its footing. 

3. Churn rate: If you’re losing large numbers of students consistently, you’re not going to be able to sustain your primary location (forget about a second). Your sales and marketing costs will skyrocket, and you’ll find that your return on investment falls through the floor.
   
   Look for a churn rate that’s below 5% for Adult programs, and 7% for Kids programs. 

4. Conversion rates: The better you are at converting leads to students, the more stable and predictable your revenue will be. If you’re looking for consistent growth, you’ll want to focus on specific conversion metrics. 

• Converting 50% of your leads to trial 
• Converting 60% of trial students to members

These conversion rates serve as confirmation that you have a sales and marketing system that’s working and generating growth. Once you achieve these numbers in your primary location, take what’s working and apply it to your secondary location. 

5. Instructor-to-student ratio: Your students will need individual time and attention. You’ll need to go around and verify that they’re performing the techniques properly, address important issues, and fix specific problems. Here’s what you’re looking for.
   
   Ideal: 1 instructor for every 10-20 students.  

If you’re unable to meet this, you’ll want to raise your prices first, then, once you’re at the end of your ratio, begin looking for expansion. The key detail here is expanding while also improving quality. That’s a tough thing to do if you don’t have a plan of action. 

Step #04: Simple Formulas to Double-check Your Expansion Readiness

Here are a few formulas you can use to measure your expansion readiness. The closer you are to these targets, the more prepared (for expansion) you’ll be.

Burn Rate Buffer: Your burn rate measures how fast you spend your cash before achieving profitability. If your monthly expenses are $2,000 per month, and you have $12,000 in cash reserves, you have a 12-month runway or buffer before you run out of cash. 

Here’s the formula: 

(Current Monthly Net Profit) ÷ (Estimated Monthly Loss of New Location) = Burn Rate Buffer (in months)

Target: 6 to 12 months of runway.

You should have a pretty good idea of the expenses for your second location. You should also know what your breakeven point is (when your second location’s total costs, fixed and variable, are equal to that location’s total revenue). 

Time Leverage Score: Measures the amount of time you spend teaching versus the total instruction hours delivered per week. 

Here’s the formula:

Hours You Spend Teaching Per Week ÷ Total Instruction Hours Delivered Per Week = Time Dependency Ratio

Target: 25% teaching or less. 

If you (or your head instructor) teaches 25+ hours out of 35 hours total, your school is too reliant on you. If you’re looking to expand, you’ll want to transition to a teaching volume that is at 25% or less of the total instruction hours delivered per week.

Step #05: Common Expansion Mistakes to Avoid

Here’s a short list of expansion dos and don’ts. You’ll want to make sure that you’re addressing these issues well before they become a problem for your business. 

DON’T:

• Open a second location to fix a problem with your first location. Fix the issues in your primary location first. 
• Hire staff for your second location before you’re ready. Verify that you have the systems in place to receive them. Make sure you’re prepared to train them. 
• Hire staff without a hiring methodology. Hiring methodologies like Topgrading achieve a 90% success rate across all industries. 
• Expand because you’ve got a good deal or found a cheap lease. Do the market research to verify that the value is there (e.g., customers have disposable income, an interest in jiu jitsu, and they’re part of a family).
• Expand beyond a 15 to 30 minute radius. Your secondary location should be close enough for you to supervise. 
• Assume that marketing tactics that worked in your primary location will work in the second. You’ll want to test your marketing to identify what works best in new markets. 
• Don’t overestimate revenue projections. You’ll want to make conservative financial projections that are heavy on expenses and light on cash flow. 
• Don’t over-leverage or under-capitalize your expansion. You’ll want to run the numbers, verifying that you have access to capital well before you need it. Make sure you have the runway you need to help your gym grow. 

There are so many mistakes you can make with expansion, but these mistakes are the most common. 

Step #06: The Expansion Checklist—Verify Your Readiness

At some point, you’ll need to make a decision. Are you going to expand or wait a bit longer? Are you really ready to expand, or are you simply feeding into hopium? 

Use this checklist as a final gut-check before you commit. 

Requirement	Yes	No
Your primary location is profitable with a 20% profit margin.
6 to 12 mo. of cash reserves for expansion.
Systems for teaching, communications, financial, maintenance, and onboarding.
Your primary location is fully staffed and can run without you.
Student churn rates are below 5%.
Sales and marketing KPIs are consistently met.
You have a strategic expansion plan to launch your secondary location.
All formulas show that you’ve met or exceeded your financial and performance targets.

If your answer to the majority of these questions is yes, you’re ready to begin the expansion process. You’re going in with both eyes open, so you’re far less likely to run into the valley of discouragement and despair. 

Step #07: Launching Your Second Location Successfully

Okay, you’re ready to move forward. How do you go about launching your second location successfully?

1. Clone what’s successful: Take all of the elements of your primary location that are working. Clone them, systematize them, and incorporate them into your secondary location. Use your primary location as a proving ground for the items that are incorporated in the new location. 
2. Choose a business model: There are two generally accepted models you can use with your secondary location. 

(1.) Owner/operator model—you choose a capable member and hire them as the head instructor to lead your secondary location. 

(2.) Satellite model—Treat your secondary location as a smaller school with limited hours, that’s used as a feeder to bring new students to your main academy. 

3. Launch in phases: Use these three phases to prepare your secondary location 

(1.) Pre-launch (60-90 days), where you begin community outreach, start digital marketing, and lead generation. 

(2.) Soft Launch (30 days): Invite friends, family, and early prospects to join with incentive offers for early adopters. 

(3.) Grand Opening—Host a big launch event with incentive/irresistible offers—partner with local influencers and publications.  

4. Identify and track metrics and KPIs: Make a list of the most important metrics and KPIs you need to track. If you’re not sure where to start, here’s a short list:

• Conversion rate/trial conversion rate
• Cost-per-lead (CPL) 
• Cost-per-acquisition (CPA)
  Monthly recurring revenue (MRR)
• Monthly churn rate
• Customer lifetime value (CLTV)
  Attendance rate per member
• Retention rate (30, 60, 90, 180 days)
• Profit margins (gross/net)
• Student capacity utilization
• Upsell and ancillary revenue rate

Starting a second martial arts location isn’t rocket science, but it takes time and effort. Create a strategic plan that establishes a clear structure. 

Starting a second martial arts school doesn’t have to be risky

If you’re thinking about opening a second location, start with a plan. 

With great timing, you’ll see dramatic increases in revenue, increased market share, and greater stability. On the other hand, if your timing is poor, your martial arts studio faces an uphill battle—skyrocketing expenses, decreased quality, and a loss of control.   

The struggle isn’t a requirement. 

A successful expansion shouldn’t depend on hazy factors like emotion, experience, or intuition. It should be based on objective criteria with clear deliverables, milestones, and metrics.

Keep it simple. 

Focus on the right business model, a capable team, and a clear financial runway. Treat your second location like an expansion of your current system, and you’ll find you’re able to scale your revenue, influence, and impact in the community.