For: Finance and equipment leads at clubs and studios dividing one equipment budget across categories, and dealers preparing proposals that will be judged against it.
The decision: What a category request, whether a recovery zone, a cardio refresh, more strength capacity or connected technology, must show before it is funded, and how much to release at once.
60-second answer: Set one hurdle rate with your owners, finance lead or lender, based on what your money costs and how much risk you will accept, not on an industry figure. Put every request on the same footing: dated cash outflows and inflows from your quotes and records, including the floor space it takes from its current use. A request clears the hurdle when its net present value at that rate is positive; payback is a cash check, not the test of value. Recovery zones add lines that are easy to miss, from utilities and cleaning time to health-department questions. Release money in stages against evidence written down in advance.
What a hurdle rate is, and who sets it
A hurdle rate is the minimum rate of return a business requires before it approves an investment. It belongs to the owners and the finance lead. It normally reflects what the money costs, whether interest on borrowing or the return owners expect on their own capital, plus an allowance for risk. FEX does not publish a typical hurdle rate for fitness equipment. A figure borrowed from another business carries that business’s financing and risk, not yours.
Three standard measures use the rate, and each answers a different question:
- Net present value (NPV). Each period’s expected net cash flow is discounted at the hurdle rate, the results are added together, and the initial outlay is subtracted. A positive NPV means the request is expected to earn more than the hurdle. When requests compete for the same budget, also compare NPV per dollar of outlay, because several smaller requests can together add more than one large one.
- Internal rate of return (IRR). The discount rate at which NPV equals zero. It can be compared with the hurdle, but it says nothing about size: a small project can show a high IRR and add little.
- Payback. The time until cumulative net cash flow recovers the outlay. Simple payback ignores the time value of money and everything that happens after the payback date. Use it to check whether the business can wait that long for its cash, not to decide whether the request is worth funding.
If the owners want a higher bar for less proven categories, set it explicitly, write down why, and apply it to every request of that kind.
Put every request on the same cash-flow basis
Commercial fitness demand reaches a budget as competing requests, and they can only be compared if each is built the same way. FEX’s guide to building an equipment cash-flow case sets out the arithmetic. These are the lines a category comparison most often leaves out.
Outflows
- Purchase price, freight, rigging, installation and site work (circuits, plumbing, flooring, partitions, ventilation).
- The closure window: classes moved and zones closed while the work is done.
- Software and content renewals, service, parts and consumables over the full period being evaluated.
- Staff time for supervision, cleaning, booking and inductions; utilities; insurance; removal at end of life.
Inflows
- New revenue you can tie to a price: an add-on fee, a membership tier or paid sessions, with volumes taken from bookings, waitlists or a pilot.
- Avoided cost (repairs, rentals or labor the purchase removes) from your own records, and end-of-period resale value from a dated quote.
- Retention benefits only where you have measured them. An assumed retention gain is the easiest way to clear any hurdle.
Floor space is not free. If the new category takes space from an existing use, the revenue or peak capacity that use provides is given up, and belongs in the outflows. Where the space really is unused, say how you know.
Leasing is a separate financing question. Leasing changes the timing and financing of the cash, not whether the equipment is worth having. Decide first whether the request clears the hurdle; then compare lease and purchase cash flows with your accountant or lender, who may discount that financing comparison at your borrowing cost rather than at the hurdle rate. See comparing leasing with purchase.
Recovery zones: the lines that are easy to miss
The equipment price can be a small part of a recovery commitment. Before a recovery zone enters the comparison, the request should answer:
- Revenue model. Is it included in membership, part of a premium tier, or sold per session? If it is included, which measured benefit pays for it?
- Capacity. Session length plus cleaning and turnover time between users, across your opening hours, gives the most sessions a unit can deliver. Use your own timings, then estimate realistic use from bookings or a pilot.
- Utilities and building. Heaters, chillers, pumps and compressors need power, and some units need water, drainage and ventilation. Get the manufacturer’s installation requirements for the specific model and have the electrician and plumber price them; the circuit side is covered in electrical capacity planning.
- Local rules and insurance. Ask the local health department whether it regulates a plunge pool, hot tub or similar unit in your jurisdiction, and what permits, water testing or signage it requires. Ask your insurer what it requires for heat and cold exposure equipment.
- Product safety. Ask for the unit’s safety listing and the standard it was listed to, and search CPSC’s recall database for the brand and model before ordering.
- Health claims. If the business case depends on marketing health benefits, have those claims reviewed. The FTC’s Health Products Compliance Guidance says claims about the health benefits or safety of health-related products require substantiation in the form of “competent and reliable scientific evidence,” and that the same legal principles apply to the marketing of any health-related product.
Category funding test
The rows below show the evidence that moves a request toward funding or toward a hold. They are FEX analysis; the hurdle and the figures are yours.
| Request | Leans fund | Leans hold | Record to check |
|---|---|---|---|
| Recovery zone | Priced revenue model; demand measured from bookings, a waitlist or a pilot; utilities, cleaning and regulatory costs priced | Justified by appearance or by a competitor’s amenity; health-department or utility questions unanswered | Pilot bookings, site-work quotes, written answers from the health department and insurer |
| Cardio refresh | Repair cost, downtime and parts support make replacement cheaper over the period | Refresh driven by age alone | Repair log and the manufacturer’s parts-support statements |
| Strength capacity | Queues logged against triggers set in advance, with out-of-order units ruled out | A queue seen once, or a queue beside idle similar stations | Floor log and service records |
| Connected technology | A named process it removes, or measured use, with renewals in the cash flows | Renewal cost unbudgeted after the first term | Contract renewal and exit terms; usage reports |
| Functional or turf zone | A named coach and a committed timetable; class revenue priced | No staffing to run it | Timetable and staffing plan |
| Flooring, storage and finishes | Damage or downtime records show what deferral costs | Deferred to make an equipment line fit | Damage, cleaning and repair records |
Stage the release and review it
Staging keeps a wrong forecast cheap. Fund the smallest version that tests the cash-flow assumptions, write down which reading releases the next stage and who confirms it, and set the review date on the day the money is approved. At review, compare actual cash flows with the forecast, line by line, and let what you learn shape the next request.
Floor-level evidence is covered in logging floor demand signals, and space requests in what a request for floor space must show.
Red flags
- A hurdle rate described as “industry standard.”
- A different, unstated bar for a favored category.
- Payback presented as the only test.
- Retention gains assumed rather than measured.
- Floor space, renewals, utilities or cleaning time missing from the cash flows.
What to do this week
- Ask the owners or finance lead to write down the hurdle rate, how it was set, and any higher bar for specific categories.
- Rebuild each open request on the same cash-flow template, including the floor space it takes from its current use.
- For any recovery request, get the model’s installation requirements and written answers from the health department and insurer before pricing.
- Search CPSC’s recall database for every model on the list.
- Set stage triggers and a review date for each request that clears the hurdle.
Continue with FEX
- Setting cardio and strength budgets without a fixed ratio
- Building a funded replacement reserve
- Comparing equipment software renewal and exit terms
FEX editorial guidance: the cash-flow lines, recovery questions, category test and staging approach are FEX analysis. NPV, IRR, payback and hurdle rate are explained as standard definitions; FEX does not set or recommend a hurdle rate or payback period. This is not financial, tax, legal or insurance advice; confirm with your accountant or lender, the local health department and your insurer. Manufacturer installation instructions control site requirements.
Source notes
- Federal Trade Commission: Health Products Compliance Guidance (December 20, 2022; accessed October 8, 2026) — Health-benefit and safety claims require “competent and reliable scientific evidence”; principles apply to any health-related product.
- U.S. Consumer Product Safety Commission: Search Recalls & Product Safety Warnings (accessed October 8, 2026) — Searchable, filterable recall and warning database for model checks.
Editorial update, October 8, 2026: Reframed the piece as a guide to setting and applying a hurdle rate across equipment categories, with recovery zones as the worked case. Removed unsupported claims about recovery’s growth, discount value, installation durations and resale by category, a shared stock photograph and dated external references. Added FTC health-claim guidance and a CPSC recall check, and treated lease-or-buy as a separate financing comparison rather than a hurdle-rate test.
