Problem Definition
Keelstone Fitness is a privately owned chain of 64 mid-price health clubs in the Midlands and North of England. A typical Keelstone club has a gym floor, two group-exercise studios and a café, and 30 of the 64 clubs also have a swimming pool. Membership costs an average of £49 per month. In 2025 Keelstone generated approximately £150 million in revenue: £135 million from membership and £15 million from personal training, swimming lessons and the café.
The UK fitness market is growing strongly. According to ukactive's UK Health & Fitness Market Report 2026, the sector reached a record 12.2 million members (18% of over-16s) and approximately £6.5 billion in income, up from £5.7 billion in 2024. Club visits rose by about 10% to 679 million. Keelstone is not sharing in this growth. Its average membership fell from 290,000 in 2022 to 230,000 in 2025, and EBITDA fell from £31.5 million to £13.9 million over the same period.
Most of the market's growth has gone to low-cost, 24-hour gyms. The two largest budget operators alone had more than 600 UK sites in Leisure DB's 2024 report, and one of them reported an average revenue per member of about £21.60 per month in 2025, less than half of Keelstone's price. Budget gyms have opened near many of Keelstone's clubs.
The private-equity owner has brought in a new CEO. Your team has been asked to find out why Keelstone is losing members and design a turnaround plan that restores EBITDA to at least £25 million within three years.
Additional InformationAsk for dataInterviewer’s data
If asked, please share that:
- Keelstone employs approximately 2,100 people, of whom about 1,300 are hourly-paid staff close to the National Living Wage.
- Monthly member churn has risen from 4.2% in 2022 to 5.6% in 2025.
- Keelstone has not changed its membership model since 2015: one membership, one price per club, all facilities included.
- Club leases have an average of 9 years remaining. Exiting a lease early costs approximately 1.5 years of rent.
- The owner will not inject new equity, but will allow up to £20 million of reinvestment from existing debt facilities.
Question 1Structuring
How would you structure your approach to diagnosing Keelstone's decline and building the turnaround plan?
Hint · Structuring
Build 3–4 branches that are specific to this client and question, not a generic framework. Check they don't overlap and together cover the problem.
Additional InformationAsk for dataInterviewer’s data
- Share the membership and EBITDA figures from the Problem Definition if the candidate asks.
- If the candidate asks about the market: the market is growing, so this is a Keelstone problem and a mid-market problem, not a demand problem.
Try it first, then checkCheck my answerModel answer
1. Revenue diagnosis
- a) Members: joiners vs. leavers (monthly churn 4.2% → 5.6%); which clubs and which member types are leaving
- b) Price: average fee, discounting, price vs. local budget gyms
- c) Secondary spend: personal training, swimming lessons, café
2. Competitive position
- a) Budget gym openings near each Keelstone club (distance, timing)
- b) What Keelstone offers that budget gyms do not (pools, classes, staffed service, family)
- c) Member segments: who values those extras and who only uses the gym floor
3. Cost diagnosis
- a) Staff costs: 1,300 hourly staff exposed to National Living Wage increases
- b) Property: rent and utilities per club; underused space
- c) Central overheads
4. Turnaround options
- a) Pricing and membership model (e.g., tiers)
- b) Club estate (invest, reformat, exit)
- c) Cost programme
- d) Funding: £20M reinvestment limit, 3-year EBITDA target of £25M
What the interviewer is looking forInterviewer’s viewInterviewer’s view
The candidate should build a profit-driven structure, but tailored to a membership business: members = joiners − leavers; revenue = members x price; costs are mostly fixed per club. Strong candidates quickly notice that the market is growing while Keelstone shrinks, so the problem is competitive position, not demand.
- Good candidates split into revenue (members, price, secondary spend) and costs (staff, rent, utilities).
- Strong candidates split members into joiners and leavers (churn), and look at club-by-club exposure to budget competition.
- Excellent candidates frame it as a positioning question: "Which customers still value a mid-price club, what are they paying for, and which clubs can serve them profitably?" They then structure the plan as fix pricing, fix the estate, fix the cost base.
Question 2Numeracy
Using Exhibit 1, how much of the fall in membership revenue between 2022 and 2025 is due to fewer members, and how much has price offset it? What does the churn trend mean for the number of new members Keelstone must sign each month?
Hint · Numeracy
Write the formula before you plug in numbers, keep units and zeros explicit, and sanity-check the order of magnitude at the end.
Exhibit 1Keelstone Fitness Key Performance Indicators, 2022–2025
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Average members | 290,000 | 272,000 | 251,000 | 230,000 |
| Average monthly fee | £46 | £47 | £48 | £49 |
| Membership revenue | £160.1M | £153.4M | £144.6M | £135.2M |
| Monthly churn (share of members leaving each month) | 4.2% | 4.6% | 5.1% | 5.6% |
| Keelstone clubs with a budget gym within 2 miles | 21 | 29 | 36 | 41 |
| EBITDA | £31.5M | £26.0M | £19.8M | £13.9M |
Keelstone management accounts. 64 clubs throughout the period.
Source: Keelstone Fitness case file
Additional InformationAsk for dataInterviewer’s data
- Share Exhibit 1.
- If asked: from April 2026, the National Living Wage rose from £12.21 to £12.71 per hour. Keelstone's 1,300 hourly staff work an average of 25 hours per week.
Try it first, then checkCheck my answerModel answer
Step 1: Total change in membership revenue
- 2022: 290,000 x £46 x 12 = £160.08M
- 2025: 230,000 x £49 x 12 = £135.24M
- Decline: £24.84M
Step 2: Volume effect (at 2022 price)
- (230,000 − 290,000) x £46 x 12 = −60,000 x £552 = −£33.12M
Step 3: Price effect (at 2025 volume)
- 230,000 x (£49 − £46) x 12 = 230,000 x £36 = +£8.28M
- Check: −£33.12M + £8.28M = −£24.84M ✓
Step 4: Churn and replacement joiners
- 2025: 230,000 x 5.6% = approximately 12,900 leavers per month, so Keelstone needs about 12,900 new joiners a month just to keep membership flat.
- At 2022's churn (4.2%): 230,000 x 4.2% = approximately 9,700 per month.
- The extra churn means Keelstone must find about 3,200 more joiners every month, about 39,000 a year, just to stand still.
Step 5: Wage pressure
- 1,300 staff x 25 hours x 52 weeks = 1,690,000 hours x £0.50 = approximately £0.85M a year of extra cost from April 2026.
So what: Price increases recovered only a quarter of what member losses cost. Rising churn means marketing has to run faster just to keep membership flat. The core problem is losing members, not the price level.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
Key numbers: revenue fell by £24.84M; the member loss cost £33.12M, partly offset by £8.28M from price rises. At 5.6% churn, Keelstone must sign ~12,900 members a month just to stand still, about 3,200 more than at 2022's churn rate. Strong candidates also estimate the wage increase (approximately £0.85M a year). The insight: raising prices while the market moves to cheap gyms has made the member loss worse.
Question 3Judgement & Insights
Exhibit 2 splits Keelstone's clubs and members into groups. Which members and clubs is Keelstone losing, and what does that tell you about where it can still win?
Hint · Judgement & Insights
Read the exhibit title, axes and units first. Lead with the ‘so what’, then back it with one or two numbers.
Exhibit 2Club Groups and Member Segments
Club groups
| Club group | Clubs | Members 2022 | Members 2025 | Change | Average club EBITDA 2025 |
|---|---|---|---|---|---|
| A: Budget gym within 1 mile, no pool | 18 | 85,000 | 52,700 | −38% | −£0.30M |
| B: Budget gym within 1 mile, with pool | 14 | 64,000 | 53,760 | −16% | +£0.35M |
| C: No budget gym within 1 mile | 32 | 141,000 | 123,540 | −12% | +£0.55M |
| Total | 64 | 290,000 | 230,000 | −21% |
Member segments (2025)
| Segment | Share of members | Monthly churn |
|---|---|---|
| Gym-floor-only users | 45% | 8.4% |
| Use classes and/or pool at least weekly | 55% | 3.3% |
| Blended | 100% | 5.6% |
Keelstone member data and club P&Ls.
Source: Keelstone Fitness case file
Additional InformationAsk for dataInterviewer’s data
- Share Exhibit 2.
- If asked: in an exit survey of members who left in 2025, 46% said they "found a cheaper gym", 22% "didn't use it enough", 12% moved away, and 20% gave other reasons.
- If asked: central costs are approximately £3.2M a year (club EBITDA total minus central costs = group EBITDA).
Try it first, then checkCheck my answerModel answer
1. Losses are concentrated where Keelstone has no advantage. Group A clubs (no pool, budget gym nearby) lost 38% of members and now lose about £0.30M each, −£5.4M in total (18 x −£0.30M). Group B clubs face the same competition but lost only 16%, because a pool is something a budget gym does not offer.
2. Gym-floor-only members are the ones leaving. They churn at 8.4% a month vs. 3.3% for class and pool users (check: 45% x 8.4% + 55% x 3.3% = 3.78% + 1.82% = 5.6%). The exit survey confirms it: 46% of leavers found a cheaper gym. These members pay £49 for facilities they do not use, and can get the gym floor for about £22 elsewhere.
3. The core business is still healthy. Group B and C clubs earn 14 x £0.35M + 32 x £0.55M = £4.9M + £17.6M = £22.5M club EBITDA. Minus Group A's £5.4M loss and £3.2M central costs, that gives the reported £13.9M. Without Group A's losses, EBITDA would already be about £19.3M.
Implication: Keelstone does not have a pricing problem across the whole estate. It has (a) a membership model that makes gym-only users pay for facilities they do not use, and (b) about 18 clubs that cannot compete with a budget gym next door.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
The candidate should see that the losses are concentrated in gym-floor-only members and in clubs without a pool that face a nearby budget gym. Members who use classes or pools churn at less than half the rate. The mid-price model still works where Keelstone offers something a budget gym cannot. The 18 most exposed clubs lose money, and together they are why group EBITDA is so low.
Apply the "So What?" cascade when evaluating answers:
- Level 1 (surface): "The 18 clubs without a pool near a budget gym lost 38% of their members" — this is reading the data
- Level 2 (implication): "Keelstone is losing the price-sensitive, gym-floor-only customer to budget gyms, but keeping customers who value pools and classes" — this shows pattern recognition
- Level 3 (actionable): "Stop charging everyone for facilities only half of them use: unbundle the offer into tiers, and change or exit the clubs that cannot compete with a budget gym" — this is strategic judgement
Question 4Numeracy
The CEO is considering two pricing options. Option A: cut the price to £35 per month for everyone. Option B: introduce two tiers, "Core" (gym floor only) at £29 and "Plus" (everything, including classes and pool) at £54. Evaluate both options.
Hint · Numeracy
Write the formula before you plug in numbers, keep units and zeros explicit, and sanity-check the order of magnitude at the end.
Additional InformationAsk for dataInterviewer’s data
- Use 2025 membership: 230,000 members at £49 = £135.24M membership revenue.
- Option B assumptions (marketing team estimate): 40% of existing members move down to Core; the rest move to Plus; Core attracts 45,000 new or returning members.
- Ignore changes in churn and secondary spend for this calculation.
Try it first, then checkCheck my answerModel answer
Option A: £35 for everyone
- Revenue needed to stand still: £135.24M
- Revenue per member per year: £35 x 12 = £420
- Members needed: £135.24M / £420 = ~322,000, i.e. about 92,000 more members (+40%)
- Keelstone lost 60,000 members in three years. Winning back 92,000 at a lower price, in the same clubs, is unrealistic. Option A also gives away £14/month to the 55% of members who are happy to pay for classes and pools.
Option B: tiered membership
- Plus: 230,000 x 60% = 138,000 x £54 x 12 = £89.42M
- Core: (230,000 x 40% + 45,000) = 137,000 x £29 x 12 = £47.68M
- Total: £137.10M, i.e. +£1.86M vs. today
Break-even down-trade share for Option B
- Revenue = 230,000 x (1 − x) x £648 + (230,000x + 45,000) x £348
- = £149.04M − £69.0M·x + £15.66M = £164.70M − £69.0M·x
- Set equal to £135.24M: x = £29.46M / £69.0M = ~43%
- If more than about 43% of members move down to Core, Option B loses revenue.
Comparison
| Option A (£35 flat) | Option B (tiers) | |
|---|---|---|
| Revenue at stated assumptions | Flat only if +92,000 members | £137.10M (+£1.86M) |
| Key risk | Gives away price to loyal members | Down-trade above ~43% |
| Effect on churn | Some reduction | Larger: gym-only members stop overpaying |
| Fit with strategy | Competes with budget gyms on their terms | Keeps premium for pools and classes |
Recommendation: Option B. It protects revenue from members who value the full club, gives gym-only users a reason to stay, and has a comfortable safety margin (40% expected vs. ~43% break-even). Keelstone should test it in a few clubs first to check the down-trade rate.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
Key numbers: Option A needs ~322,000 members (+40%) just to keep revenue flat, which is unrealistic. Option B gives £137.10M (+£1.86M), and breaks even if up to ~43% of members move down to Core. Strong candidates calculate the break-even down-trade share. Excellent candidates point out that Option B should also reduce churn, because gym-only members stop overpaying.
Question 5Synthesis
The owner wants a one-minute summary. What is your turnaround plan, and how does it get EBITDA to £25M?
Hint · Synthesis
Answer first: the recommendation, two or three reasons with numbers, then risks and next steps.
Additional InformationAsk for dataInterviewer’s data
- If needed, remind the candidate: Group A clubs lose £5.4M a year combined; Option B adds about £1.86M revenue; the wage increase costs about £0.85M a year; the reinvestment limit is £20M.
- If asked: converting a Group A club into a pool-free "studio and gym" format with more classes costs approximately £0.6M per club. Management expects converted clubs to break even.
Try it first, then checkCheck my answerModel answer
Recommendation: Stop competing with budget gyms on price. Unbundle the offer, fix or exit the 18 exposed clubs, and focus investment on the clubs with pools and classes.
EBITDA bridge (approximate, by year 3)
| Lever | EBITDA impact |
|---|---|
| 2025 EBITDA | £13.9M |
| Fix Group A: convert about 10 clubs (£6M capex) to break even and exit about 8 at lease events | +£5.4M |
| Tiered membership (Option B), before churn benefit | +£1.9M |
| Lower churn from Core tier: e.g., gym-only churn 8.4% → 6.5% keeps about 23,000 more members, mostly on Core (23,000 x £29 x 12 ≈ £8.0M revenue, ~£6M EBITDA after variable costs) | +£6.0M |
| National Living Wage increase | −£0.85M |
| Cost programme (energy, scheduling, central costs) | +£1.0M |
| Year-3 EBITDA | ~£27M |
(Churn check: 45% x 230,000 = 103,500 gym-only members. At 8.4% churn, keeping them flat takes about 103,500 x 8.4% ≈ 8,700 joiners a month. With the same joiners and churn of 6.5%, gym-only membership settles at about 8,700 / 6.5% ≈ 134,000, i.e. about 30,000 more members over time. The plan assumes about 23,000 of that is reached by year 3. This is a management assumption to test in the pilot.)
Why this works:
- The market is growing (12.2 million UK members, a record), so Keelstone does not need to reinvent itself. It needs to stop losing gym-only members and stop running clubs that cannot compete.
- Members who use pools and classes churn at 3.3% a month and pay a premium. That is Keelstone's right to win against budget gyms.
- Most of the gap to £25M comes from actions Keelstone controls (the estate and the membership model), not from winning share against much cheaper rivals.
Risks and next steps
- Down-trade above ~43%: pilot tiers in 6 clubs (3 in Group B, 3 in Group C) for one quarter before rolling out.
- Exit costs: exit Group A clubs only at lease breaks or where 1.5 years of rent is less than 2 years of losses; transfer members to the nearest Keelstone club.
- Budget gyms add classes: keep investing in instructors, pools and family programmes, which are hard for a 24-hour, lightly staffed gym to copy.
- Capex within the £20M limit: about £6M for conversions, the rest for pool and studio upgrades in Group B and C clubs.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
The candidate should lead with the answer and build a simple EBITDA bridge from £13.9M towards £25M, naming what is certain and what is an assumption. Excellent candidates will not simply close all 18 Group A clubs: exiting leases costs about 1.5 years of rent, and some Group A members transfer to nearby clubs. They will separate "exit" from "convert" and set clear targets.
Data Sources
Company figures for Keelstone Fitness (members, fees, churn, EBITDA, club groups, pricing options) are invented for this case. Market facts come from the sources below. Figures are rounded for interview math.
- UK fitness sector: record 12.2 million members, 18% of over-16s, income approximately £6.5 billion (vs. £5.7 billion in 2024), 5,842 clubs, 679 million visits (+10%) → ukactive, UK Health & Fitness Market Report 2026 (reported by Leisure Opportunities), 2026, https://www.leisureopportunities.co.uk/news/UK-Active-report-shows-the-fitness-sector-has-achieved-record-growth/362767
- Low-cost gyms: 41% of private-sector members; low-cost market value approximately £986 million (+11.1%); average low-cost fee above £24; PureGym 379 sites and The Gym Group 234 sites; public-sector average fee £32.07 → Leisure DB, State of the UK Fitness Industry Report (summarised by PAF Media), 2024, https://www.paf-media.co.uk/leisure-dbs-state-of-the-uk-fitness-industry-report
- Budget-gym benchmark: The Gym Group revenue £244.9M, 260 gyms, 923,000 members, average revenue per member per month £21.60 (2025) vs. £20.81 (2024), mature-site ROIC 27% → The Gym Group plc, Full Year Results for the year ended 31 December 2025, 2026, https://www.investegate.co.uk/announcement/rns/the-gym-group--gym/the-gym-group-plc-2025-full-year-results/9468031
- National Living Wage £12.21 → £12.71 per hour from April 2026 → Bishop Fleming, What is the National Living Wage from April 2026?, 2026, https://www.bishopfleming.co.uk/insights/what-national-living-wage-april-2026
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