Ever found yourself in a position where you can’t seem to increase your monthly club income even though you think you’ve done everything possible?
Sometimes you have a great sales month but then aren’t reflected in increased revenue the month later?
Overcoming the fitness club income plateau is a problem which is one of the biggest headaches for fitness club operators at whatever pricing level you are pitching at.
Here’s the how and why…
The income model of all fitness clubs is driven by 3 factors:
1. The number of new sales introduced into your club each month
2. The amount of money that each member pays you per month. (An average can be calculated by dividing the total monthly membership revenue by the number of paying customers. In the case of Annual memberships, these should be apportioned over the terms of contract.)
3. The “churn rate” or simply the number of members who leave you each month as an average. (Measured as a %.)
When a club launches from a zero or modest pre-sale base, it’s typical to enjoy regular monthly increases in membership numbers and monthly revenue. The gradient of that increase is steep to start with and tapers as the club gets larger in size.
The reason for this tapering effect is because at the same time as the clubs “sales and marketing activity” is starting to stabilise, with a largely consistent number of new customers per month, so the attrition % on the gross number of members (the number of customers you lose each month) is starting to get close to parity with your new member sales each month.
For example, if your club has a 6% monthly churn rate and an average monthly recruitment of new members of 60 new sales, so at 1000 total members, the club reaches a point when its new sales match the number of lost members and growth stops.
If this equilibrium (we call it the “break point”) is reached below a level that the club needs to make profit then the club has an issue. How will it achieve growth to reach the financial goal without increasing costs and moving further away from profitability?
There are only 3 options open to operators and each has their own specific benefits and drawbacks.
1. Sell More New Customers
Without adding to the clubs cost base this may be possible by sharpening the skills of the people doing the work now.
Inevitably, though marketing the club harder will require more investment and more or better sales staff will burden the club with more costs.
That’s hampering the club with greater levels of cost and therefore needs to be done with a great degree of control and management and measurement of outcomes.
2. Charging More Money
One simple option is by leveraging a “price hike” to all your current customers which will work to raise the gross revenues. This will also need to involve contacting all members to get agreement and it is possible that this may increase the churn amongst non-users.
Alternatively, you may decide to add some benefits to your membership packaging with the intention that by adding more value to a package, you can charge more without impacting your attrition performance.
3. Keep The Customer Longer
Improving customer retention is more difficult to achieve and measure and carries with it the highest risk of the three options we have discussed.
Retaining customers is a complex issue and not easily controlled and it’s therefore unusual in our experience for clubs to focus solely on this solution above the other two in trying to grow their club revenues.
Most likely is an investment in additional sales support, training and added resources to the marketing spend to lift the number of new customers recruited.
Obviously, this is going to impact on the club’s cash flow and that’s why if you are being forced into spending more money than the speed with which you recover these costs becomes the important factor.
That’s why operators are increasingly utilising “self-liquidating offers “to enable them to hit sales targets without exhausting their cash flow.
The solution is to be able to fund increasingly more expansive marketing campaigns by retailing low value, high volume, cash generative offers and then as a second wave to upsell the customer into membership.
Here’s a typical example….
If a club spends £3000 marketing an offer such as a restricted 30-day trial offer for say £20 and gets 150 responses, that recoups the marketing spend immediately. (150 X £20 = £3000.)
If the conversion rate on those buyers to membership is 1:3 then the campaign is an unqualified success. 50 memberships achieved. Happy days!
If the membership conversion is not successful, then the net costs to the business are NIL. It hasn’t suffered any net loss as the marketing fund has been replenished.
Obviously, we don’t want that to happen but it’s a far better alternative than spending £3000 on a membership offer which doesn’t work. That’s a loss of £3000 and probably your job!
It’s about reducing the risk to the club while still allowing it to market hard to uncover interested prospects at the cheapest cost to the club.
“Self-liquidating offers” can focus on short term membership deals, personal training packages, group exercise bundles, or combinations of these 3 as voucher schemes.
Utilising the databases of the coupon companies such as Groupon, Class Pass, Living Social and the others will also help in situations like this if the product you market does not compromise your current customers leading to increased attrition.
A rise in your churn rate completely undoes the benefits of the increased membership recruitment and is not to be recommended.