Wouldn’t it be great to gather the best practices of fitness facilities around the country and distill this knowledge into a succinct series? That’s what this new column explores: the very best secrets of success for operating, managing and marketing a fitness facility. Whether you manage a small studio or a large, multipurpose fitness center, the golden nuggets in this series will help you run your business more profitably.
Here’s a preview of what’s to come over the next few months:
- Part 1: Easy ways to increase revenue
- Part 2: Marketing, and what you need to know to generate more traffic
- Part 3: Key trends in new membership activation
- Part 4: How to plug the retention leak
- Part 5: Programming for profit, integration and service
Four Ways to Increase Revenue
Start an enhancement program. Over the past 5 years a new term has emerged in our industry: the “annual rate guarantee,” or “enhancement fee.” While there are many ways to increase revenue, research done at New Paradigm Partners has shown that members are more comfortable with, say, a one-time payment of $39 than they are with a monthly increase of $3. This has become even more true as low-cost competitors increase their market share.
To ensure a successful program, it’s important that you follow a very specific marketing strategy. First, you need to show members how their investment is being put back in. For example, each year most fitness centers put 5% of their revenue into acquiring new exercise and facility equipment, offering new services and programs, and investing in staff training. When you talk to clients, make it clear that these items are the objects of—the justification for—your enhancement fee. Highlight upgrades throughout the year with balloons, signage, Facebook posts, emails and other communications to your members.
One or two months before each billing date, survey your membership base and ask them to vote on how they’d like to see their enhancement dollars put to work. When you take prospects on their initial tour of your facility, mention the program to differentiate your facility from others.
Although the fee is levied once per year per member, consider collecting it in three installments. At New Paradigm Partners we found that this can increase the enhancement fee revenue by 25%. It will allow you to get new members into the program more quickly, and you’ll collect the fee prior to attrition.
Note: Before you implement this fee, check your state laws, as not all states allow an enhancement fee. Research your state’s Health Club Act, or contact the state attorney general’s office. If you live in a state that has restrictions, you may be able to set up the enhancement program separately from the startup paperwork process while still meeting legal requirements.
Charge a processing fee. Consumer surveys have indicated two specific barriers to joining health facilities: enrollment fees and long-term contracts. If you decide not to charge an enrollment fee, how do you recoup your investment? Charge a processing fee instead. Consumers are more amenable to paying a “processing fee” than they are to paying an “enrollment fee.” What’s the difference? Processing fees are usually less of an investment and are justified by the cost of “processing the membership,” which includes marketing dollars, sales commission, paperwork processing and the physical membership card.
Following this approach will allow you to use the phrase “No Enrollment Fee” in your promotions, which will help you generate more guest traffic. When using this marketing strategy, you should disclose that processing fees do apply. Your new members will be aware of the fee; however, it eases their minds to know they won’t get hit with an exorbitant enrollment fee.
Note: In Part 3 of this series we will review various marketing strategies. One of them concerns why and how to market using “No Enrollment” and “No Commitment Membership,” and how these features help increase guest traffic.
Require first and last month’s dues upfront. The more money new members put down when they start, the longer they will stay. This is a true statement! New Paradigm measured this in our centers and learned that people will stay longer if they feel more “vested” in the membership. Like charging processing fees, asking for last month’s dues is a great way to increase your point-of-sale revenue. In addition, it alleviates the 3%–5% bad debt percentage that’s typical in our industry, as validated by Paul Schaller, president of ABC Financial Services Inc., in Sherwood, Arkansas. If you use this strategy, consider implementing an electronic funds transfer membership with a 60-day cancellation notice. Members would be committed to only one more payment, since they paid for their last month upfront.
Prorate the first month’s dues. Every penny counts! With prorating, you divide the cost of a monthly membership by the days in that month. Then you multiply that daily amount by the number of days until a client’s first payment due date. Recently, New Paradigm analyzed a facility that wasn’t prorating its members’ dues at start-up. With an average of 125 new members per month, the club was leaving approximately $15,000 per year on the table. Wow! As long as you deliver a great first impression and presentation, most prospects won’t consider prorating “nickel and diming,” but rather part of the normal paperwork process.
Will Prospective Members Pay These Fees?
The answer is yes! Successful fitness facilities around the country are living proof. No enrollment fees, a small processing fee, and first and last month’s dues combine to create a palatable “meal”! Top it off with an exciting enhancement fee, and you have a revenue recipe for success.
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