As owners, we are operating in an era of intense competition, where member prices are insanely low — often below membership prices charged in the early ’80s. Today’s market is also negatively influenced by large chains with a gas station mentality that have declared a price war using prices artificially supported by speculative money from outside the industry.
How can independent and small-group operators compete against mega-chains that strive to be the biggest ever, yet are proud to be known as the cheapest players in the market?
Cheapest can’t be the best
First of all, there is room to compete, if owners/operators understand a simple rule from the real business world: If your competitor stakes out the “cheapest price in town” niche, this obviously opens up the “higher price quality” niche. A product can’t be the cheapest and the best at the same time. Walmart is a successful chain, but so is Nordstrom. A Geo Metro is a nice entry level car, but there is still plenty of room for upper-level automobiles too.
Most importantly, owners of fitness facilities need to understand the return-per-member concept of business. The return-per-member concept means making more money from fewer members.
Chasing to defeat
Chasing endless new members is a self-defeating business plan. When a club lowers its membership price to an absurd number, such as $19 per month, it is basing its business plan on pure volume. The volume approach is costly to a club because of the cost of marketing, the cost of a high pressure sales force, and the extreme wear and tear on the facility from trying to cram as many members as possible — all paying the lowest dues possible — into the physical plant.
Member service also completely disappears because the bulk of the payroll goes into the sales force. Staff divides into either highly paid sales people and very expendable low-paid desk people. Few employees are left in the middle to specialize in member service aspects of the business.
When an owner seeks return-per-member, he or she bases the business plan on going after fewer members: those willing to pay higher prices for less crowded conditions, more personal attention and a cleaner and more functional physical plant. In other words, the plan is based on learning to make the same amount of money or more from fewer members.
The return-per-member approach drives down the cost of operation because sales and marketing costs are lower and a facility used by people paying a higher price will usually take less of a beating. These folks show more respect for their club.
More money from fewer members
A key of the return-per-member strategy is the use of multiple profit centers (MPCs). Using MPCs allows the fitness operator to gross more money in the operation on a monthly basis, without signing up as many new sales. The additional cash flow comes from the existing members.
Introducing MPCs helps eliminate one of the biggest conceptual errors gym owners make becoming solely dependent on member dues, or a single source of income, for their revenues. This is especially true in a high-pressure sales system where all of the company’s resources are dedicated to keeping the sales flowing. One seldom sees a club with old-style sales offices, first-visit aggressive closers, cold calls and draw boxes, that also offers great member service and viable multiple profit centers. All resources are dedicated to only one thing: keeping the sales volume alive.
The key for most businesses is cash flow. In a gym totally dependent on sales, the cash flow is only as good as the sales made that day. If there aren’t sales, then cash flow stops, especially in a gym going mostly for cash. Even a club that has developed a strong receivables base from monthly memberships won’t have daily cash flow unless a sale is generated that day.
The club still has to generate sales, but they can be fewer in number and at a higher price, therefore niching the business away from low-price competition.