Matt and Rick discuss the Alloy Personal Training Franchise experience to show why offering monthly memberships is better for the fitness industry and clients than annual memberships. Whether to offer annual or monthly memberships is an important decision for a fitness business owner. It is not a straightforward decision as your membership structure affects other functions in the business like retention, sales, and marketing.
Over the years, the fitness industry has changed its approach to fitness and personal training memberships because how we purchase other services has changed as well. Consumers expect monthly subscriptions now.
Selling an annual membership doesn’t have many tangible benefits over month-to-month membership agreements anymore. Retention rates between these two structures are comparable. In addition, it is easier to sell monthly memberships over annual memberships.
The fitness industry used to be based more on long-term annual memberships. As an example, big box gyms used to sell a 24 to 36 month membership, which was good for business because the gym had a guaranteed monthly income based on the annual life of the membership. The business knew their account receivables and could easily project their income and expenses over time, but there was always the risk of dealing with customers defaulting on the membership agreements. To account for defaults, some gyms would sell the membership agreements to a third party company. The gym would collect a percentage of the agreement in cash, like car businesses that sell your loan. The third party company didn’t know you and there was no personal relationship. So if you did default, you went to creditors where they chased you down and treated you like a criminal. This created little good will or trust for clients with long-term memberships.
The fitness industry changed over time, and how we purchase things changed. Some businesses tried selling personal training packages and others were trying to paid- in-full memberships. We tried selling packages, but that was just a bad idea. Then with paid-in-full memberships it was fine if you need to raise cash quickly to cover a gap, but you better be really good on the back end with budgeting because you need to make sure you don’t spend the money before you can service the membership. It relates to having two types of accounting . For example, when you sell personal training packages using accrued accounting, it means you don’t really count that revenue until you service the membership. The two separate sets of books include cash basis and accrued revenue. For a time Alloy sold annual memberships only, but then the market changed again with the big health club brands going to monthly memberships. Then digital platform subscriptions came to fruition with subscription based membership programs like Netflix when they started mailing DVDs for a digital subscription. Most membership subscription services became pay by month and allowed cancellation any time you wanted. Usually there was a 30 day cancellation requirement. When we at where the consumer market was going, consuming any subscription based business or service, we decided Alloy should stick with kind of what’s trending. The other problem with selling term memberships was the renewal process. It was a lot of work to resign clients for another 12 month commitment because you have to have a conversation, “Hey, your 12 months is up and we’d like to renew you.” We didn’t want a third party reaching out to renew our clients because we didn’t want to outsource one of the most important things in our business, which was customer service and dealing with people’s money. So it was a lot of work to handle it ourselves.
We found when we moved to the monthly memberships our retention stayed the same and it was much easier to sell a month a month agreement. The Alloy attrition rate stayed the same – which is only 3% a month. Since it was easier to sell, it became a cleaner sales process. The old gyms that did the 24 to 36 months memberships spent so much time and energy in sales training, it’s honestly like strong arming people into memberships. That’s where that whole shady health club sale stuff came from. With Alloy, we didn’t want that hard sell. Getting someone to commit to $300 a month membership for 12 months, took a lot more sales acumen and highly trained sales staff. We offered the same high level of customer services whether it was an annual or month-to-month membership: meeting clients on their accountability sessions, offering rewards programs, producing client results, providing a great atmosphere, and an exceptional customer experience. So if I told you it wouldn’t make a difference in your retention to sell monthly memberships, and it was easier on the front end to sell monthly agreements, why wouldn’t you make it easier on yourself and the clients by offering monthly memberships?
Tune in to this episode and hear Rick and Matt discuss the differences between annual and monthly memberships for your gym and what we do here at Alloy!
- Annual membership agreements vs. month to month agreements (01:28)
- Why consumers have come to expect the month to month memberships (05:41)
- How the retention rates compare between annual and monthly memberships (09:04)
- Why it’s much easier to sell month to month memberships (10:01)
- How the monthly memberships remove the extra barriers in the buying cycle (12:06)
- How your membership structure affects your marketing and sales processes (13:55)
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Mentioned in this episode
Alloy Personal Training Franchise