Matt and Rick discuss whether to raise fitness membership prices and how to communicate the rate increase to your clients. If you ever thought about raising rates as a gym owner, then talked yourself out of it because of backlash from customers, then read on. There are many compelling reasons you should raise your rates.
Why Should You Raise Membership Prices?
The most obvious reason to raise fitness membership prices to make more money. You deserve as a gym owner to make money for the service you are offering to your clients. The fitness business is the only service where prices go down rather than up, which shouldn’t be the case. If you’re changing lives, helping people, and delivering a great service, you’re worth it.
To examine if your goal is to make more money, let’s do some basic math about a basic personal training business model.
Basic Personal Training Model with profit margin of 10% – 100 members x $300 a month = $30,000 a month ($360,000 a year) x 10% profit margin – $36,000 year profit
Sadly, most gyms, small boutique gyms, or a mom and pop health clubs run their profit margins around 10%. So if you make a 3% increase, you would add $12,000 to the profit margin each year($48,000). Now, out of that profit margin, the owner might pay theirself a salary or pay a trainer. So they aren’t making $48,000k. That is just the profit margin. So taking a small business from $36,000 profit margin to $100,000 a year, you need a completely different business model, right? The Alloy Personal Training business model typically runs at a 50% profit margin. So that’s the first reason to do it for the business.
Now why wouldn’t you raise your rates? Because owners are afraid to do it, and they think they’re going to lose customers. Now what really happens if you raise rates on customers? Well, you actually end up getting a better customer, right? Personal training is premium service, you’re going to get customers that have higher income that value what you’re offering. A lot of times in the fitness industry, it seems like the rates people just keep going down, down, down. Well, those looking for a lower price point do not value time as much as other clients paying more.
There is real science behind people valuing a product or service more based on what they pay. For example, Rick knows for a fact if you are into motorcycles, different manufactured motorcycle jackets are made in the same factory in China. One very well know motorcycle brand jacket might be $800, but a lessor know brand might be $400. Essentially, it is the same garment with a few different bells and whistles, but not $400 difference at double the cost. Now, if you are part of the motorcycle community and read the reviews on a popular motorcycle gear website, the more expensive jackets and products are always like glowingly positive. Now, read the same reviews for essentially the same jacket at a lower price point and they make comments about how long it’ll hold up. So when people overspend, they value the product even more after they spend it.
Now, from a service standpoint, people want a good value. So if you’re the $350 – $400 a month personal training or fitness facility, customers are going to value that more than the $10 a month health club membership. The premise is that when you reach a certain financial threshold of spending for a membership; they value how much they spend on their self. If the client is paying that much for a service, they’re actually going to pay attention and show up. Now if they pay and don’t show up for a $10 membership, no one’s waiting for you or caring that you show up.
If you’re paying somebody $350 – $400 a month, you’re going to show up. Now as a trainer you are working with a clientele that is of higher income level. They’re used to expensive products and services, and the price threshold disturbs them enough to come into the gym. There becomes a motivational threshold where they say to their self they won’t spend that kind of money and not show up.
It’s a perfect way to put financial skin in the game. As a trainer, you are delivering a higher level of customer service by giving them more accountability while driving a premium service and charging for it because the customer is going to recognize it as better. So as long as you can back it up with great service, you’re actually helping your customers become accountable, motivated, and want to pay attention.
How To Raise Membership Prices
At Alloy Personal Training Franchises, when we have a price increase, we make sure that we notify every client and we sit down with them individually. If you are only raising rates by 3%, you might send out an email blast to members. You don’t send out an email blast email if you’re raising your rates by $50 a month. With Alloy Personal Training we can pull people out of sessions periodically to sit down with them, check in see to how they’re doing, do body fat measurements, movement measurements, talk about nutrition, and use that as the mechanism if you want to explain rate increase. Our personal training is a small community and pretty tight-knit, so word will get around once the word gets out.
The goal is to be transparent and get on top of the situation by setting up as many accountability meetings with clients as possible and have conversations to tell them rates are going up. Some explanations could include situations like being underpriced in the market based on the average price of personal training in the market is $80 an hour for one-on-one training. Say something like “Right now we are only charging $25 an hour and we feel that’s underpriced. We feel like we could do a better job servicing you, attract better talent, grow the business, which is going to help all of us.”
There are two questions that you have to answer for people when you’re making a change.
- Why are you making the change?
- How will the client benefit from the change?
Also, some in the fitness industry decide to only raise rates for new customers and grandfather existing clients into the old rate. That doesn’t work really well in the personal training business because there are a finite number of spots available and we don’t turn clients over quickly. So if you do that, you’re going to end up with 60% to 70% of your clients at the old rates as opposed to the new rates where you want the business to be. So you really need to make a wholesale change across the board, which is difficult to do.
- Why you need to raise your rates (01:35)
- The little levers that you can pull to make more money in the gym (04:01)
- Why gym owners fear raising rates (04:39)
- How raising rates will result in better customers (05:32)
- The science behind raising rates and why people value what they pay more for (06:34)
- How to raise rates and communicate effectively (10:57)
- Don’t underestimate the small changes in your business (16:12)
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Mentioned in this episode
Alloy Personal Training Franchise