How to set club membership fees
Rob Bishop and Barry Klein
"What's your price?" It's the question that most health club prospects start with and most club owners and salespeople try to end with. There's probably no more important question for a for-profit club owner to answer correctly — and yet, many clubs determine their price using the intellectual equivalent of throwing darts at a board. "What we think we can get away with" is often the thought process.
There are certainly better ways. Start with the basic question: What kind of facility do you have? Low-priced clubs ($10 to $20 per month) are proliferating, typically offering access to a limited range of equipment, with little instruction and few amenities. As you add features like group fitness, childcare and racquet sports, your costs go up and, hopefully, the perceived value of your facility allows you to push your pricing into the $30- to $70-per-month range. High-end clubs with saunas, plush locker rooms and lots of service might move toward $100 per month.
The demographics of your market and how you intend to serve its needs are both vital considerations, as is your competition. Faced with a $10-per-month competitor, you might be tempted to drop your pricing to compete head-on, which could prove disastrous if you don't have a facility and cost structure that was meant for operation at that level. If you want a high-end facility but don't have lots of six-figure household incomes nearby, you could be looking at a different kind of disaster.
So, let's say you have a middle-of-the-road club that might fall into that middle price range. How do you go about determining the best price structure for monthly dues, enrollment fees and daily fees? We recommend you set the lowest price point first.
This might seem like a strange place to start, but it is easy to get your arms around how you want to treat drop-in visitors. We hope that nobody is still charging $5 per day. It's just not worth it. If you are a $10-per-day club, that likely puts your membership fee in the $30- to $50-per-month range. If you are a $15- or $20-per-day club, then you're moving up into the $50 to $80 range, and at $25 per day, you're heading toward $100 per month.
Shop your competitors and nearby communities to see what other facilities are charging for the day. Pay that fee and use their clubs — you'll learn quite a bit.
What if you're among those club owners who don't want daily visitors at all? That tells you something about how exclusive you might want to be, which would hopefully help translate into higher prices.
Most industry experts argue that enrollment fees are important for recouping the costs of acquiring and integrating a new member, and we agree. However, the most important aspect of enrollment fees is that they help you target your desired economic demographic. They also discourage members from coming and going. Consider how much of a barrier you want to put between your prospects and their membership to determine your enrollment fee.
Enrollment fees generally mirror monthly fees. Low-priced clubs have lower enrollment fees in order to encourage volume, while high-end clubs have high enrollment fees to maintain exclusivity. Mid-range clubs, naturally, are somewhere in the middle. What is consistent is how enrollment fees can be managed to alter the financial barrier for a new member.
Reducing enrollment fees while maintaining the integrity of monthly dues is generally a sound strategy. The reason you see low-priced clubs shout about their New Year's $1 enrollment offer or see clubs of all price ranges offer enrollment fee discounts for family members is that people have short memories. Most members will not recall what they paid as a one-time fee, whereas discounting monthly dues creates an environment in which members talk about who is paying what and, specifically, why another member got that deal when they didn't.
In the face of the economic downturn, we have been creative in coming up with reasons to offer reduced enrollment fees. In effect, we have tried to make our club appealing to a broader audience. But, because our clubs are high-end for our market and are service-oriented, we have avoided the temptation to simply eliminate enrollment fees. Eliminating enrollment fees can change the atmosphere of an entire club, and you do not want to drive revenue at the expense of ruining your club's culture. For us, it was important to find ways to reduce enrollment fees without being perceived as having done so. For example, we frequently offer enrollment fee discounts when friends join together, and we offer enrollment fee reductions to any local business that asks for some kind of deal.
Most club owners no longer think in terms of annual dues — instead, they think in terms of monthly dues that are paid as part of a 12-month contract. But even if you offer only one-year contracts, consider what you might charge for someone who wants the flexibility to cancel at any time. At our clubs, we offer both options. Naturally, the month-to-month option is more expensive for members, but we struggled with just how expensive it should be. Should we raise that price so high that prospects would have essentially no choice but to sign the one-year contract? If we did that, how could we justify that month-to-month price as anything other than a bait and switch?
We used a two-step process — first, we determined month-to-month prices that we knew were fair and captured the value of our facilities and services, and then we worked backward to discount that price in exchange for the commitment of a one-year contract. As with the notion of using your daily fee as a benchmark, this focus on the price of a month-to-month relationship helped clarify our thinking. It was easier to get our arms around one month's worth of pricing — factoring in the value we provide, our market, the competition, the economy, our costs and so on — than to tackle the challenge of a whole year's pricing.
The Price Is Right
Once you take everything into consideration, you will probably find that you'll be left with a narrow price range rather than a specific price. We recommend you start on the low end of the range to make sure you capture your fair share of prospects. If you miss the mark and choose a price that's too high, you'll know pretty quickly and will have to adjust downward. If you are too low, and you're getting little or no pushback from prospects on your prices (and you are not the low-cost provider in your market), then you can ease prices up — every 90 days, say. (Existing members should enjoy their pricing for at least a year.) Remember that pricing really is, as the cliché says, equal parts art and science. Do your research, make informed decisions and then make adjustments as you gauge the impact on your business.
Facility of the Week
Ithaca College Athletics and Events Center