How to set your member initiation fees, and why they can benefit your business.
INITIATION FEES CAN be a deterrent to a potential member, but they can also be crucial to your fitness center's bottom line. Competition is fierce these days between independents, chains andnot-for-profits, and a lot of variables need to be considered when making a decision about membership fees. What do members look for in a fitness facility? The answer, of course, varies from person to person, but one thing fitness managers assume everyone considers is price. Can potential members afford it, and will they think it is worth what you are asking?
Setting fees
It seems that deciding how much to charge for fees, both monthly membership and initiation, is pretty straightforward once your fitness center has been running for about a year, and you have real numbers to crunch. Prior to that, it may be your best guess. Most figure it out by adding monthly overhead or fixed costs -- such as rent or mortgage, payments on equipment, marketing, salaries, janitorial, linens, electric bill, etc. -- and then dividing by the number of members or intended members. This will give you your cost-per-member, or breakeven point, though some say this is not the best way to decide how to price your business.
The question of initiation fees is even harder to figure out. There are no formulas to use, and no formal way of deciding how much to charge. The easiest way to set an initiation fee is to look at what other fitness centers in your area charge, and go from there. It's called market-based pricing. Tour other fitness centers, find out what they offer and what they are charging, then price your facility according to how your equipment, services, available staff, etc., stacks up. It's certainly not scientific, but some feel it's a good way to stay competitive.
Rick Caro, president of Management Vision Inc., however, does not feel this is the best way to proceed. He says market research is underused, and typically, fitness managers don't go through a proper analysis to determine who their customers are, what is important to them and how to set fees accordingly (this includes membership and initiation fees).
Caro says that the setting of fees is more art than science. "Intellectually, we think price is a higher obstacle than it really is," he explains. "But the higher the fee collected -- in particular, the higher initiation fee -- the more commitment from members you'll get." Consider the fact that country clubs traditionally have very high fees, yet the best clubs frequently have waiting lists. Also, people don't choose to let their membership lapse when they temporarily don't have time to use it or have an injury, etc. Initiation fees are the glue that keeps members committed. (But, remember, people also get excellent customer service and social interaction at country clubs. Do you offer the same benefits?)
Also, Caro says that pricing based on the competition can pull fitness centers down, particularly those that are high-end and could actually get more money from members. "Sometimes members know whether a club is for them or not, and it has nothing to do with the price," he says. Don't fall into "competitivelypriced" traps if you don't have to.
So, how can you actually determine what your prices should be? Hire a consultant who will perform an independent market analysis. Join a trade organization and network with other fitness center owners who have facilities similar to yours. Do your homework, and talk to others who have been successful and can advise you.
Why initiation fees?
One way fitness centers make additional money on top of membership fees and profit centers is the initiation fee. It may even be the primary way a fitness center's sales team earns their salary.
"Almost all the clubs I am aware of charge initiation fees," says Jeff Strahan, president and CEO of Fitness Image Results, a health service management company in the Washington, D.C., metropolitan area. "One of the pros [from a sales perspective] of an initiation fee is that it is a staff incentive to bring in new members." Depending on the region, as much as 60 percent of the initiation fee will go to the sales team member, and the other 40 percent will go to administration costs of the fitness center.
Caro says the biggest plus of an initiation fee is the buy-in of members. Of course, the downsideof an initiation fee is that it can turn potential members away, especially if the fees are too heavy. Caro says, however, not to focus on price and fees when comparing your facility to the competition. "When potential members say, 'Gee, I'm not sure I want to join today,' and the sales staff starts comparing your fitness center's price to others as an incentive, it invites that potential member to consider the competition," Caro explains.
Caro says that for facilities that position themselves as not much more than a physical plant and equipment, price really will be of more importance than a center that has a mix of advantages and services. Service equals value, and people will be willing to pay more for good service.
Waiving fees
Both Caro and Strahan agree that you should not waive aninitiation fee. It doesn't give your members the buy-in Caro mentioned earlier, and if a big chunk of that initiation fee goes toward your sales staff, waiving an initiation fee in a special promotion really cuts into the staff's bottom line. It's not fair to ask a sales staff to do the work of bringing people in, and not compensate them fully. It is also not fair to your other members who may have paid an initiation fee when they joined.
Waiving fees can also cheapen your business. If your services are worth the fees you charge, why consider reducing them? This practice also encourages people to wait for your fees to be reduced before they join. Keeping fees the same is called price integrity.
Some choose to waive initiation fees as a way to encourage people to commit to a year or longer membership. They may charge that fee only to those who join on a month-to-month basis. For them, this works well, because it encourages people to commit to a longer membership, ultimately bringing in more money in lengthier and renewed memberships.
Facilities that do not use initiation fees at all will surely need to make up that difference somewhere else. One way to add additional profit to a fitness center is to have revenue centers such as beverages, clothing items, towels, etc. This helps to keep the business more stable, since you don't have to rely just on memberships.
Do your research
