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The 'Issue' Is Profit Centers

The 'solution' is to identify those areas with the greatest profit potential, and create programs that align with your members' needs.

According to research conducted by the International Health, Racquet & Sportsclub Association (IHRSA), Boston, Mass., 25 percent of all fitness facilities' revenue comes from ancillary sources. What do we mean by ancillary revenue? Anything that brings in revenue other than member dues. Over the past decade, the push to grow ancillary revenue in fitness facilities has been fueled by the need to generate income to supplement dues revenue that has not grown as much as would be preferred. Does that mean membership dues are priced too low? "I'm not sure membership dues are low, because it depends on where clubs price themselves," says Rick Caro, president of Management Vision, New York, N.Y., a health/fitness facility management consulting firm. "But, I think the price increases on membership dues have not been as grand as they have in the past." Therefore, there's pressure on facility operators to generate more revenue from members.

How to grow non-dues revenue

Most facilities have some profit centers in place to generate ancillary revenue. Personal training is probably the most common profit center. The problem is that, in this industry, "we often hit various kinds of seemingly limited barriers," says Caro. For example, there seems to be an average of no more than 10 percent participation at any given time for personal training clients. Therefore, if ancillary revenue is so important, how does the industry get more penetration from members?

One of the most common ways is to create new programs or repackage existing programs and then offer them to members for additional fees - over and above their membership dues. The key in doing this, though, is to charge a price for those programs that makes it more profitable to the facility. "What we find is there seems to be a lack of price sensitivity with respect to ancillary revenue categories," says Caro. "Therefore, people can take a similar program, relabel or repackage it, and get more revenue per use or per hour per participant than they did previously." For instance, he says, if a fitness center offers private personal training sessions, it might repackage them and offer a group of sessions for six weeks for $199. Then, it might relabel them again and offer them for seven weeks for $229. Typically, he explains, people will not try to figure out what the cost is per hour. They'll assume it's a new packaged program and not worry about whether they paid for a few more hours.

Regardless of how programs are packaged, facility operators need to be sure that they are getting big enough margins from them to make them worthwhile. It's not uncommon, says Caro, for some to allow personal trainers to dictate profit margins that are so slim that they may be better off not offering the sessions at all.

What kind of margins is Caro talking about? "Most people are looking for at least 30 to 40 percent on certain kinds of programs like personal training, and 50 percent or more on other programs," he says. It depends on what you're providing. For instance, how many total hours does the program or service require? Is it self-service, or does it require the use of shared staff?

Which facilities benefit?

While any type and size of facility can benefit from creating profit centers, there are certainly some better suited to succeed at generating ancillary revenue. "Clearly, those clubs that are very service-intensive," says Caro, are better suited, "because they're really dedicated to getting more membership involvement than those clubs that are less service-oriented." Also, those facilities that have the space to create new programs are more likely to succeed. For instance, if a facility wants to offer a bootcamp program, it's going to have a better chance at succeeding if it has racquetball or basketball courts, or is located in a suburban area that allows it to take the program outside. Suburban-based facilities also have more opportunity to succeed because they can offer more types of programs at various times of the day, explains Caro. The reasoning is that people who work out near to where they live are more likely to take advantage of activities at all times, rather than being restricted to working out before work, during lunch or after work.

What makes a good profit center?

According to IHRSA, 50.5 percent of facilities responding to its survey reported personal training as the most profitable program they offer. This is followed by massage therapy (28.2 percent), pro shop sales (26.2 percent), aquatics programs (24.3 percent), tennis programs (20.5 percent), and food and beverage sales (11.7 percent). Other profit center ideas from Caro include children's programs; weight-loss programs that include behavioral-change classes and workshops, and packaged food programs; facility rentals, such as renting out space for overnights for kids, birthday parties, events, lectures and church services; and permanent space rentals to medical personnel such as chiropractors, acupuncturists and dieticians.

Mike James, manager of the World Bank Fitness Center, Washington, D.C., offers one more idea: locker rentals. The World Bank Fitness Center has approximately 5,000 members, and while profits are not a major goal for the corporate fitness center, James says, it is charged for in-house maintenance items for which they need to generate additional revenue. "We lease over 400 lockers on a yearly lease agreement," says James. "This generates $40,000 in profit."

No matter what kind of programs or services you provide, most important is knowing what your members are really interested in. To make profit center programs work, the challenge is to take those programs and organize them when your members are most likely to purchase them, says Caro. And, more importantly, is to create programs that help members to succeed in their goals. For instance, "when we get first-time or beginning exercisers to participate in group personal training," he says, that accomplishes three things. First, it creates a more affordable alternative for new joiners who might not otherwise pay for personal training, but who are willing to pay something other than just plain dues to ensure they're performing exercises correctly and prevent injury. Second, it gives them reinforcement that there are other people who are just like them. And, third, it can springboard into future profit center programs. A good trainer moves the beginner to the advanced beginner program, and then to the intermediate program, changing the activity and intensity so they're able to perform different activities than when they started, and they feel like they're making progress.

How much is enough?

While IHRSA's research that shows that facilities generate 25 percent of all revenues from ancillary sources sounds good, facility operators shouldn't be surprised if their numbers aren't in line. "The really high-end services clubs may reach 40 percent or more," says Caro, "but those are the exceptions to the rule. The pure indoor-only small fitness club is more like in the 10- to 15-percent range, and some have a real challenge to figure out how to get to that level." So, do your best to identify the needs of your members and be creative about the types of programs you offer, but be realistic about what to expect.
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