Gym owners are always looking for ways to raise revenue and increase profits. These methods often include increasing the price of gym memberships, but you want to make sure you do it right. If done correctly you will not only help you bring in more money each year, but will also make your customers happier with their experience at your gym.
1. Honestly Assess Your Value Proposition
Before you raise a single rate, you must understand that you cannot just raise rates without there being a validating value in your facility. Raising your rates for the sake of just raising your rates is a massively bad idea.Take a moment to honestly evaluate your value proposition. Have you raised the quality of your facility since your original pricing? Have you expanded? Bought a lot of new equipment? Increased the value of your services by offering more classes, new types of services or open the gym for free use?You will need to be able to clearly justify this to your clientele. If you are raising rates without having an equal perceived value, you will be at a higher risk for losing members.
2. Restructuring Your Membership Plans
When it comes to restructuring your plans, we like to keep things somewhat simple. Often we see gyms with up to a dozen membership choices. You might consider to use this moment as a chance to clean up some of the old clutter. For this example, we will be working with some fictional data, as illustrated in our downloadable template.[caption id="attachment_2900" align="aligncenter" width="607"]
A Typical Gym Membership Structure.[/caption]This gym owner currently has 3 membership plans, but over the course of time they have older members paying a special grandfathered rate, and they have a host of discounts they've offered as well. This owner has decided to simplify the sales equation tremendously by moving all this to just two plans:
- 3x / Week, priced at $149.00
- Unlimited, priced at $189.00
In doing so, they will be letting the members on the 2x / Week plan that they can upgrade to either Unlimited or 3x / Week. They also will be letting all members who are on cash-flow crushing discounts that discounts will no longer be available.As you can see, right now this gym has 134 members, and grosses $16,997 per month.
You can, at your discretion, offer a grace period before the new pricing kicks in. This is often seen as a little more friendly to the consumers, so you don't just jolt them into a new price weeks after the announcement. We recommend offering some grace period.Doing so will provide the following pretty important things:
- Show your clients this was a well thought out and planned action.
- Give you ample time to discuss the price increase with your clients.
- Allow you to start onboarding new clients at the new rates, which will give existing clients the understanding this is a business wide change.
Results of Change
As you can see in the chart below, the net effect of this pricing change is dramatic. The monthly net effect of this modest rate increase plus removal of discounts is $5,888.75. Almost a 33% increase in monthly revenue.[caption id="attachment_2901" align="aligncenter" width="700"]
The Revenue Effect of the Pending Price Change[/caption]
Loss Of Members
One thing to note, is the fact that these numbers reflect zero loss of memberships over the price increase. You can expect to lose some members during this process - do not beat yourself up over this.The members who do stay will be getting more of your attention, and generally speaking you will be weeding out the most price adverse clients you have. In the end, as a boutique gym owner, you want to cater to the clients who place a value on your services, not those who are price adverse.The number of members you lose will be directly co-related to how clearly you can have a direct, honest conversation with each of your clients about why you are raising rates.
How Many Members Can You Lose?
This is the question that makes most gym owners halt and catch fire. The thought of losing even one member seems like it could ruin the proposition of raising rates - because you're already in the situation where you need to make more money. How can you possibly afford to lose a single client?[caption id="attachment_2902" align="aligncenter" width="728"]
You can lose quite a bit of members and break even.[/caption]What most owners forget, is by raising your rates to something fair, you can actually afford to lose quite a bit of members and still break even. In the case above, this gym owner can lose almost 35 clients and still break even.In all, by following the price increase outlined here, this gym will net $64,776.25 additional revenue over the course of a year. (We would recommend reinvesting a good chunk of this back into the gym to show your clients their money is going to good use!)
Want To Evaluate A Price Increase For Your Gym?
Even if you have no path to pulling off a price increase, it's a healthy exercise to explore. Really think thru your value proposition and competitive value. Consider if consolidating membership plans and reducing discounts might make sense.Then download our free Price Increase Analysis worksheet and see if it makes sense to you! The link to download is below.
Part 2 - How to execute
Check out our next post on best practices for executing the rate increase. We have include 2 email templates to save you some time. Read here.