One of the most difficult decisions to make in studio ownership is pricing. The key to a successful revenue model, pricing, can keep studio owners up at night. It’s even worse when you consider converting – or adding – a membership structure when you’ve traditionally had a pay-to-play structure (per class or per session fee).
Here are five key considerations to converting.
1. Structure Before Pricing
Membership is not a one-size-fits-all proposition, especially when it comes to fitness studios. Your membership offering needs to reflect the behaviors (e.g., how frequently clients use your studio’s offerings) and needs of your client base (e.g. do they prefer having a pay-as-you-go model or a membership model), as well as the dynamics of the competition and marketplace.
If your studio offers group exercise classes or small group training classes (e.g. barre, cycling, HIIT, pilates or yoga), do you want to provide a membership that allows for unlimited access (a practice that many do) or would you be better off offering limited access memberships (e.g. eight classes monthly, 12 classes monthly and/or unlimited access)?
Ultimately how you package memberships must be defined by your value proposition, your points of competitive differentiation, and what your clients need and want. And if a competitor opens up nearby or if it’s time to increase your pricing – communicating that to your client base will be key.
2. Know Your Competitors
Not only is it important to know what your competitors are charging, it’s equally important to know what his/her clients are getting. When you know what other studios charge in respect to what they offer, it provides a basic framework for how you should price your memberships. If you offer a better member experience than your competition, your pricing should reflect the value of that upgraded experience.
3. Know How Often Your Clients Use Your Studio
Understanding average usage levels of your clients is good, but it’s more important to know the percentage of members that use your studio less than 4x a month, 8x a month, 12x a month, etc. Usage levels are critical to establishing price points for memberships that involve limited or unlimited access.
If a high percentage of your clients are already using the studio 12 or more times per month, you’ll need to do the math to determine profitability for this significant base of customers. If the pricing turns out to be too high in comparison with your local market, you might want to reconsider.
On the other hand, if a good percentage of your customers just need a little incentive that will get them to spend more (and get more), an all-access membership or a hybrid might be just what tips them over. Fortunately, your fitness management software can help you track this data.
4. The Importance of a Single-Visit Price
What you charge for a single session is what consumers are prepared to pay for your services; it is their assessment of your value. Consequently, don’t devalue it when you build your membership offerings.
For example, if your classes are $25 per session and your average client uses the studio eight times a month, you might want to offer a membership with two visits a week (eight per month) with a 10% discount (8 x $25 x 90%). Following this structure, an eight class per month membership would equate to a $180.
You might want to price an unlimited access membership at the value of 10 classes per month ($250 in the above example). And be sure to keep tabs on who’s buying what and how often they’re coming in.
5. Always Consider Profit Margin
Understanding what it actually costs your studio to service each client each time they visit (e.g., instructor costs, benefit costs, rent, etc.) is a prerequisite for calculating how you price memberships. “Let’s see how we do” is simply not a strategy.
Consequently, do the math and understand the real cost of delivering your studio’s value proposition. Once you’re armed with that knowledge, the viability of your pricing structure will come into focus.
Ultimately, how you price memberships requires multiple steps. Each should be undertaken with great care, or you could end up eating into your reputation or worse, your profits.
Guest Post Written by Stephen Tharrett, Owner of Club Industry Consulting
Stephen Tharrett is currently the owner and president of Club Industry Consulting, a global consulting business based in the U.S. He is also a co-founder and partner in Club Intel, a member and brand insights firm.
Stephen is a former board member and president of the International Health and Racquet Sportsclub Association (IHRSA), having served as president of the board from 1996-1997. He is the author of eight management textbooks for the health and fitness industry and a frequent speaker at industry conventions throughout the world and a monthly contributor to the Association of Fitness Studios.