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Selecting the Right Revenue Model for Your Fitness Business

Even though most health clubs and studios have traditionally run on a membership model, two other options exist. Which one is the right one for your business?

Historically speaking, the health and fitness industry is entering a new era of packaging its product to generate the highest level of appeal and purchase intent from consumers.

Initially, the industry followed a subscription model, or membership model, where people could access an offering by subscribing to access for a given period of time, for example, a day, a month or a year. It was believed at the time that unless you made customers commit to a subscription (e.g., membership) for a set fee, the product would not generate sufficient usage to create a predictable level of revenue generation.

Below are three types of models that when integrated into your facility might provide some guidance to drive more revenue.

1. Membership Revenue Model

The membership model remains the most popular. The benefits of the membership model include:

  • For the client, it provides access to the offerings of a studio for one fixed price (e.g., weekly dues, bi-monthly dues, monthly dues, annual payment). Clients feel a degree of security with this model knowing they will not have to dip into their wallet every time they want to participate.
  • For the client, signing a contract forces them to make a greater commitment to leverage their investment. If they don’t use it, they lose it. As a result, the client is more likely to engage in the activities offered by the studio.
  • For the studio operator, it provides a consistent and predictable stream of revenue.
  • For the studio operator, it lessens the reliance on the inconsistent usage patterns of clients, something that often leads to widely fluctuating cash flow.

The primary risks of the membership model include:

  • Clients sometimes feel trapped or chained to the studio. Clients can feel they are paying for something they don’t use, and if they use it infrequently, the perceived cost of their investment rises.
  • This risk is one reason the health/fitness industry experiences such high levels of attrition. Clients sometimes feel that they don’t have options because they have to use whatever the membership offers without having the ability to pick and choose.
  • For studio operators, the membership model brings with it the constant pressure to sell memberships and the equally daunting challenge of trying to keep clients involved when they don’t visit the studio.

2. Pay-as-You-Play Revenue Model

The pay-as-you-play model is the least used of the three basic revenue models. The primary benefits of the pay-as-you-play are:

  • For the client, it allows them to pay only for what they use, not what they don’t use.
  • For the client, especially the connoisseur, pay-as-you-play allows them not only to select what appeals to them, but to also to pursue their interest with others of like interest. Clients don’t feel chained to something they might not fully leverage.
  • For studio operators, pay-as-you-play allows them to charge a premium for the experience knowing that they are appealing to a niche audience (e.g., connoisseurs).
  • For studio operators, it eliminates the constant stress of selling memberships and fighting attrition.

The primary risks of pay-as-you-play include:

  • For the client, there is the risk the studio will close its doors suddenly because it does not have a large enough or regular enough client base to support the ongoing expenses of the business.
  • For the studio operator, this model provides no predictable stream of revenue. Revenues can rise and fall depending on the season, as well as the lifestyle patterns of the clients.
  • For the studio operator, while you don’t have to sell memberships, you do have to market and sell pay-as-you-play services, individually and bundled, which sometimes leads to customer confusion.

3. Integrated Revenue Model (Membership and Pay-as-You-Play)

The integrated model for revenue generation leverages aspects of the membership model, allowing for a regularly recurring stream of predictable revenue, with the added flexibility of the pay-as-you-play model, which allows individuals to upgrade and personalize their experience by paying additional fees for the offerings that appeal to them.

The benefits of the integrated model include:

  • For clients who purchase a membership, they receive predictable access to the core privileges they want, a sort of security blanket.
  • For clients whether they purchase a membership or not, it allows them the additional flexibility to tailor their experience to suit their interests and objectives.
  • For studio operators, they get a consistent and predictable stream of revenue.
  • For the studio operator, it provides additional sources of revenue to augment membership revenue, and when times are challenging, it provides a second source of reliable revenue.

The primary risks of the pay-as-you-go model include:

  • Clients may feel chained to the studio. Clients may feel they are paying for access but discover that each time they visit, they are paying additionally for a customized service.
  • For the studio operator, this model can been difficult to execute, especially if they don’t have a fully differentiated experience.

Nothing can give operators greater heartache than determining the right price for their offering. It is no secret that how you price your offering impacts your ability to generate new business. All too often, the fitness industry relies on pricing as a measure of value and point of differentiation. Unfortunately, nothing could be further from the truth.

How you price your offering is a direct reflection of your business's value proposition. Not only does pricing reflect your value proposition; it is the foundation for the revenues your studio will ultimately generate. As already mentioned, pricing is as much an art as it is a science, which means it’s not a perfect process. Yet, as imperfect as the pricing process is, it plays an incredibly powerful role in how consumers perceive the value of your brand and, consequently, the sales generated by the studio.

BIO

Stephen Tharrett is a former president of IHRSA, member of AFS’s advisory board, AFS community expert and member of the Club Industry advisory board. Tharrett, along with his business partner Mark Williamson, are co-founders of ClubIntel, a brand insight, market research and consulting firm serving the fitness and private club industries. He also has served on the education, certification and health and fitness facility standards committees for the American College of Sports Medicine and American Council on Exercise.

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