Most clubs can’t live without group exercise, but living with it is sometimes an expensive proposition. Club operators often debate the number of classes they should offer. To figure this out, they must determine the level of group exercise payroll needed to align with their club’s membership value proposition, the number of classes to offer on a weekly basis to meet or exceed the expectations of members, and where this fits with the club’s ability to make a reasonable profit.
A recent Les Mills study indicates that group exercise is the key to membership retention and, therefore, profitability. More than 50 percent of the daily visits to the top club in the study were for group exercise classes. On average, between 20 percent and 30 percent of daily participation at the clubs in the study came from group exercise.
In my analysis of 50 leading clubs from Europe and the United States, group exercise participation represented on average 26 percent of daily participation, with a range of 16 percent to 48 percent. If about 20 percent to 30 percent of a club’s members use the club on a daily basis, then total group exercise participation on a daily basis would represent approximately 4 percent to 10 percent of a club’s overall membership base. A club with 3,000 members could then expect to generate 120 to 300 visits daily for its group exercise programs. Obviously, group exercise is an important element of the club success equation.
Based on this data, do you just go ahead and add more classes, or is there a relationship between profitability, membership size, club positioning and a predictable level of weekly classes?
When I was CEO of a health and fitness club company in Russia, I asked the same questions. Finding no concrete answer, I performed a comprehensive analysis of the business, looking at every aspect of group exercise (number of classes, class attendance, instructor payroll, instructor payment rates, etc.) and ran them against every imaginable metric in the business (membership price, membership level, dues line, revenues, EBITDA, etc.) to see if some reasonable correlation existed, especially in regards to the most profitable and successful clubs. Our benchmark for great profitability was based on clubs with an EBITDA of more than $1 million and an EBITDAR margin of 45 percent or higher. After analyzing 24 months of data from 30 clubs in Russia and additional clubs in the United States, we identified key metrics that we could use as benchmarks based on a club’s market position or segment.
First, clubs could be categorized into one of six market segments. (The segments noted here are based on the U.S. market and differ slightly in Europe and Russia.)
We identified the following metrics as most closely correlated with profitability for each of the above club segments:
Members per class. This metric is similar to members per meter in the club business or revenue per available room in the hotel business. It indicates the level of availability between your members and the classes you offer. It is a form of productivity measure.
Average attendance per class. Most clubs track this number and look at it as an indication of a particular class’s success.
Group exercise payroll as a percent of adult membership revenue. This represents the percent of a club’s monthly dues line attributable to adult memberships that is allocated to instructor payroll. This metric is an efficiency measure.
Table 2 provides a few of the benchmark metrics for the six categories of clubs highlighted.
The above metrics are average statistical metrics that are associated with clubs capable of generating a blended net promoter score (the percentage of members who would promote your club minus the percentage who are detractors) above 25, an EBITDA of more than $1 million, and an EBITDAR margin in excess of 45 percent. In other words, if your club, based on its market segment, fits within these parameters, then you have a good balance of classes to members and instructor payroll to the membership revenue generated. Clubs that had a member per class ratio (number of classes your club offers each month divided into number of members) and an average attendance per class number that were the same performed the best. These metrics represent monthly metrics since the club business is highly seasonal, and classes should be adjusted based on a club’s seasonality.
I do not profess that the metrics presented in this article will work for everyone. They are intended to provide an analytic approach to determining the basic parameters for calculating the appropriate number of complimentary or non-fee based classes to offer as part of your club’s membership package.
Clubs that offer complimentary group exercise classes as part of their membership package should consider the metrics described in this article as a framework for structuring their program, while also factoring in the intangible aspects of programming, such as member interests and demands, population demographics (age of members, gender balance, cultural background), blend of classes offered (cycling, yoga, Step, Zumba, Body Pump, etc.) and the club’s seasonality.
Stephen Tharrett is president of Club Industry Consulting. He is the author of four books and is a former board member and president of IHRSA. Tharrett is involved in public speaking, having served as an international keynote speaker at conventions in Argentina, Australia, Brazil, China, England, Ireland, Japan, Russia, Singapore, Spain and Turkey, as well as domestic conventions such as Athletic Business, CMAA, IHRSA and SIBEC. He can be reached at [email protected].