Is It Time to Unbundle Your Membership?

North Point Fitness is not only a club in Roswell GA it is a licensed personal training system that many clubs offer in their premium packages Photo courtesy of North Point Fitness
<p>North Point Fitness is not only a club in Roswell, GA, it is a licensed personal training system that many clubs offer in their premium packages. <em>Photo courtesy of North Point Fitness</em>.</p>

For years, health clubs have offered single-price memberships where, for example, $49 per month gave members access to cardio and weight equipment, group exercise classes and the pool. Clubs both domestically and abroad, however, are offering more lower-cost base memberships and replacing lost revenue by focusing on personal training packages and premium offerings to boost their bottom lines

It is time for more American clubs to do this, says Rick Mayo, owner of North Point Fitness, Roswell, GA—because it works. 

"You better have more than one thing on the menu," Mayo says. "Different price points attract different customers. Everyone's looking for higher return per member these days, and these vertical layers are the way to do it."

What is the hope for those on this so-called "unbundling" bandwagon? Fewer barriers to entry, more people through the doors and the ability to compete better with budget clubs such as Planet Fitness that have opened or may open soon in their marketplaces.

Membership unbundling has increased during the past decade, but not nearly enough to increase membership numbers, says Michael Scott Scudder, a 37-year industry veteran who is now an independent consultant. Scudder's first quarter 2014 survey—comprising 595 clubs of various sizes—showed 43 percent of them are unbundled and/or offering what he calls "a la carte" memberships.

"This was an unusually high response," he says. "In most previous surveys, I'd seen 30 to 35 percent."

Unbundling is not a new phenomenon, though, Scudder says. Thirty years ago, "if you wanted to buy a tennis membership, you bought a tennis membership," he explains. "If you wanted to buy an aerobics membership, you bought an aerobics membership. That worked because we priced each membership according to our overall costs."

That all changed, Scudder says, when the industry became convinced that EFT (electronic funds transfer) memberships were the way to go, as club operators did not have a way to "police" members who might buy a tennis membership but sneak into the fitness center.

As many operators began bundling memberships, they ceased to think about demographics, age groups or different needs, he says. The one-size-fits-all approach was back.

Making It Work

Gary Patti, owner of New Jersey-based Gold Medal Fitness, did not set out to be a low-price health club owner. Two years ago, however, Patti took his base membership from $69 per month to $19.99.

He did so with a plan that involved adding programs to his club that would cost extra for members who wanted them. He started by buying a Fit Body Boot Camp franchise and putting it inside Gold Medal. Later, he added a Parisi Speed School and a CrossFit program on the same campus as Gold Medal, his main health club. (Members do not need to be a member of Gold Medal to take part in the other offerings.)

"What we've discovered is the consumer won't walk into a health club for more than $19.99 a month, but will spend 10 times that amount for the premium programs that we're offering," he says. "My health club is almost like a feeder system for my premium programs now."

Patti now has one of the largest CrossFits in northern New Jersey, and the boot camp is on track to be at 200 people by mid-2015.

Patti sees a big difference in the people who use the low-price health club and those who pay more for the premium programs. "People paying $19.99 a month—they'll complain if the air conditioning is one degree too low or too high," he says. "With CrossFit, which costs many times more, they don't even care if there's air conditioning. This is something I've never seen in 35 years. People want community."

Within five years, Patti expects revenue from his premium programs to eclipse his health club entirely. Of the 3,300 members of his health club, about 1,000 participate in at least one premium program.

"I see us doing more and more of that," Patti says, "and not even charging for memberships in the future."

Watch Out for the Hit

Most club operators who unbundle memberships will take a hit on cash flow for the first 90 to 180 days, Scudder says. Most of the 40 club operators Scudder has worked with who have unbundled have found that it takes seven to eight months to get back to where they were. Eighty percent of those 40 club owners ultimately found success with the unbundling, but it requires "marketing the hell out of the unbundled membership," he says.

Mayo agrees that club owners may take a hit initially, but they likely will drive more volume, especially if they have a dedicated, talented person selling personal training. That person may not always be the same one who delivers it on the back end, but it should be someone on salary (performance-based or not), he says.

The Edge Fitness Club, a club in Connecticut for which Mayo is doing consulting work, is known for selling a lot of personal training in a low-cost model. A basic-access membership is $10 a month.

"Planet Fitness does this," Mayo says, "but Edge looks like a $70-a-month club. You can move in, put a beautiful club in there and sell 900 to 1,000 memberships a month. Then there's your opportunity to upsell other services and compete with the low-price guys."

Mark Groshan, owner of two Janesville Athletic Club locations in Janesville, WI, unbundled a couple of years ago, down from $49 per month to either $19 or $29 per month, depending on the membership. Later, he added an even-lower $10 base membership.

"We initially made more money, and now we are probably about back where we were," Groshan says. Still, he is glad he unbundled because it keeps him competitive with low- price clubs while offering more revenue potential with his dedicated department for selling personal training.

"I was watching what was going on nationwide and just trying to be proactive," he says. "We'd heard stories of clubs that didn't react and took a big hit when a $10-a-month club came to town. It would just be a matter of time before Planet Fitness came to town— and they eventually did—but by then we'd already been unbundling for 18 months."

Just Say No

Are there clubs that definitely should not unbundle? Yes, Mayo says. If you operate in a depressed market or blue-collar area, then offering those upper layers does not make sense, he adds.

Large, multi-offering clubs do not need to unbundle either, Scudder says.

"The ones with juice bars are doing just fine," he says. "But the ones in the middle— Gold's Gym, for example—would need to consider it. The mid-priced, mid-sized clubs are stuck in the middle, and that's not a good place to be."

Groshan stresses the importance of working with a consultant if you are considering unbundling. "They work with hundreds of clubs and can save you from making mistakes," he says. "Something that sounds like it's going to work for you may not."

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