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Our Members-Only Model: Is It Antiquated?

Last month, in the first of this two-part series, I asked if our health club model is out of date. This month, I question whether our practice of membership sales is antiquated as well.

By most industry-expert determinations, we have sold about 150 million memberships in the last 15 years. Even though we can't determine how many of those memberships were actually “new” rather than repeat members, for the sake of argument, let's assume that as high as 75 percent or 112.5 million were truly new memberships. Today, we enjoy a nationwide membership of about 41 million. So, if membership is the model, why have we lost 71.5 million members?

The average length of a membership has dropped since 2000 from 5.7 years to 4.6 years, according to an Oct. 12, 2006, Associated Press article that quoted statistics from the International Health, Racquet and Sportsclub Association. While I challenge the idea that an average membership lasts nearly five years, let's go with that assumption. Why has the average membership declined by nearly 20 percent in slightly more than half a decade?

Most of our industry's consultants state that clubs no longer make money on new memberships. They cite the going-in costs of advertising, marketing, sales commissions, administration, initial training and miscellaneous costs as more than $100 per new member nationally. Based on that number, the less than $40 average monthly membership price at most clubs and the pre-tax profit margin of about 8 percent, it takes the average club almost three years to recoup the cost of a new membership. Most clubs earn about 20 percent of their total revenues from other sources, so even at that rate and with average ancillary spending by a member, it takes two years to recoup the cost of a new membership.

Is membership a wise business model for the future? By holding onto this model, are clubs dooming themselves to economic failure at a more accelerated pace?

When I informally asked nearly a dozen industry experts at the Club Industry 2006 show what they thought the average attrition of memberships was annually over the past decade, most said 40 percent. At that continued rate of attrition, and with the current growth of clubs combined with the membership replacement factor, we are destined to run out of new memberships to sell by the year 2012.

Should we begin to investigate alternatives to the high-attrition membership model? Perhaps program sales, which incorporate a built-in profit margin into every sale?

By my calculations, at the current rate of club growth combined with the attrition statistics and eligible available membership market (about 70 percent of the U.S. population of 300 million, which equates to 210 million), with the people we have already lost through the cracks, the potential real membership market is the remainder times the 14 percent penetration ratio.

Simple math says that there are probably 35 million people still left in the “potential joiner” category, and that's allowing that a significant percentage of that 71.5 million that we've already lost in the past 15 years decides to return. If they don't, the number is substantially smaller.

Is membership actually a deterrent to possible health-club users? Is the greater marketplace telling us that we need alternatives to membership-only clubs if we are to thrive or perhaps even survive?

A study published in 2005 by Della Vigna (University of California Berkeley) and Malmendier (Stanford University) found that actual membership usage was far different than fitness proponents thought it was and than members thought it would be when they joined. The average member in a higher price club uses his or her club less than 60 times per year. In mid-price and lower-price facilities, average member use is slightly higher. This evidence leads me to believe that a consumer value proposition points to the downside and that consumers may not want memberships as a whole in the near future. Instead, they may opt for facilities that allow program usage or limited-time-commitment affiliations that more readily fit their busy lifestyles.

Membership is not what it used to be. Coupled with possibly outmoded facility design and consumer-use capabilities, we may be at the cusp of something entirely new in this business.

Michael Scott Scudder owns and operates MSS FitBiz Connection, an online-based club consulting and training service. Scudder can be reached at 505-690-5974 or

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