There is little logic in the fitness industry.

We endlessly repeat the past building exact replicas of 1995 over and over again; we scream the market is jammed and there is no way another gym could squeeze into this town, yet here comes one more pretender; and we hire the same tired leaders to get us the same dated results, hoping we can find a hotel guy or Starbucks person who will finally understand fitness has little to do with room bookings or coffee.

We talk about a national fitness revival in industry conferences, then drop our prices so we stay trapped in the equipment rental business where $10 will get you a gym with no service but you do get to walk slowly on a treadmill seven days a week. And we open more chain gyms while the country gets fatter, proving again the mainstream fitness world exists to take the money and run, and has little to do with true fitness or getting results for the clients who trust us with their money.

Even our one ray of sunshine in an industry gone mad, the hybrid training gym–where results for the client are traded for fair money–is ignored by our largest trade associations, which remain dedicated to protecting the biggest players and their own self interests.

The gym industry is currently a business representing all what we used to be, and little of what we could be if we embraced evolution instead of remaining trapped in the Dark Ages of the 90s. We have become a business segment that ignores the logic of good business, replacing logical growth with a chase for the glory days when we all rich and all beautiful in the fitness world.

It is illogical to think that growth in this industry follows a logical pattern.

Approximately ten years ago, there were about 2,700 fitness facilities in Australia. During a workshop there, I was asked if I thought growth was possible for a market that already appeared saturated to those in the business?

My answer, which was met with twenty minutes of denial, was that the market would double in less than ten years. It did. And the Australian market will double again within five more years.

The U.K. market was fairly flat a decade ago. The big players had the best locations, the training gym (please never again use the words “studios” or “boutiques”) hadn’t arrived from America yet, and the mom and pop gyms were regulated to small villages in Ireland. And the UK market doubled in a decade. And it will double again in five more years.

In the U.S. as of 2017, there were about 38,000 gyms in operation. The growth here is happening in the training-gym segment, where 1,500 to 3,000 square feet gets you a boot camp or single methodology gym. We have 38,000 gyms now. We will see this double in ten years. No, this growth isn’t logical, but it will happen.

Growth in this industry is fueled by emotion. The “what is next” drives out the old. The “It doesn’t matter how many gyms are in this market. I will be different and beat them all,” mindset is still alive and well, now driven by investment money cast out from other industries, such as retail. Emotional growth is fueled most often by ego, and backed up by cash, but growth witjhout reason is coming, and it just isn’t logical in many markets.

It is illogical to think single methodology businesses will survive over time

Single methodology fitness facilities are the wild children of the industry and date back to the 1950s of last century when Arthur Murray dazzled us with his dance moves and commercial dance studios, a predecessor to the modern fitness industry.

Single methodology, such as the old Curves model, is where you have a single product offered at a single price point. Modern examples abound disguised as boot camps, forty-five-minute circuits, boxing clubs, mind/body studios and other single concept offerings.

Single methodology has always failed, and it always will, for two main reasons.

First of all, if you only have one price point, even with deviations on that price, someone will always cut the price:

• I open my new single methodology circuit gym at $159 per month
• Imitators appear and lower their price
• I then lose members and cut my price
• The price war ensues, and both of these gyms ultimately fail

The weakness in a single methodology business is you only have one product to offer the consumer. When sales of that product slack, it is hard to change the offering since that circuit or style of training is the product.

Sales slow, we cut our price to match the competitor and the business ultimately fails because it was nothing more than a volume-based system that dies quickly when the flow of its single price members is cut off.

Secondly, the consumer always moves on. Consumers get bored, and even if they love ice cream, and you have the best vanilla in town (your only ice cream) they get tired of the same circuit repeated forever until they sit in a corner crying tears of boredom and finds another ice cream store.

Single methodology is falling in love with a single tool. Fitness delivered in these models is about the repetition of this tool and the owners find it impossible to change tools as the consumer fades away since the business is based upon this tool as its sole offering. Circuit training gyms might change the equipment slightly, but you are still doing the same circuit, in the same little space, over and over again, and it dies by overexposure.

It is illogical to cling to technology we
used in the last thirty years of the last century

 New mainstream gyms look just like old mainstream gyms. Same equipment, now new and improved we are told by the salespeople, in the same rows, with the same group rooms, pricing structures, old sales schemes and price marketing scams from four decades ago.

The consumer has joined these gyms in the past and has failed in these gyms. There is no need today to build a 40,000 square foot monument to the 90s when we can build smaller (20,000 square feet or less), sleeker, and more functional gyms, for clients who might want to get results for the money they pay, and will pay more than the equipment rental mindset client.

It is not logical to cover a huge training floor with single plane, fixed joint equipment in today’s fitness market. It is no longer logical to offer programming that only attracts a few percentage points of our clients, such as group exercise or childcare, swimming or basketball.

Big gyms require big money to build, big money to maintain and need a constant flow of new blood to replace the members who leave making no sense today. Why consider a 60,000 square foot castle when you could build three, 20,000 square foot gyms chasing more target specific market share more cheaply?

The biggest mistake here is we try and build a fitness palace for the entire market assuming the guy who eats at the cheap fake cowboy steak house, and orders a steak, drink, side and dessert for ten dollars is the same guy who goes to the Capital Grill for a fifty dollar steak and hundred dollar bottle of wine.

Gyms of the future have to be smaller and more target specific to survive. The training gyms have figured this out already and you can easily find a sports performance specialist, a fitness after forty gym for women, and an elite training gym specializing in one-on-one training all across the street and draining the members of the mainstream monsters who are everything to everybody and nothing to anyone.

No one goes to a cheap gym looking for a hundred dollar per hour trainer and on one walks into a training gym expecting to pay less than one hundred and fifty per month to get supervised group coaching. The clients are different, but we try and force them all to live together in one box rather than understanding likes attract likes, and the Capital Grill guy probably doesn’t like being in the same gyms as the cheap steak house guy.

It is illogical to believe you can survive in this
business without a minimum five percent growth rate per year

This is a tough business. Wear and tear destroy a gym in just a few years. Equipment dies, cost of labor rises each year, and utilities, marketing and the hundred other items in your expense section can jump a few points while you are sitting in the bathroom.

In this business, we grow or die, but most of us have left the growth part out of this equation.

There is only three ways to drive a business. You increase sales, which will become more difficult each year as the market adds new players all chasing the same clients, using the same price-driven business plan; you can cut expenses, or you can seek a higher-return-per-member-served.

Endless growth isn’t sustainable in most markets. There are too many players fighting for the bottom. Market share is impossible to grow if all you sell is price because there is always someone opening next to you next week willing to offer the same product at a lower rate.

The new trend is offering more options in a massive warehouse type of facility, at a cheap entry with a small upgrade. This too is illogical since your market is restricted by drivetime from your gym. The average consumer will only drive about twelve minutes from his house to workout (twenty minutes in the training gym specialist world) and offering more in the big box for a lower price still demands a sheer amount of volume hard to sustain.

If you can’t chase volume, then you cut the expenses, but can you cut your expenses each year to match the increased cost of doing business? In other words, can you slash five percent this year, again, to match the three-to-five percent increased cost of doing business this year, again?

Three percent might get you even, and we need five percent growth to keep the profits growing, but you cannot save yourself into profitability more than once.

Growth is coming again to this industry, but repeating the past is not the way to financially benefit from this surge. Logic states most of what we do doesn’t work anymore, but illogical behavior wins because emotion drives us in this industry.

Seek the logical, evolve away from the past, and embrace a future industry where the client gets the results he pays for at a fair price.

You seek the future, or you constantly relive the past.

The gym industry is currently flooded with consultants, gurus, mentorships, make-six-figures-now guys and the social media obsessed who wish to be known as great influencers of trends and the future.

But what are they selling you?

You either create the future and drive change, or you search the past, or just steal from others, and repackage yet again what the industry has moved past decades ago. Here are six hot trends, which were created, used and failed over 20 years ago, that were recently dusted off and offered as fresh to an entirely new generation of owners who weren’t around when these failed the first time.

Off prime-time pricing

The idea, promoted by a financial service company in the industry, is that a gym owner should offer clients cheaper rates to work out in the non-prime time hours. The idea is to fill the gym with clients who want a deal and who will come when the gym is supposedly slow anyway.

This was a brilliant idea… back in the 1950s (yes, the middle part of last century) when Jack LaLanne first used it in his gyms. He only built one locker room back in the day and men and women used the gym on alternate days. One of the centerpieces of his early plan was that you could workout at a cheaper rate prior to 4:00 in the afternoon. Great idea, and it lasted well into the mid 70s, but here is why it failed then, and will fail now in any gym crazy enough to use it:

• The lower price became the price. For example, if you offered $39 a month for a regular membership, but sold a cheaper off prime-time membership at $34, the lower price became the price. New clients just refused to pay the full price when the gym had established its price at a lower rate and would not become members unless they too could get the lower rate no matter when they wanted to come to the gym. What is this gym really worth, $34 or $39? The lower the price, the lower the perception of quality.
• What happened to the guy who paid less, but was still there at 4:30? “Hey, didn’t get out of work on time. You don’t mind if I just get my workout in a little late, do you?” What would you do with a member paying you $34 for a membership where he has to be out of the gym by 4:00, yet there he stands at the desk at 4:30? No matter what you chose, either let him in or throw him out, you lost. You either let him workout, and now established the precedent pissing off all existing members, or you refused him costing you a member.
• Everyone finally realized that some gyms just had quiet times and trying to stuff those few lower usage hours just killed your business over time and it finally stopped in the mid 70s.

In today’s gym environment, the client might be paying much more for the class or workout, but when you discount to fill a quiet time in your business, the lower price will become the real price and again you lowered the perception of value in what you offer.

The old 1/2/3 time per week pricing schedule   

Again, this was brilliant stuff back in the early 90s when I first used it with clients, but it proved to be a failure over time fading in the late 90s but resurfacing again now through gurus looking for a way to put their own ideas on a new gym owner. Here is why this too failed:

• Does the soccer mom really know today how many times a week she will work out for the next year? Talking about putting an additional hurdle at point of sale. She didn’t know, and had no way of possibly knowing, so she took the path of least resistance, which is the next point.
• They always, at a rate of about 80 percent, take the middle choice, or two a week. This lowers your overall client rate potential because you are artificially lowering your own price through your offerings. For example (think about the example, not the prices here):

1 per week at $149

2 per week at $249

3 per week at $349

About 80 percent took the middle one. They always do, and this has been part of retail strategy since the beginning of the last century, but in our business, it fails us because we really want to get a higher per client average. This system forces the client to go lower price because there is less risk and very few, or about five percent, take the highest price. In other words, you created a system where you automatically lowered your own price.

• If the client didn’t use the sessions, he wanted them back the next month. I signed up for two a week, didn’t get them all, so please add them to the next month. Managing this became a nightmare over time, because everyone missed and wanted sessions added and keeping score became an ongoing issue with the clients.
• We built failure into the system. If you don’t come as promised, then you failed, but most importantly to us as owners, the client felt that if I couldn’t make two a week, then I am wasting money and I want to quit now. This was the biggest issue with this system, and still is for anyone living in the past trying to use this yet again.

The current system that does work is to shift the burden to the client instead of the gym. In this case, we sell access instead of a set number of sessions or times per week. For example:

Unlimited access up to 12 times per month with a coach (1/1)                                           and additional coaching support to design workouts to do on your off days

$899 per month x 12 months

Limited access up to 5 times per month plus additional coaching support

$499 per month x 12 months (based upon $100 per session)

Selling access means the client can either come up to 12 times per month, or up to five times per month, but if she doesn’t make all the session she didn’t lose anything, nor feel like a failure. The burden is shifted to her and away from the gym to come when she can, but since she purchased access, not set sessions, she determines how much and when she shows up.

Month-to-month memberships

Eliminating contracts and going just month-to-month sounds so seductive to an owner. If you use this magic system, sales are easier, people don’t leave, your client complaints just fade away and life is easier, which all sound good, but none are true:

• If month-to-months are easier, you screwed something up further upstream. If you are talking about price, after the client has had an extended trial, met you and your staff over time, met your members, experienced your service and has had a chance to try all of your offerings, then you either have a weak gym, terrible sales people, or most likely, skipped all of these things and just went for the price too soon when the client didn’t have any experience with you and your gym. If it comes down to price, meaning I really don’t trust you so just give me the month-to-month low risk thing, then you failed the client earlier in the process. There are legitimate people who need to come and go with flexibility in the gym, and they should have the option to pay about 20 percent more for that option, but these people are a small percentage and shouldn’t drive the entire pricing strategy.
• Month-to-month makes it so hard to ever borrow money or sell your gym. What buyer is going to pay you much for your business in the future when every client can walk out the door an hour after I buy the thing? What bank is going to loan you money when you have nothing of value to secure the note? Members on contract are worth a lot as a receivable base. Members just paying monthly have little value to a bank since it is nothing but cash flow that might just go away any day. The last blog in this series covered this topic in-depth. The short version is that month-to-month came from the 80s, was wildly copied, and ultimately faded because of the weakness it causes in the business.

Circuit training

The concept that is hard to kill and rises yet again. Circuit training, where the client travels through a series of machines or workouts in a standardized set pattern, started back in the 50s of last century. The gym saved immense labor costs since the client just did his own thing and didn’t need supervision or help.

Curves made circuit training popular and reached a peak of over 10,000 units worldwide and then faded. The client outgrew the technology and the company failed to evolve.

Mainstream players keep the concept alive and about 94 percent of a mainstream gym’s population practices do-it-yourself fitness doing some form of machine circuit.

And now we are on to the current circuit players, such as F45 and Orange Theory. Same concept, but is the product both companies offer anything more than a circuit where the client completes a set course under the supervision of a single trainer, or worse, just follows along on a television? Circuit training is still alive today, but has simply been repackaged again for a newer generation that hasn’t been bored to death by the repetition from the old days.

It is important to note here that single methodology gym businesses always fail over time. Circuit training, my only offering and trick in this business, gets boring and the clients move on to something else. Kettle bell gyms, cycle-only studios, most mind/body businesses and any other gym business that only offers a single method or approach always fail, and will always fail, simply because the clients evolve and the gyms never do.

One-on-one training

One-on-one training has its place. You have a small percentage of clients who are sports specific people and need a directed approach, you have medical issues where the client needs more intense supervision, and you have the wealthy client that has so much money that he or she just has to give you some for an hour of your time.

But overall, old school one-on-one training is still the least effective thing you can offer and do in a training-centric gym business. There are not enough hours in a week you can work, and few coaches can charge enough over time, to make this concept work. One-on-one coaching is simply too labor intensive and has too low of a financial ceiling to work as a business concept in today’s market.

Yet we keep chasing the idea. There are gurus who still sell their secrets to finding the clients you need, how to charge, how to keep them paying, but all of this if even done correctly is a very small way to make a living compared to a gym owner who has mastered small group and team and that can generate $1.2 million a year or more with only 300 or so clients.

Making a $100k a year is great money when you are single and in your 20s, but add a few kids, a mortgage and a life in your 30s and beyond, then working 50-60 hours per week, six days a week, eating out of plastic bowls and working endless split shifts ultimately just to chase a hand full of one-on-one clients wears your ass out.

The old 3/6/12 pricing strategy

This another plan rediscovered after being introduced in the 1960s, failed over time and yet here it is, alive and well in small training gyms everywhere.

The method works on the strategy that the longer you commit, the less you pay per month. Sounds logical, but this method has the same weaknesses as most of the rest in that the emphasis is put on price, not what you get for the price, and as in the 1/2/3 times per week method, the client always grabs the middle option. For example:

3 months @ $99 per month

6 months @ $89 per month

12 months @ $79 per month

So is this gym, and these coaches, worth $79, $89 or $99 per month? This method makes it about price and absolutely kills your credibility as a coach or owner since your value is now placed on a sliding scale. Pricing here is a gimmick and lowers the perceived value of who you are and what you offer. And it doesn’t work over time.

The clients pick the shorter agreements and then you have the same problem as the month-to-month, where all of your clients are now on short-term agreements and can just walkout if things change and you have no time to fight back since all agreements are based on just a few months.

The safest thing you can do in your business, and the most profitable over time, is to create a strong receivable base where your clients have some type of obligation that allows you to project your income into the future.

Most of these very old methods are the result of a poor sales system and were created to overcome that major weakness. Pressuring a potential client to become a member of your gym during his first visit always leads to a reduction in your ability to charge and price logically for the business, since you have to continually lower the price to overcome the fact no one on your team can properly track, follow up and sign up a client at a fair price.

If you start every client with an extended trial membership of somewhere between 15-30 days, pricing objections should never occur. Yes, some people simply can’t afford to be a client of your gym, but that does not mean you should lower the price to the lowest rate possible hoping to attract every single person who ever walks in the door. Some people just don’t have enough money to be your client and that is fine if you understand you can’t be everything to everybody.

Any business can be fixed. Start with the pricing strategy first. How you collect, how you charge and what you get for the money is the foundation of any gym business. Get this right, and you can screw up a lot of other things and stay in business. Get this wrong, and the business will always ultimately fail.

The oldest financial tool in the gym is still the best for your business

The 12-month contractual agreement, used to create a strong receivable base for your business, has been around since the early 1970s and if there has been one common denominator that has added to the financial success of most of the major gyms in the world it has been using this tool.

Many people have tried to eliminate this classic from the modern training gym for a variety of mostly poor reasons, but there is nothing you can do that is more important in your business than using a 12-month agreement as your client membership payment collection tool, especially if you ever want to sell your gym for more than a few dollars and some change.

Here are several reasons the 12-month agreement is a must to build a financially successful training gym over time:

#1… The receivable base is the only thing you own in your gym that is of value to a potential buyer, or to the bank if you want to expand into a second unit, or to borrow money to grow your business.

A receivable base means you have clients that have signed some type of agreement with the gym that projects revenue into the future. Remember there is no receivable base if there is no obligation to pay on the client’s part. If you use a 12-month agreement, then you have created an obligation between the gym and the client allowing the gym owner to anticipate money that will arrive in the future, as a month-to-month payment, and that he can count on that money arriving since the client signed a contract stating he will pay.

Most of your clients are honest people. If they give their word they will pay, by signing a membership/client agreement, then they normally do. I promise to pay for 12 months and I will because I said I would. On the other hand, if you do not ask for an agreement, but only a month-to-month obligation, then I will honor that as well and leave anytime I want since that is what you requested as an owner and that is what I agreed to as a client.

What is a receivable base? For example, let’s say the gym only has 10 clients and they owe the owner these payments left on their memberships to the gym:

• One client owes 7 payments of $300 = $2100                                                                       (he started at 12 months, but only has 7 months left to pay for his first year)
• 12 payments of $400 – $4800 (new client just getting started)
• 3 payments of $350 = $1050
• 6 payments of $300 = $1800
• 1 payment of $400
• 9 payments of $149 = $1341 (this might be a person in team training)
• 3 payments of $400 = $1200
• 11 payments of $149 = $1639
• 5 payments of $350 = $1750
• 6 payments of $300 = $1800
• 12 payments of $300 = $3600
• 2 payments of $149 = $298

If this gym owner never sold another client another membership, he could collect up to $21,778 over the next 12 months. In other words, if every client paid as promised, and most will, but we will discuss loss rates later, then this owner might have a chance to collect up to $21,778 over the next 12-month period. This assumes one very important thing: we assume the clients are on a contract and give their word they will pay.

What happens if there are no contracts or 12-month agreements? Then the owner does not own a receivable base. This means that the owner has monthly cash flow from his clients from their payments, but since the clients have no obligation, defined as no contract, then all of them could leave immediately if they wanted.

When an owner tries to sell his gym, he only has two assets worth buying: the lease so the buyer can extend the business into the future at that location, and the receivable base, which is a pile of contractual obligations between the owner and the clients that could be transferred to the new owner.

If there is no contract, every client could walk away the day the business sold. If there is a contract, or in this case a 12-month agreement, then the buyer can count on client payments arriving as he gets his team and business plan into place. This receivable base also gives the new owner a chance to build his own relationship with the clients before they choose to leave.

An important side note is major staff change in your gym. If there is no receivable base, again meaning the clients can get mad and leave immediately, you are always held hostage if you need to replace a key staff person. Hey, get rid of Freddie and we quit the clients say. But you have to get rid of Freddie because he was once good but now is bad for the business. If the owner has a strong receivable base, based upon a strong contract, he can make that change and not lose half his members over nothing.

Banks don’t get too excited to loan against cash flow since it could disappear so easily, but banks love receivable bases since you have proof you will have a certain amount of cash arriving in the future that can be validated through the contracts.

If you want to create a business of value that can be sold in the future, then the only tool you have to base your business on a tool that adds this value, and that is making sure every client, or as many as possible, are on 12-month agreements.

#2… Why 12-month?

Every client tool has an associated loss rate. This means that you never collect all the money from all the clients, but she who collects the most money from the most clients will win. Twelve-month memberships have the lowest loss rates of all possible membership agreement tools, or stated another way, you will collect the most money from the most clients over time using a 12-month membership.

Here are the loss rates for the typical tools used in the fitness business. Remember, losses are figured monthly, but compounded annually. If you have a 4% monthly loss rate, which doesn’t sound too bad, you really have a 48% annual loss rate, or in other words, you just lost have of your entire membership (4 x 12 = 48):

• Open-ended month-to-month memberships = 4-7% each month
• 12-month agreement losses are < 1% a month, or about 10% annually
• 24-month agreements lose about 5-8% each month

As you can see, the most effective tool over time is the 12-month agreement. Many attempts have been made through the years to replace a contract with month-to-month memberships, but all the supporting data has been too short in length to uncover how really bad this month-to-month system is.

You read somewhere, “Yes, we stopped 12-month agreement and started month-to-month and our sales shot through the roof.” As we note later, there are probably other issues in play, but most important here is the fact that no one tracked these memberships for the next several years. The losses will be there, and they will be big, but in the short run this seems like a good plan, although over time it erodes the entire membership of the gym and can you down, while lowering the potential to ever sell your gym for any real money.

Most training gyms offer a 12-month membership at a fixed price, but if the client travels, has a second home or just doesn’t want to sign a contract, we usually charge him 20% more. This system rewards the clients who support the gym all year long, while charging a premium for the clients who want to come and go.

The losses are higher in the month-to-month group as stated, but you still have a solid base of 12-month contractual members along with a much lesser number of month-to-months, usually representing about 10% of your membership/client base.

#3…. Are open-ended, month-to-month memberships really that much easier to sell?

No, they are not, but if you find they are, then you messed up something earlier in your system.

One of the attempts to kill 12-month memberships always includes the, “it is easier to sell” promise, but is this true? Think about this chain of client progression for a few minutes:

• The client does not belong to a gym and is sitting at home. He currently isn’t searching for a gym, might have had a bad experience at a gym, or he is finally to the point that he might consider getting back into shape but does not know where to start.
• He is watching the game, scanning on social media, and a testimonial ad pops up from the local training gym featuring a guy in his age group who is successful in that gym.
• The current population in this country divides into two segments that join gyms: the first represents about 2/3 of the population of this country and are deal seekers who support the low-priced gyms, while the other third are money people, more educated, more sophisticated and who worry less about the cost and more about what they get for the money they paid. They sort themselves out when it comes to joining a gym. This guy is in the one-third and is interested in getting the best for his money.
• The ad features a link back to a website where there is a large number of testimonials all similar to our guy here. He is also given a chance to sign up for a 30-day trial. This means he will be given a chance to meet the other members, experience the gym’s service and see the quality of the product before he is asked to join.
• He books his trial, finds his gym stuff he hasn’t used in two years and shows up. Remember, he hasn’t tried a gym in several years and had to find the emotional courage to give it a shot one more time. Even getting to the door for the first time is a huge step for this guy.
• He comes into the gym, spends an hour with a good assessor, is set in motion somewhere in the gym where he fits, but he has not yet been asked to join. Remember, if you ask the potential client during the first visit to start today the discussion always comes down to money and contracts since the client has no, none, not any experience with your gym or product. This is the biggest mistake you make here. You ask too soon, too hard, and then blame the tool (12-month membership agreement) instead of questioning how you sell and how you ask for money.
• Two weeks later, the guy is asked to join. He has been in the gym five times, met everyone, has a free shake or two, attended a social event at the gym, has been introduced to every client in every workout he attended and is happy.
• Do you really think this guy is going to balk at a 12-month agreement after going through all this effort to get this far? We blame the tool, but it was the system, or lack of in most cases, that fails.

#4… How you collect the money is important too

How hard do you work to get clients? Imagine doing all that work to build your clientele, yet you only collect 70% or less of the money you should have received.

Many gyms get enough clients, they just can’t collect from any of them. If you want to build a financially successful training gym, get control of the money first. You have to create a system that allows you to collect the most money from the most clients over time. There are three key parts to make this happen:

• Is your price structure right for the market? Is your programming defined by your pricing strategy?
• Do you have a collectable 12-month agreement in place?
• Do you have your memberships serviced by a strong, third-party financial service company?

If you have these three components in place, you can screw up a lot of stuff and still stay in business. In fact, for most of you reading this, get this right and you would have a hard time killing your business.

The company we have used for years and recommend through our workshops is ASF Payment Solutions out of Denver. They started in 1971 and today specialize in training-centric gyms. Above all else, protect your money and make sure a professional company gives you the best chance to collect the most money you can from the most people.

Summary

The training gym business is a harder business than it looks. You not only have to be a good, or even great coach, you also have to be a good business person as well. The first thing you need to master on the business side is how money works. If I build a business on getting clients to pay me monthly, then how can I collect the most money from them over time?

The key is build a solid financial foundation based upon pricing, using a 12-month membership agreement and then using a solid financial company to help you collect the most you can.

The 12-month membership is an old tool but is has survived for a reason through the years; it is still one of the most important decisions you can make to help your business be financially successful over time.

Do we have enough leads?

How many trials did you get from those leads?

How many new clients did you convert from those leads?

What is the average return per new client sold (average client payment)?

This should be in huge letters on the wall of every single person who owns any type of fitness business. This is your business plan and is where you have to start every single day as an owner if you want to be successful in the gym business.

In this business, you get so busy being busy you forget there is a huge difference between being busy and being effective. Busy is where you fill your day scrambling from one project to the next putting out fires and burning up your time. You stumble home late, check and see if the kids remember you, open a beer and flop on the couch mumbling to yourself, “What the hell did I get done today? I was really busy but didn’t make any money at all.” You can be busy all day, but still not make any money.

Effective is a completely different game. Effective means you work about the same hours, but what you get done in those hours changes the outcome of your business. The difference between hopelessly busy and effective is the difference between failing or staying in business and ending up with a financially successful gym.

So what do these four statements really mean in your business, and most importantly, how do we go from busy to effective?

Do we have enough leads?

There are no profits unless you have accumulated enough clients. You will never get enough clients unless you have a lot of perspective clients. All perspective clients start as a lead, defined as someone who made a serious inquiry about your business, or more common today, tried one of your trial programs, such as a 15-day quick start.

Your business will never grow unless you have dedicated person who does nothing but bring in leads for the business. In today’s world, this is usually a dedicated social media person who spends 10-15 hours a week doing nothing but concentrating on generating enough leads. This person cannot be an outside person. He or she has to be inside and one who can pick up the voice of your gym, how it runs, how it feels, who the clients are as a community and what makes you unique.

Everyday, you ask yourself, “Do we have enough leads to make this business profitable?” If the answer is no, then that is your main focus for the day, because you can overcome almost any problem in business if you have enough new potential clients to keep what you own growing.

The order for lead generation in today’s training gym is:

• Social media marketing including your website
• Referrals and internal events and promotions
• Long-term working of your acquired list of former clients and missed potential clients
• Traditional old school retro marketing, such as ads in newspapers

How many leads turned into trial memberships?

There are people who will take a look at your gym and then go no further. The question to ask yourself is, “What could we have done better to get more people to at least try our gym?” Start with these:

• Does the potential client perceive this as too hard to even try?
• What does the lead see that stops him or her from even trying us?
• Is our trial too expensive to even try?
• Did we target our marketing toward the right potential client?
• Are we just plain bad salespeople who can’t follow up properly or ask for the business?
• Is it too hard, or too many steps, to get from inquiring to trying?
• Can a potential client sign up and pay for a trial of their choice online without even having to come to the gym first (your answer here better be yes)?

How good do you have to be converting leads into trials? You have to convert at least 80 percent of all leads into trial memberships of some type. If you are not hitting that number every month, think of the money wasted on marketing to buy nothing but misses. If you can’t convert at least 80 percent, you have an issue and there is nothing more important to fix today than how to be more effective at getting more leads to trials.

How many new clients did you convert from those leads?

Leads are important, but only relative in relationship to how many new clients were derived from that number. Leads without sales are just very expensive misses.

We will define leads as a client who has engaged with the gym in any way. A phone call, for example, is an inquiry, but not a lead, since the potential client is merely asking about information and has not engaged in moving to the next step.

The old school players who read this will cringe at that notion that a phone inquiry is not a lead, but in today’s electronically driven market phone calls are fewer and trials and social media leads are far more common. Leads have to be classified as a butt in the door trying something in the gym.

You can of course track calls and the conversion rate from calls to firm appointments, but with trial memberships as our primary tool, it is just more efficient to get people from the phone or social media directly into some type of trial membership.

Each trial has a different expected conversion rate, because the various trials attract different potential clients who respond differently depending on the tool.

Short terms trials

These trials are sold as solutions to specific problems. If you sign-up for a 15-day quick start program, you are most likely looking for a short and intense chance to lose weight. The same psychology applies to anyone taking the 21-day shred type of trial as well. These potential clients aren’t necessarily in the gym to join a gym, but to use the gym as a tool to accomplish a personal goal.

Based upon all of this, the closing rates are lower for this class of trial membership. The expected rate for these trials should be in the 40-45 percent range; meaning you will convert about 40 percent of those who sign-up for a 15-day trial into regular memberships in your gym.

If you fall below 40 percent conversion rate, you might have a sales problem, or in other words, you can bring them into the gym, but you aren’t strong enough to convert enough to new business to make a difference.

Longer trial offers

The longer trials bring in a different client altogether. The 30-day trial and the six-week version bring in an often more serious membership potential client with different expectations. He or she is looking for a more long-term solution, is willing to explore options in the gym and statistically is usually a more qualified buyer.

Perhaps the biggest difference in clients is the difference in price charged for the trial. Shorter trials are sold for less money; therefore, these trials attract a younger and more price conscious client. The longer the trial, the more is usually charged, which attracts a client more likely to commit for a longer period of time.

In the case of the 30-day trial, some gyms position this as a higher priced option while others price it lower to attract more volume. The price for this trial should be in line with your shorter term versions and should be sold at a higher price than your 21-day.

Closing rates on longer trials are significantly different over time. You should expect to convert at least 60-70 percent of all longer trials into memberships. The client is just more serious and more prepared to become a member than those who pop in on the shorter term trials.

What is the average return per new client sold?  (average payment per client)

This is probably the most important number no one is tracking in their business.

Each client has a value. Your goal as an owner of a gym over time to is to drive up that average per client. In other words, you need to understand how to make more money from fewer clients as your business matures.

The volume era of the fitness business, defined as the time when selling memberships, letting a client fail and then replacing that client with the next warm body, is gone replaced by a new generation of owner seeking better clients who are willing to stay longer and pay longer if they get the results the paid for each month.

For example:

Club Volume

3500 members paying $27 per month average = $94,500 per month before losses

Gym Next Gen

300 clients paying $319 per month = $95,700 per month before losses

It should be noted that the losses on the volume club are significant.

$94,500 x 12 months = $1,134,00

$1,134,000 x .64 = $725,760

(Figured on losses of 3% per month compounded to 36% annual losses)

The losses on the gym are far less. Clients have more money, are more sophisticated, better educated and are there for results and are getting the help and results they paid for so most are happier.

$95,700 x 12 months = $1,148,400

$1,148,400 x .88 = $1,010,592

(Figured on losses of about 1% per month)

In this example, the volume club needs to add hundreds of new clients each month just to replace the losses from members who leave for a variety of reasons ranging from losing a job, moving, just plain quitting and other issues associated with a client paying a small amount of money each month to access equipment without help.

The gym only needs a small number of new clients each month to maintain that number since the population in that class of client is more stable over time. In this example, assuming 300 clients at maturity for that gym, which would be around 18 months into it, this gym would need about 15-18 new clients per month to maintain the 300 number assuming normal losses.

The gym only needs a small number of new clients each month to maintain that number since the population in that class of client is more stable over time. In this example, assuming 300 clients at maturity for that gym, which would be around 18 months into it, this gym would need about 15-18 new clients per month to maintain the 300 number assuming normal losses.

Summary

We often get so busy we make the gym business harder than it has to be, but your business plan can be reduced to just four questions:

Do I have enough leads?

Did I convert enough leads to trials?

Did I convert enough trials to new clients?

What is my average per client sold and is it rising slowly over time?

If your gym isn’t performing the way you hoped, start here. This is your business plan for any gym. Focus on what makes you money each month and be sure and do it in the order listed here.

Don’t be so busy you go out of business focusing on everything but the right things.

You risk everything you have to create a new business.

You raise money, build your vision, take the risk of being in business and yet nowhere has anyone guaranteed you will make this dream a financial success this time. Yet, when the business struggles, we often get pissed at the universe, because there is always a sense of entitlement within us: since we took the risk, we should be entitled to succeed.

This sense of entitlement often masks the real issue, which is the business never had a chance to be successful in the first place. Often, our vision of this business, secretly honed each night during those last 20 minutes before we fall to sleep, just doesn’t match what the consumer wants to buy, and while this seems so irritatingly obvious, this is why so many fitness businesses, along with thousands of other small businesses in this country, continue to fail year-after-year. You simply built something that no one wants to buy. You simply built what you wanted instead of giving the potential client something he wanted to buy.

What one person represents your target market?

Where does your potential client live, what does he make financially,                                                        how does he live and what would he buy from the right gym owner?

Most owners force one methodology into a market instead of                                                     understanding that different clients, at different ages, might want different products.

The majority of these failures are actually very much alike, although each one may be from a different industry. These failures often represent someone trying to copy someone else’s successful business too late in that business’ timeline/lifecycle for success.

In other words, being the 50th startup company to try and copy  the Curves franchise model back in the 90s probably didn’t turn out too well; as is copying the $10 model twenty years after its inception is copying a dying plan. Copying an overexposed, out of date, worn out idea is not good business, yet in this industry we are doomed to repeat the past… or are we?

Every business concept has a life cycle. There is a long slow growth period that can last for a decade or even two; there is a rapid growth phase as the new business concept reaches tilting point and takes off; followed by a long, and sometimes, but not always, static period of slow growth. Finally, there is the eventual failing of the concept illustrated by the steady decline and final demise of the concept. This is called, “S Curve Theory” and it can be applied to most business concepts, but works particularly well for the fitness industry.

Used wisely, the S Curve is the modern equivalent of having someone read your tea leafs back in the day to predict your future. The numbers in business simply never lie, but our emotional connection, maybe this sense of, “I built the damn thing, and of course my idea/business concept is what the consumer wants” entitlement blocks our ability to see the future that is so clearly in front of us.

Take a look at the computer industry as an example. Up until 1984, it was estimated that only about 1-3% of the population in this country had computers or access to computers. In 1984, the famous Apple ad, the rage against “Big Brother” was shown and changed the course of computer marketing forever. From 1984-89, the number of people with computers rose to 15%. It wasn’t until 1997 that at least 30% of the people in the US had computers.

But from 1997 on the computer industry took off and more than doubled in just 10 years. Since about 2007, when it was estimated about 85% of the people in this country had access to a computer; traditional computer sales have flat lined and now have started to decline. The old school, box computer that lived under your desk is fading rapidly and even laptops, the desk computer killer, are starting to fade replaced by tablets and the new generation phones.

In summary, there was a long slow growth from the 50s through the mid 90s, a rapid growth phase that more than doubled in less than 10 years, and now we have that long slow decline as this product/concept of a box computer fades away replaced by a better and more efficient idea.

What has this to do with our industry? S Curve Theory is why the mainstream, big box gym is on the going extinct list and why the training gym, or training-centric mainstream hybrid, is replacing this failing concept.

The mainstream, all-purpose, be everything to everybody, fitness facility started slow in this country in the 1930 and 40s, built through the 60s, had its Apple commercial minute in the early 1970s with the arrival of Nautilus, went through a fast and furious growth phase in the 1990s and during the first decade of the 2000s, and then flat lined followed by the present decay phase.

In other words, the mainstream box fitness facility has run its course as a concept and is dying and there isn’t a damn thing anyone can do about it unless the concept is reinvented, and a few pioneers are letting their chains evolve (change is possible, but hard to get leadership locked into the vision of what they built and own to admit their baby is ugly and no one wants to babysit it) or if nothing changes, then this concept simply goes the way of the pager and Palm Pilot, brilliant ideas back in the day, but now replaced by the “next big thing” that will destroy the older technology.

What we don’t understand is that the training gym, and its close sibling the hybrid mainstream training facility (think $19 base membership,but with over 40% of the gym’s membership paying more for some type of coaching/training/group experience), are on a separate S Curve altogether and are not affected by the mainstream curve evolution.

The modern training gym did not begin until 1996. Its long, slow growth period lasted until just a few years ago and now we are just starting that decade long growth period. This category of gym is to mainstream fitness as to the smart phone was to the pager…. a killer with no defense.

So what does this mean to us for the future? What will the industry look like during the next 10 years? Here are a few basic ideas as to where we are headed in the future, not just domestically, but worldwide as well:

• The low priced guys will just keep going lower. You cannot, no matter what you believe, defend a business on price alone, because no matter how low you go someone will be crazy enough to go lower. This was a fallacy in the first $10 model as everyone bragged that they owned the bottom. Now look for $5 per person, or cheaper, memberships in the next few years. This will be a tough category to compete in since everyone knows that when the cannibals run out of tourists to eat, they then start eating other cannibals. Look for a price war within a price war as they attempt to kill each other.
• The hybrid, mainstream training-centric facility has life. This is where you can show low in price, but average high in average return per client served. There are chains and franchises already looking at this and during the next few years you will see a few brave leadership teams take the lead and own this segment before everyone else catches on.
• The first very poor attempts at trying to franchise the training concept have appeared, and they will fail. It is not about the workout, stupid, it is about the coaching experience. If programming were the solution, all the chains that attempted to do functional programming in a back room would have been wildly successful rather than stumbling. Those chains, along with the new franchise companies emulating training gyms, don’t understand that a good training gym is a coaching delivery system and not a magical routine any aerobics diva from the 90s can learn in 15 minutes.
• The third generation training gyms are going to set the industry on fire. Small gyms in the 6000-10,000 square foot range are already changing the way you have to compete today. When you see gyms this size doing between a $1.2-2 million a year with fewer than 500 clients you have to understand that ding dong the witch is dead and good luck trying to generate that revenue with 4,000 clients with 12 other competitors in your market chasing the exact same client during the coming years.
• Nutrition is the next big thing. We have done nutrition so poorly in the market for so many years it has been forgotten as a serious revenue component, yet this is changing too. Companies such as Precision Nutrition and DotFit offer solutions that can be used to generate enormous revenue in the gyms, but we are just now as an industry ready to listen and learn.
• The restoration of natural movement will also change our world. We have created an entire generation of clients who look good in a tee shirt, but can’t tie their shoes without a struggle. Looking good is cool; moving well into your 60s and beyond is everything in life and we can sell this to the consumer soon. Companies such as Functional Movement Systems are already leading that charge and it is becoming a hot issue worldwide.
• The death of the $39 guy in the middle. No one lasts in the middle. S Curve Theory demonstrates that you are on the edge or you die and anyone trying to cruise down the middle of the pack is going to lose. Look for that category of gym to complete fade away within five years.

What is the future of everything?

Maybe there future is returning to what made us important to people in the beginning, where the industry existed to help the maximum number of people get into the best shapes of their life in the shortest period of time. It was all about the coach at the dawn of the fitness industry and it is rapidly becoming about the power of delivering coaching again…. and that spells the end of the membership era.

The threads of our past may be killing our future

(Four minute read)

Sometimes the only way to save a business is to destroy it.

A single, flimsy thread can’t do much harm to you. Threads are usually just little cotton strands that a child can snap with her little fingers. Thousands of threads, especially those that keep us tied to a failed past can, however, combine into a force that chokes the life out of any business trying to stay alive or evolve.

Every business with any age to it has threads that bind that business to its history. Threads are the history of that business, but seldom its future. Employees from the old days, aged physical plants, old procedure manuals, a glorified past where the business was known and successful, and an ownership trapped trying to restore a fading concept rather than letting the business evolve to its current potential, are all threads binding you to something that may no longer exist and may no longer be viable into today’s business environment.

Businesses fail because they don’t evolve, forcing it to lose the ability to react to a changing market. Keep doing what you are doing and the world offers up someone doing it faster, better, cheaper, nicer or just different. Doing what you have always done, especially when it is proven not to work, guarantees failure, since you have already validated there simply isn’t enough clients out there who want to buy your old method of business. Sure, there are fans of desktop computers, K-Mart, film cameras, CD music, circuit training and old school aerobic classes; but not enough of those fans to keep any of these concepts viable going forward in time.

Sometimes, the only way to save or grow a stagnant business is to destroy it. Sometimes the only way to save a business is to cut all those threads that bind you to your history and let the business evolve. Sometimes you have to sit down and reinvent the concept for the market that exists today, not try to maintain it for the ever fading pack of fans that still believe in what you are selling, but isn’t big enough as group to support your efforts any longer.

The problem of course is that we never recognize the threads that bind us to the past. These threads are insidious in nature, much like the proverbial frog sitting in slowly heating water that gets boiled rather than leaps. In our case, the very things we are so proud of in our businesses are often the very things that are causing the most damage.

For example, the employee left over from the old days who fights to restore the way it was when everything was perfect and only he knew how to get it done: “It is our employees that are killing us today,” he says, “If we just go back and train them as we did when were making money we can fix it all.” Usually this is the old sales guy who believes we just need more closers, rather than questioning if what we are selling is what people want to buy today. This isn’t a sales problem, it is a concept problem.

When the business environment all around you changes, using techniques that made you successful 20 years ago will have little bearing on fixing a struggling business today. For example, you might have been the world’s greatest pager salesman, ran the greatest team, and were the company star, but no matter how good you were then has no value on competing in a world of smart phone fanatics. The market changed, the business changed, the needed techniques have changed; everything has changed except for this employee who can’t let go of the company’s past, or his own. The solution? Cut his thread.

Forgetting that what made you famous will not keep your famous is the real problem here. Businesses will plateau at some point, meaning that if we keep using the techniques and people we currently have, we cannot grow the revenue of this company any higher. We peaked with what we had, but what we have is usually not enough to drive through to the next level.

The thread here is that we refuse to change because we are so afraid of pissing off current clients. “If we change, we will lose all (your employees always go for worst case to validate their points) of our clients that love the way we do things.” The big question, especially if the business is stalled or in decline is, “If we don’t change, we might lose the whole business instead of a few old customers.” Old customers, who fight change to their service, product or even something as simple as a change in their gym equipment who then threaten us with their willingness to go elsewhere, hold us hostage to doing what is the best for the business, which is cutting that thread to the past.

Our staffs tell us that if we get rid of that old equipment, we will lose too many members and hurt the business, but the reality is that the current equipment array isn’t attracting enough new members to sustain the business. If you are held hostage by the old staff, yet again, and some of the old members threaten to quit if anything changes, then you won’t even paint the walls in fear of making some old client mad enough to go somewhere else. Put more simply, the very equipment or dated programming that is keeping that old guy from leaving you is what may be keeping a lot of new clients from joining you.

The answer here is to do what is necessary to give the business a chance to attract a new generation of clients, in big enough numbers, to replace the old client who might leave, but are preventing the business from growing.

There is no way you could ever survey this in a business. Ask any old client what happens if you change anything they know, replacing the known with an unknown, and no one will ever let go of what they have, but remember, for every client who clings to the past there is another old client who hates the fact that you haven’t reinvested in that business in 20 years. Having equipment, or programming, or a service that hasn’t changed in a decade is not a badge of honor to many clients; it simply means you are cheap and won’t reinvest in your business.

As a side note here, are we sure it is the old clients who refuse to change? Many times it is the employee who fights so hard to keep the same old, same old. Employees demand leadership and if you want change you have to replace the vision of, “We have always done it this way and this is all I know” with a tighter vision of what can happen if we let go of the past and embrace your clearly described vision of the future.

Your history is just that, something that happened in the past, and has no bearing whatsoever on what you can be tomorrow. A big question to ask here that frames this issue more clearly for most employees is, “If we just started the business today, would we be doing the same things we are doing now?”

The answer to this is seldom yes. If we started the business today, you wouldn’t have the old physical plants; the old, already ruined employees, and you would be able to start today fresh correcting all of your past mistakes by focusing on a vision of what the business has to be today to compete.

And this is how you should learn to run your business. If you want to go forward, you often need to cut the threads to the past. What are we going to do today to compete is for more sustainable over time than clinging to a past identity that is not sustainable going forward.

If your business is flat, getting surrounded by competition and you are fading, or it is simply not performing, ask yourself these questions:

• Are the employees that have been with me so long part of the solution, or are they really part of the problem that keeps this business from growing? Long-term employees seldom change when times get tough. Yes, there are a few who have been around for a long time and who can change, but not many. Often the very people you are counting on for help to evolve are the same ones who secretly fight every new idea by hanging on to the way you have always done it. Long term employees often nest and build empires and even the ones who have been with you just a few years will often cling to what they know, not embrace what you want them to do. Big change requires big change; often the only way to do that is to start fresh with people not afraid of your new vision.

• Is this concept even competitive today? What made you successful will not keep you that way. Markets evolve; competitors steal best practices and the expectations of the consumer changes too. Sometimes you have to admit you were brilliant in 1995, but not even in the game today. Change is often harder than death, as almost any smoker will tell you. Sometimes letting go of a concept and replacing it with, “What is next” is enough to save a flat lined business that is fading year after year.

• If I look back the last 18 months, can I predict success or failure during the next 18 months? If what you are doing, such as a string of negative numbers, has lasted more than three quarters, you don’t have a trend, you have a new reality, and that reality is that you are denying the inevitable. The numbers will not change if you do not change them, but if what you are doing isn’t working, defined by shrinking numbers, failing physical plants, dated processes and a staff that won’t let go of who you used to be, then you have to break it if you want to save it.

• Do I know the difference between a patch and a fresh concept? Putting little turf areas into the back room of a mainstream gym doesn’t make it a training gym. Signing up for a new group exercise license won’t save a business from three decades ago. Adding a few pieces of the newest, latest and greatest equipment doesn’t change the situation enough to attract a huge number of new clients. Patching means you are using programming and other gimmicks to prop up your failing concept. Most of you do not have a programming problem; you have a concept problem. Old, tired streetwalkers with fresh makeup and new clothes are still old, tired streetwalkers. Old, tired gyms with a little paint, 200 feet of turf and a few treads are still old tired gyms three decades past their prime.

Sometimes the only way to save a business is to destroy it. Sometimes the only way to go forward is to cut all the threads from the past. Sometimes the right thing to do to save a business is just to start over.