Thursday, October 13, 2016

Health Club Management: Pricing your dues correctly

Feeling trapped when it comes to pricing?

Should you raise your health club rates or implement an annual/maintenance fee program?

Do you feel trapped when you are deciding to raise your rates?

In today’s economic environment and with the onslaught of the low-cost club, under $25.00 per month, increasing your monthly dues can be very tricky. Depending on your clubs amenities and the competition in your area, will you be able to compete better by raising your rates, or by implementing an annual/maintenance fee (AF)?

It is easier to raise rates by $x.xx or xx% per month as long as your rate structure will remain at or below  your competition’s, especially if amenities are the same or better. If your increased rates will cause you to be at the top of the rate scale and your amenities and/or services are no different than those of your competitors you may lose market share. Here is an article on Raise Your Health Club Prices and Outshine Low Priced Club Competitors. If you find yourself agreeing with this article you may want to raise your rates.

However, if you cannot compete with the amenities of your competition or your amenities are the same, keeping a lower rate and implementing an AF fee may be more conducive and easier to sell.

8 Guidelines you need to follow BEFORE you implement an annual/maintenance fee for your club:

  1. Can you legally have such a fee according to your State’s regulations that control the health & fitness industry? Will there be any State bonding issues if you implement such a fee? In many states, collecting funds in advance requires a surety bond to cover any losses to the consumer if a club closes prior to any fees being fulfilled by the club. So make sure you review your state’s regulations for your industry. You never want to get on the wrong side of a government agency. Unfortunately they believe they have to protect the consumer for all actions no matter the cost to the business that pays the taxes. (A little political jab)
  2. Consult your attorney once you have determined you can legally implement such a fee and add the necessary language to your contract. Spend a thousand dollars to do it right the first time and avoid more expensive legal fees down the road. Caution: be careful that your attorney does not get carried away with the wording. We all know they get paid by the word, just kidding, but it seems that way. This is not rocket science. Avoid all the legalese if possible. It will scare your member and only give you another objection to overcome.
  3. What is the AF going to be used for? Do not expect you can just pocket the money and buy yourself a nice new car or take a nice trip. You must reinvest in your club. Replace old equipment, add new services or renovate your club each year. You must show you are willing to invest in your members. If you do not earmark a significant percentage of the fee for such capital improvements or added services you, will lose all the goodwill you have earned over the years, and in turn lose market share.
  4. Does the AF pertain to the past year or to the upcoming year? If the fee is for the past year then you may be able to avoid any bonding issues. If the fee is for the next 12 months then bonding and/or state regulations could come into effect. The fee can be applied to current members also, but you must do the proper PR to make sure you do not lose members. If you have not raised your prices within the past couple of years this should be a very easy PR campaign.
  5. When will you debit the AF? You can debit the AF on the same date for all members, or instead schedule the debit based on the membership type, join date, or a combination of the two. If you utilize the one or two draft dates per year, one option is draft in the Fall and/or in the Spring based on the join date. For example, anyone that joins from January to June the fee will be drafted in October. If the join date is July through December the AF will be drafted in April. Always have the fee debited on a different day than the normal monthly draft date. This will avoid confusion and also help with eliminating returns. If you add the fee to the normal monthly debit you will increase your risk of returns.
  6. What is the price break for such an AF? If you were planning to raise your rates $xx per month should the AF be that amount times 12, or somewhere below? Should it be one month of your average dues? This must be carefully considered especially if you are going to include your current members. The range for the AF for our clients is $15.00 to $49.00 per year.
  7. How will I justify the AF to current members? This is a very sensitive area and may cause you to lose some members, but it may well be worth it. If you handle this correctly your members will understand, especially if you have not raised your fees in the past couple of years.  What you do not want to do is play favorites to any special membership group since most members use all the same amenities. However, the one time you can charge no AF or a different AF is if one type of membership is significantly different from the others in value and  services offered.
  8. Will I prorate the AF up to the date of the next AF? Pro-rating the fee for new members allows for a larger up front initial payment and usually does not affect the sales process. It will cause your sales staff to make some calculations based off a pro-rate “cheat sheet,” but if they are unable to handle simple math they should not be working for you. Implementing an AF program can also help in closing new sales when you run promotional campaigns. We have all run the “no money down” or “dollar down” promotions. Now these promotions will have less of an impact on the cash you collect when the member joins because you are now getting additional money from the prorated AF that will help absorb some of the enrollment discount you offer in your promotion.

The decision to add an annual/maintenance fee can provide a great boost to your club & your wallet, but do not implement the AF haphazardly.