The Membership Pricing Trade Off You Need To Consider For Your Gym
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It's time to talk revenue.
Specifically, let's dive into revenue as it relates to Customer Lifetime Value (CLV).
CLV is a business term, but in simple language, it's the total amount of profit expected from a customer during the lifetime of an average business relationship.
We all want to bring in as much membership revenue as possible to keep our fitness businesses healthy, but there are some trade offs between membership pricing and attrition (client loss).
For the purpose of this example, let's say our cumulative revenue of your average client is $4,000.
If your average cumulative revenue is $4,000, that means you would expect to earn $4,000 during the average lifetime business relationship with your gym clients.
If your client retention rate is good, meaning your clients maintain memberships for a long time, you can charge lower membership rates and still expect a $4,000 average cumulative revenue.
If your client retention is bad, meaning your clients don't maintain their memberships for as long, you need to charge higher membership fees to maintain that $4,000 average cumulative revenue.
Let's look at the math for a minute:
- A gym charges $60/month and expects to earn a profit of $4,000 during the client's lifetime with the gym. Your customer attrition rate (client loss) has to be really low because you need to keep your clients for about 5.6 years to keep that $4,000 cumulative revenue.
- A gym charges $100/month and expects to earn the same $4,000 during the client's lifetime with the gym. You don't have to work quite as hard to retain clients because you only have to keep those clients in your facility for 3.3 years to keep that $4,000 cumulative revenue.
Bottom Line: Deciding how to structure your membership fees is a trade off. If you charge less, you need to be super-focused on keeping clients as members for a long time. If you charge more, you can earn the same revenue from each customer even if they don't maintain their memberships for as long.
Either way, it's a good idea to focus on keeping your clients happy so they stick around. This helps maximize your cumulative revenue so your fitness business will thrive.
I dove into some other ideas that build on this topic, so if you haven't already seen these posts, you may want to check them out:
A Look at the Math: Tiny Percentages of Client Loss Have a Big Impact on Your Profits
I've also got some simple, easy, and inexpensive ways to lower your attrition here.
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