Selecting the Right Revenue Model for Your Fitness Business

By Stephen Tharrett

Historically speaking, the health/fitness industry is entering a new era of packaging its product to generate the highest level of appeal and purchase intent from consumers.

Initially, the industry followed a subscription model, or membership model, where people could access an offering by subscribing to access for a given period of time; for example a day, a month or even a year. It was believed at the time that unless you made customers commit to a subscription (e.g., membership) for a set fee, the product would not generate sufficient usage to create a predictable level of revenue generation.

Below are three types of fitness business plans that when integrated into your practice as a NCCPT fitness professional or facility that might provide some guidance to drive more revenue.

Membership Revenue Model
The subscription model remains the most popular fitness business plan. The benefits of the membership model include:
For the client, the subscription business model provides access to the offerings of a studio for one fixed price (e.g., weekly dues, bi-monthly dues, monthly dues, annual payment). Clients feel a degree of security with this model knowing they will not have to dip into their wallet every time they want to participate.
For the client, signing a contract forces them to make a greater commitment to leverage their investment. If they don’t use it, they lose it. As a result, the client is more likely to engage in the activities offered by the studio.
For the studio operator it provides a consistent and predictable stream of revenue.
For the studio operator it lessens the reliance on the inconsistent usage patterns of clients, something that often leads to widely fluctuating cash flow.

The primary risks of the membership model include:
Clients sometimes feel “trapped” or “chained” to the studio. Clients can feel they are paying for something they don’t use, and if they use it infrequently, the perceived cost of their investment rises.
This risk is one reason the health/fitness industry experiences such high levels of attrition. Clients sometimes feel that they don’t have options – having to use whatever the membership offers without having the ability to pick and choose.
For studio operators, the membership model brings with it the constant pressure to sell memberships, and the equally daunting challenge of trying to keep clients involved when they don’t visit the studio.

Pay as you Play Revenue Model
The pay as you play model is the least used of the three basic revenue models. The primary benefits of the pay as you play are:
For the client it allows them to pay only for what they use, not what they don’t use.
For the client, especially the connoisseur, pay as you play allows them not only to select what appeals to them, but to also to pursue their interest with others of like interest. Clients don’t feel “chained” to something they might not fully leverage.
For studio operators pay as you play allows them to charge a premium for the experience knowing that they are appealing to a niche audience (e.g., connoisseurs).
For studio operators it eliminates the constant stress of selling memberships and fighting attrition.

The primary risks of pay as you play include:
For the client there is the risk the studio will close its doors suddenly because it does not have a large enough or regular enough client base to support the ongoing expenses of the business.
For the studio operator, this model provides no predictable stream of revenue. Revenues can rise and fall depending on the season, as well as the lifestyle patterns of the clients.
For the studio operator, while you don’t have to sell memberships, you do have to market and sell pay as you play services, individually and bundled, which sometimes leads to customer confusion.

Integrated Revenue Model (Membership and “Pay as you Play”)
The integrated model for revenue generation leverages aspects of the membership model, allowing for a regularly recurring stream of predictable revenue, with the added flexibility of the pay as you play model which allows individuals to upgrade and personalize their experience by paying additional fees for the offerings that appeal to them.

The benefits of the integrated model include:
For clients who purchase a membership it gives them predictable access to the core privileges they want; a sort of security blanket.
For clients, whether they purchase a membership or not, it allows them the additional flexibility to tailor their experience to suit their interests and objectives.
For the studio operator it provides a consistent and predictable stream of revenue.
For the studio operator it provides additional sources of revenue to augment membership revenue, and when times are challenging, it provides a second source of reliable revenue.

The primary risks of the pay as you go model include:
Clients may feel “chained” to the studio. Clients may feel they are paying for access, but discover that each time they visit they are paying additionally for a customized service.
For the studio operator this model can been difficult to execute, especially if they don’t have a fully differentiated experience.

How Will You Structure your Business to Generate Revenue?
Nothing can give operators greater heartache than determining the “right’ price for their offering. It is no secret that how you price your offering impacts your ability to generate new business. All too often, the fitness industry relies on pricing as a measure of value and point of differentiation. Unfortunately, nothing could be further from the truth.

What fitness business plan you use is a direct reflection of your businesses value proposition. Not only does pricing reflect your value proposition, it is the foundation for the revenues your studio will ultimately generate. As already mentioned, pricing is as much an art as it is a science, which means it’s not a perfect process. Yet, as imperfect as the pricing process is, it plays an incredibly powerful role in how consumers perceive the value of your brand, and consequently, the sales generated by the studio.

About the Author:
Stephen Tharrett is a former President of IHRSA, member of AFS’s Advisory Board, AFS community expert, and member of the Club Industry Advisory board. Stephen, along with his business partner Mark Williamson, are co-founders of ClubIntel, a brand insight, market research and consulting firm serving the fitness and private club industries. He also has served on the education, certification and health/fitness facility standards committees for the American College of Sports Medicine (ACSM) and American Council on Exercise (ACE).