What other industries can learn from US!

July 30, 2010

Membership has its benefits…

I’ve written a lot about what we can learn from other industries (fast food, airlines, etc.) and there is a lot to learn by watching some of the best companies and applying their practices to running a gym. BUT (there is always a BUT), there are a lot of things that other industries can learn from us…

One pet peeve that I have is that every gym owner or wellness manager I talk to always says that operating a gym is pretty simple. I completely disagree with that statement. Successful gyms are equal parts customer service (member retention), auto repair shops (maintaining and repairing equipment), retail stores (pro shops), food establishments (juice and snack bars) and strong sales organizations. Strong operators are jacks of all trades, and masters of none (though the good operators are masters of all trades!)

In business it is usually accepted that 80% of revenues are generated by 20% of your customers. But that’s not the case in gyms. I don’t have exact numbers (so I will make some up) but I suspect 20% of our members are responsible for 80% of our expenses. That is to say the 80% of the members subsidize 20% of the memberships. Imagine if 100 people bought an airline ticket but only 20 people actually got on the flight!

In essence that’s what every industry wants. Customers that pay for products and services but don’t actually use it! Pure profit…legalized money laundering. Well that’s the trend and more and more companies are trying to take advantage of this by turning customers into members. The best example that comes into mind is COSTCO. Forget mayonnaise in a tub, I go on Saturday’s for the free buffet! Companies are adopting the membership model so that they can turn customers into members.

So why does this make sense?
The first and most obvious reason is they are banking on the fact that not every member will use their membership or at least not use it regularly. For those that do use their products or services, they can actually sell at a loss knowing that its being subsidized. Furthermore, for products, you can actually sell more then you have. Airlines have known this for years and have even figured out which flights they can overbook banking on the fact that a certain percentage of people won’t show up!

The real reason, I suspect, is it helps in projecting income and managing cash flow. Customers, by definition are impulsive and unreliable. Membership dues are more like an annuity…It allows owners to know when to and how much to spend!

All that being said, as more and more companies adopt the membership model, they will encounter a new problem. Making sure that their new members see the value in paying monthly. I suspect that the switch will again be a win for savvy consumers who are “power users” as they can rely on the rest of the herd to subsidize their use.

Motionsoft has historically been a club management software. Our systems are designed to help gym owners manage their front desks and member check-ins, control inventory in their shops, help track personal training usage, and most importantly generate the reports that help owners see how well they are doing. What we are seeing (and the sales numbers prove) is our same software is now being adopted by a number of different industries that have finally seen the light (and value) of the membership model.

Membership really does have it benefits if you run a business! I only wish we had listened to Telly Savalas when he told us to get a Players Club Card!