Discounts can kill gyms—Two-Brain has data on that.
In gyms with modest profit margins, a discount means you’re giving away any surplus. In gyms with very poor margins, you might be underwater. Easy math: If your profit margin is 10 percent and you give a number of clients 15 percent off, you’re in a bad spot.
The reality is that some gyms don’t price services properly in the first place, so a $100 all-in membership with a 15 percent discount is like chopping more holes in a boat that’s already sinking.
Even in gyms with solid margins, discounts reduce profit. This generally affects the owner’s salary or reward for owning a business—or both. Or it affects the business’s net income, which reduces its stability and ability to upgrade and invest in growth projects.
Despite all the financial factors in play, discounts sometimes become a morally charged issue laced with guilt and pressure.
Let’s be very clear: The gym business isn’t about Lord Phineas K. Moneybags buying his 10th Rolls Royce on the backs of his slaving, underpaid coaching staff.
It’s also not about failing to recognize the significant contributions of service people, first responders, teachers, nurses and other groups.
Finally, it’s not about being insensitive and ignoring the needs of underprivileged members of society in pursuit of the almighty dollar.
Gym owners simply have to consider financial reality. Dollars and sense.
Yet I know gym owners and other entrepreneurs sometimes face pressure from very vocal people who tend to view profit and high-value services as elements of an elitist, morally corrupt society. Others who are less aggressive come at the issue with softer footsteps but still suggest business owners have an obligation to make their services more affordable. And members of some professions can be insistent when it comes to asking for discounts.
While we can all agree that it’s honorable to care for fellow humans and recognize their contributions to society, no one wins if the owner can’t feed the family and closes the gym.
Beyond that, discounts do nothing for equality. Easy example: discounts for doctors but not nurses, or vice versa. Another: discounts for police but not firefighters, or vice versa. One more: discounts for students but not unemployed people, and vice versa. I got lucky: When I first opened my gym, I avoided discounts because couldn’t decide which people were more deserving than others. That might have saved the business.
The toughest issue: People who can’t afford a service but might benefit from it. Gym owners are generally kind people who are concerned with the wellbeing of those around them, so it’s natural to want to help others become healthy even if they can’t pay the posted rates.
I put some people on “scholarships” years ago, and some others weren’t chased down for payments owing. It was “the right thing to do,” I thought. But doing that literally reduced my income, and as expenses rose to meet and eventually exceed profit, I started to worry. Worry grew to fear, and it’s very hard to help others and improve your business when you don’t feel secure yourself.
Reality and Responsibility
It’s concerning whenever business owners are advised or pushed to reduce rates by people who don’t have to review the profit-and-loss statements each month. You know the ones: They multiply members by membership price and forget to subtract the huge pile of expenses.
Or they’re of the view that owning a business is a license to print money, and they’re working for socioeconomic change by loudly criticizing entrepreneurs. “You should” statements are free because moral real estate is cheap and those outside the business aren’t responsible for its long-term survival.
You’re responsible for that.
Here’s a better plan that doesn’t involve discounts or artificially low rates: Build a strong business with rates based on the value provided and the 33 percent profit margin Two-Brain recommends. Charge those rates to everyone and build a strong, stable business that pays you enough that you feel secure.
Then help others from a position of stability and surplus.
That plan is fair and sustainable. It’s also financially and morally sound. In fact, you’ll be able to do more for others with a strong business that exists for decades.
I’ve seen this happen: A business owner with a huge heart gives memberships away and has to close the gym. Everyone loses: Owner, staff, clients, people in the community.
I’ve also seen this: A business owner with a huge heart builds a very strong business that creates surpluses that can be used for charitable work year after year. Everyone wins—many times over.
The current climate finds a lot of people applying morality to business. That’s their prerogative. Just remember that they don’t see the books or sign the checks.
It isn’t immoral to build a strong fitness business and profit from it. In fact, it’s your duty to do so. If you do your duty, thousands of people will become healthier—and you’ll have a steady surplus that will allow you to help your community for a long time.
Play the long game and everybody will win.