Most gym owners and fitness coaches are undercharging people.
And the majority of fitness pros who are undercharging people are amplifying the problem by discounting prices that are already too low.
Discounting your rates can be disastrous.
Do the math and you’ll realize that giving a 20 percent discount to five clients means you need a sixth to make up the difference. So instead of focusing on five clients, you now have to manage six.
Multiply that to microgym scale and you’ll see that giving 20 percent discounts to 100 people means you actually need 120 members to generate the same revenue you’d earn with 100 people at full price.
In that scenario, you’re always trying to find new clients instead of serving the ones you have. So you’re constantly marketing, and your retention is getting worse and worse. You’re actually working way harder for the same amount of money—and your gym is probably dying.
In 2023, more gym owners understand the danger of discounts, but if you don’t, read this:
What’s the most lethal discount a gym owner can give?
The would be the paid-in-full (PIF) discount. For example: a client pays for 10 months in advance and gets two months for free.
As a mentor to many CrossFit gym owners, I’ve had a ringside seat for a few PIF disasters. Here’s one sad tale.
Harry opened a gym in 2016 following the typical template: working out in his garage with CrossFit.com programming, inviting his neighbors to join in and then backing into a business. When he hit 50 members, he needed to rent space, and he needed money for the first time.
Instead of taking a loan, he self-financed the expansion by offering his members a deal: pay for a year in advance and get two months for free!
Harry assumed his clients knew they’d lose their money if his gym didn’t survive. But most of his clients—friends and neighbors—didn’t understand that. And now you know why many states have laws against PIF memberships.
Harry “financed his loan” at a much higher rate than any bank would charge: Each “free month” is an 8.5 percent cut to his annual rate. By giving away two free months, Harry had to pay the exact same bills with 17 percent less revenue.
He didn’t notice the problem at first because everything seemed peachy. In January 2017, with PIF payments in hand, Harry was flush with cash, and he made some mistakes. He upgraded his equipment, bought a new car and purchased new apparel for his coaches.
Then December came and Harry was broke. The PIF money was long gone, and he wasn’t acquiring new members at the expected rate. The business still looked viable, but rent was due, so Harry played the same bad card twice with another round of PIF discounts.
Harry’s newer clients jumped at the discount, but his old members didn’t: “Wait. We still have two months left on our memberships.”
Harry generated some cash and got to the end of 2017. Some new clients showed up in January. On Feb. 28, his long-term clients asked a question: “If we pay for another year, can we get another two months off?”
Harry, desperate for cash, said “hell yeah!” and started collecting the money.
Harry’s PIF deal brought him a load of cash in March 2018. Then he made more mistakes: He bought his coaches more apparel and installed a coffee bar.
You know how it ends: By December, Harry was desperate for cash again. He suddenly realized he was trapped in a downward spiral. The reality: He’d have to coach his current members for a full four months for free before they paid another cent, and his new clients weren’t making up the difference.
So Harry had to offer the same discount to all newcomers just to pay the rent. He was completely trapped.
Harry believed the answer to his cash-flow problem could be found by increasing his client count: “With 20 percent more clients, I can fill in the cracks my discounts are creating,” he thought.
But when your target is “more members,” you actually have an incentive to discount your membership to acquire them—and the downward spiral perpetuates.
Focus on This
Remember: Your enterprise is a high-value coaching business.
Your primary metric isn’t headcount but client value. Focus on increasing value and driving up your average revenue per member (ARM).
For perspective, the top Two-Brain gyms create so much value for clients that their ARM scores are between $430 and $679.
Discounts erode client value in the name of “getting more people.” They kill ARM.
Don’t chase headcount. Focus on providing value.
That advice is even more important with Black Friday approaching. If you want to know exactly how to navigate the “sale season” as a gym owner, check out the “Run a Profitable Gym” podcast or our YouTube channel: