Easy Ways to Increase Revenue Without Raising Rates

Chris Cooper (00:02):
This is “Run a Profitable Gym.” I’m Chris Cooper, and with me today is Brendan Rice, the CEO of Wodify. He’s got two new ways that you can make more money without raising your rates. Brendan, welcome, and thank you in advance.

Brendan Rice (00:14):
Thanks, Chris. Thanks for having me. Excited to be on.

Chris Cooper (00:17):
I’m super stoked about this, and there’s two really, really awesome ways that you’re going to share that Wodify can help its users make more money without raising their rates. The first one was a huge epiphany, and it’s just you can pass on processing fees to each client. So, I’ll let you describe how that works. Let’s start there.

Brendan Rice (00:37):
Yeah, absolutely. So, processing fees, I’ll kind of give some backstory of how we arrived at the decision to build this feature. But to go all the way back, about six years ago, we rebuilt and rethought the way we handle payment processing in Wodify. So, we chose a new partner, Stripe: They’re now kind of the global leader in payment processing. And we took a more difficult approach to fully integrated payment processing. And one of the reasons we did that is we realized most payment processing solutions were disjointed. They lived outside of your system, and that created challenges with reporting transparency and reconciling your accounting and all sorts of other problems. So, we said, “There’s a better way to do that.” The other thing we noticed is most gym owners had almost zero visibility into their processing fees because as an expense, it doesn’t hit your accounting system the same way things like the cost of your software does or the cost of your rent.

Brendan Rice (01:43):
It’s kind of this hidden expense. And a lot of companies that manage payment processing have variable rates or fees or add-ons. So, we realized there were kind of two problems there, and we solved it by building a fully integrated payment process: We call it Wodify payments. It lets you see line by line breakdowns of your fees. We integrate with QuickBooks, we do all these other things, and we have flat transparent rates. So that was about six years ago. And more recently, we built the feature you’re talking about, which is we identified that’s still one of the largest hidden costs for gyms, and it’s a variable cost for gyms because their revenue fluctuates and so therefore the processing piece fluctuates. So again, this is all because we built fully integrated payment processing; we realized we could create a simple feature. It’s one toggle, and it enables gyms to, instead of absorbing all those fees themselves, pass it along on each transaction as a separate line item to their members. So, depending on the gym, on average, the customers we’ve seen uptick it are saving between 400ish on the low end to 1,000 or 1,500 and even more than that in some cases on the higher end.

Chris Cooper (02:53):
Yeah, that’s really outstanding. And you think about like what a gym would have to do then to make that a thousand bucks otherwise, because it’s not just a thousand dollars in top-line revenue; that money actually drops all the way to the profit line. So, if you’re not familiar with processing fees—correct me if I’m wrong here, Brendan—but when you charge somebody 100 bucks at your gym, the payment processor, Stripe or Visa or whoever, is going to take about 4% usually right off the top. And so, you’re going to get $96 that actually hits your bank account. The problem is that your accounting software, even if it’s QuickBooks, might record the full 100 as income. And sometimes I’ve heard of people even paying corporate income taxes on the full 100 without remembering to subtract their processing fees. Do I have that right?

Brendan Rice (03:39):
Yeah, exactly. That’s kind of what I was alluding to by calling it a hidden cost. And the other thing, just from a business strategy standpoint, is a lot of times you might not factor that into your own business model or revenue projections. You think, “Okay, I charge $100 for membership. I have 100 members; I’m going to have $10,000 a month in revenue.” And the processing fees really do make a difference. You pointed it out well there, in terms of the profit standpoint; if a gym adds $1,000 in profit using your State of the Industry data, that’s about a 25% increase in profit. So, it’s a huge swing in your business without—kind of a theme of this podcast—without adding new members, increasing your actual kind of stated monthly rates. The fact that it shows up as a separate line item with our system, you can actually—I think by default we call it an administrative fee—but you can actually change that term to whatever you want. And we’ve had it live for about six months. We have, I think, around a thousand gyms using it now. And the feedback has been overwhelmingly positive and overwhelmingly positive in terms of client feedback and reception when gyms do roll it out.

Chris Cooper (04:46):
You guys helped with that step a lot too. So, it’s not just $1,000 to the gym’s revenue; it’s $1,000 straight to the owner, which is really tough to do even by adding more members. I mean, your costs to do that go up: You’ve got cost to acquire the member, cost to serve the member. This drops straight to the bottom line. The only hiccup that I would’ve foreseen would’ve been: How do I present this to my members? But you guys even helped with that. Tell me exactly like what that message needs to be.

Brendan Rice (05:13):
Yeah, for sure. So, we have some really useful email templates and some copy and paste language that folks can use that you can find in our help documentation on this. So how we developed that: We’ve never—we’ve built this feature, but we’ve never run a gym, turned on this feature and had to explain it to clients. So, when we launched it, we partnered with a handful of owners that actually helped us develop the feature and think through all the small elements of it, like manually overriding it on certain invoices. There’s a lot of little things that go into it and setting thresholds. If you don’t want to pass on fees on like a $1 bottle of water, you can do that. So, we had this group of maybe like 50 customers that helped us develop the feature.

Brendan Rice (05:58):
Then when we rolled it out, we just talked to them—had phone calls and figured out what worked, and what we found was bits and pieces from all those different customers of “I said this,” or “I talked to a member this way about it.” And we just consolidated all that, refined it a bit and put it in a few examples in email templates. So, I’d encourage folks using Wodify who want to try it, or if you come over to Wodify to literally copy and paste and then maybe make some tweaks to match your language. But at a high level, I mean a lot of this communication, you just want to make it simple and direct. Just tell the customer what you’re doing, what it means for them, and then why you’re doing it and how it’s going to benefit them. So, the actual vernacular is in those documents, but that’s kind of how it boils down—is just to explain like, “This is going to help you because we’re going to be able to reinvest in the gym. Here’s why we’re doing it, and here’s what it means. In your next invoice, you’ll see a new line item for administrative fee, service fee.”

Chris Cooper (06:54):
And as you say, the pushback has been very minimal, right? I think we’re all used to paying service fees now.

Brendan Rice (06:59):
Yeah, I mean, the pushback has been shockingly minimal. I expected a little bit more, and I also expected fewer gyms to adopt it, to be honest. We had a goal of about 10%, I think, of our customers, and we’re reaching 20% now. And I think a lot of it is just because, like you said, it’s not an unusual thing for consumers, and like a lot of things—you know, maybe like price increases or other changes to your business or new equipment or changing a class schedule—it seems really scary at first, and you do it; there’s less pushback than you expected, and three months later you can’t imagine— Like, that’s the other thing, once you do this, going back is like almost—imagine just taking $1,000 of profit off your books every month. So, yeah, it’s been really exciting to watch it kind of roll out and develop.

Chris Cooper (07:49):
That’s great. Most of the time a rate increase does work, but it’s scary. And so, a lot of the time as a business coach, I’m telling somebody to do that after they’ve done these other things. And this is a really easy way to increase revenue, increase profit without doing the scary thing. Alright, Brendan, so I love this; I love the genius of it, and thank you for thinking the step beyond of not just “Here’s what to do,” but also “Here’s how to do it the best possible way.” Man, that is great. What got me super-duper extra fired up was a phone call from you about two months ago when you said, “We’ve taken this a step further now.” Do you want to tell us what the new initiative is all about?

Brendan Rice (08:25):
Yeah, absolutely. So, we’ve taken this a step further because of all the things I just talked about. We were pleasantly surprised and very encouraged by the model and the economics of this feature that we built. And so, we thought, “How can we take it a step further?” The other background to this new plan and offering we have is that we’ve built a lot of software. Wodify started in 2012 as digital performance tracking. Today, we call ourselves a customer retention platform. We have a massive product that—one way to think about it is over the years, we’ve invested probably well over $50 million in building Wodify, just in terms of engineering and product development. And you can access that software for a couple hundred bucks a month. So, it’s kind of cool, right? Like it’s—we’ve taken all this money from gym owners who have trusted us as their software for 10 plus years, we’ve reinvested, and we’ve built this massive piece of software.

Brendan Rice (09:24):
So one of my goals is to get our software in as many gym owners’ hands as possible because we built this awesome tool that can help you build a better business. One of the challenges we have is—this is kind of a give and take one—is not every gym, and especially newer gyms, can afford enterprise-style software, even if that’s $300, $400, $500 a month. But we want to be able to offer that. And the other thing is we want to keep building new features and being able to put it in as many customers’ hands as possible. So, I’ll kind of cut to the chase with those two dynamics at play, which is that we’ve added—we’ve built on the passing on processing fees feature to deliver a new way to access Wodify, which is completely free to gym owners in terms of per month subscription costs, 0% processing fees, and then we add a service fee to each transaction that’s a bit higher than just the processing fee.

Brendan Rice (10:22):
But what that does, it allows us to cover the cost of everything: the software, the processing fee, and it lets us give those customers all of our features and functionality—no usage limits. So, it’s super exciting because it lets us unlock that full set of features we’ve built rather than saying, you know, “We have a really low cost plan, but you only get like a really basic thing.” We want to be able to give that gym that’s just starting the most advanced and robust software we can because we know that’s going to help them build a better business. So, we’re calling it “Free Unlimited”—super excited about it. It’s publicly available now. We’ve been in beta for about a month. We already have—I think they—we only have about 15 or 20 customers on it. Same thing as passing on processing fees. Feedback is awesome so far, and we’re kind of opening the floodgates now. We’re really excited.

Chris Cooper (11:15):
Yeah, I think it’s an amazing idea, and it’s great. So, if you’re a gym owner, think about this. Your landlord comes in your door, and he is like, “I’m not going to charge you rent anymore. What I am going to do is I’m going to have a turnstile outside the door, and everybody’s going to put $2 in when they come into your gym, and that’s your rent. You don’t have to worry about it anymore.” Like, think about how much relief that is for you. Even though Wodify is like an investment, not an expense—it makes you money—I think it’s even better if it doesn’t cost you anything, and it still makes you money because now you’re just passing those costs on. And again, you know, we’re all used to paying processing fees on everything now. So, if you’re passing on the payment processing fees and the cost of your gym, like the software that runs your gym, your tracking and all the other things that Wodify does, that’s massive. You still get the upside, and your clients don’t even really notice.

Brendan Rice (12:09):
Yeah, exactly. And I think the other things that helped us make this decision that hopefully will give people confidence is, again, we looked at other industries and we learned—so it’s not common in the gym or fitness industry, but we looked at things like ticketing and other industries where this is very common. And we brought that here in a way that is hopefully not as frustrating and annoying. Like you go buy a concert ticket, you’re paying like 40, 60—sometimes higher—percent transaction fees. So, we’re not going to get there. We’re not going to completely piss off all your clients. It’s closer to a processing fee. But the other thing that we realized is if Wodify was simply a tool to process credit card transactions, this would probably be a harder thing to roll out because your clients would probably be a bit more frustrated with it.

Brendan Rice (12:57):
But with this feature—again, we bootstrap it as service fee or administrative fee. You can change it to whatever you want. You can call it a community fee, a technology fee. And everyone who goes to a Wodify gym knows that that gym uses Wodify, and they get significant value from it. They’re using our app for communication and engagement and tracking their workouts, and there’s all these other features that go into it. So even if a client is upset about it or asks you questions about it, and you can explain, “Hey, one of the things that Wodify enables us to do is monetize in this way, and it lets us have this technology,” it really helps sell the full picture. And clients understand that they’re going to a premium business that uses premium software. And this is kind of all part of that.

Chris Cooper (13:39):
I’m going to call mine, “Blame Brendan.”

Brendan Rice (13:42):
That’s just that line, that line on every invoice.

Chris Cooper (13:46):
Here’s something that happened to me that I did not perceive. Don’t go on to Reddit and check this story. You’ll rot your brain. But like, there are threads on Reddit called, “I hate Chris Cooper,” and it’s all people whose gym raised their rates, and none of them blame the gym owner. They all blame me. And hey, I am willing to take that bullet for gym owners any day of the week. I know you would be too. So, the bottom line here is, like, a lot of us know that we have to raise our rates, but we don’t want to feel guilty about it. And more than anything, we don’t want our clients to say, “Oh, I’m mad at you.” If you can blame Wodify or blame Two-Brain or whatever, great. It’s easy, right? “Ah, hey, it’s Brendan Rice’s fault. It’s not my fault.”

Brendan Rice (14:29):
Absolutely. Throw on that Brendan, put my cell phone number in the invoice line, have them call me. But it really does—and I mean, I’ve reflected on it too because we did—we thought a lot about rolling this feature out, and I feel so good about it because I could look any gym owner or anyone that goes to one of these gyms in the eye and explain exactly why we’re doing this, who it benefits, how it benefits them, and I really think that both owners and their clients alike will hopefully—I mean there’s always exception—will hopefully completely understand, “Oh, I pay an extra six bucks a month to this entrepreneur who poured their life and their investment in starting this gym, so I can come become healthier and have a really great workout, and this is going to give them a 25% raise and help them stay in business.”

Brendan Rice (15:14):
And there’s so many parts of it that are just like—I feel way more wholesome about than Ticketmaster throwing 60% on their fees for a Taylor Swift concert. So, I hope again—like we don’t think we know all of the implications of this. We’re staying really close to these early customers as they roll it out. But again, so far, the feedback has been awesome. And I really love—I mean, I was actually just on a phone call before this with our sales manager. We just signed up a brand-new gym; they’re opening February 1st, and they were just so pumped about—like a lot of the times we demo our software, and people get excited, but then they’re like, “Oh, I don’t know if I can afford it, or maybe I can only afford that.” And just to be able to be like, “Hey, let’s grow together. Like this is awesome. You can get started tomorrow.” We still give— This free unlimited plan—again, you get access to everything. You still get our dedicated onboarding team; you get our customer success team. You get everything to make you successful. There’s no kind of restrictions on it because you’re not paying the standard model.

Chris Cooper (16:16):
Yeah. In fact, with all that onboarding stuff, I know that you’re actually out some money upfront. You’re investing in the gym remotely. But what a gift. I mean, you know, entrepreneurship, we say, is the path to freedom, and owning a gym is one of the easiest businesses that you can start. Thank goodness you guys just made it a lot easier. So, thank you. You know, I think if you’ve got $15,000, you can still start a gym. Here’s one less expense that’s going to start making you money right away. And it’s an amazing gift to gym owners, Brendan. It really is.

Brendan Rice (16:49):
Awesome. I really appreciate you helping us kind of talk about it and explain more of the “why” behind it and how we conceptualized it. And I am really excited to see how it takes off this year.

Chris Cooper (16:59):
Cool, man. Is there a specific place people should go to get information on these two things—the transaction pass-on and also the software pass-on?

Brendan Rice (17:07):
Yeah, so if you’re not using Wodify, you can just go to Wodify.com, and we have a link there to talk to our team, so we can give you more information. We also have a landing page that explains the free unlimited model in more detail, if you just click on pricing from there. And then if you’re using Wodify, please reach out if you’re interested in passing on the processing piece or switching to the free unlimited model. You can email support@wodify.com, and we’ll get you either switched onto the plan, or we can send you the documents we talked about: the email templates. Even with the Free Unlimited, we created—kind of got inspiration from you—we created a video with one of our team members kind of almost role playing exactly how to tell a client. So, thank you for that tip. We got that—I think it’s going out at the end of this week as well. So, we’ve got a lot of resources for both existing Wodify customers—if you’re not using Wodify and you’re interested in any of this, please reach out to us, and we’ll tell you more about it.

Chris Cooper (18:04):
Great. Thanks, Brendan.

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