Planet Fitness was in the news in mid-September for the wrong reasons.
Long-time CEO Chris Rondeau had stepped down, and the price of shares in the company were in free fall. The stock (NYSE: PLNT) sold above US$83 as recently as May but was trading at just $44.48 on Sept. 26, for a 41.3 percent drop over the preceding six months. This is the lowest price for the stock since it hit the $34-$37 range during the early stages of the pandemic in 2020.
What gives?
Here’s the Reuters take: “With growing debt-servicing costs crimping franchisees, the company can’t outrun rising rates unless its next coach reconsiders rock-bottom prices.”
Microgym owners will likely understand the issues better than the average news reader.
Simply, the Planet Fitness plan is to sell a ton of basic memberships at $10 a month—and this rate has been in place for about three decades.
According to in2013dollars.com, $10 in 1993 would have the same purchasing power as about $21 in 2023—a cumulative price change of 112 percent.
If Planet Fitness, a chain of gyms worth $4 billion, has chosen to ignore inflation for 30 years, it’s clearly not playing the “value game.” It’s all about rock-bottom prices and high volume. The plan: Sign up huge masses of people. Repeat annually.
Microgyms can’t compete on price, so they deliver huge value to a relatively small number of clients. The starting targets in Two-Brain’s basic model: 150 clients who pay $205 a month. Data shows those numbers will support a business and provide six-figure earnings for the owner.
Despite that, it’s always tempting to reduce prices in hopes of acquiring “just a few more members.” Our mentors always advise gym owners against that plan because it guts profit margins and puts microgyms in direct competition with giant chains—they can’t win that battle.
But now it’s possible that even those giant chains need to adjust their models to deal with rising costs.
When You Must Raise Rock-Bottom Prices
Here’s the problem: The No. 1 selling feature of Planet Fitness is low price.
The $10 membership is just cheap. That’s it. It’s designed to appeal to people who only consider price. If Planet Fitness jacks up its rates, people will no doubt be upset. They signed up for rock-bottom rates, after all.
By comparison, it’s much easier to raise rates at a microgym that offers value. Clients didn’t sign up because of the price. They sign up because the gym solves their problems. So small movements in price are far less troublesome.
“Only $200 for the beach body I want” isn’t far from “only $205 for the beach body I want.”
But “just $10” is a long way from “$15 for the exact same thing that cost $10 for 30 years.”
I don’t envy the Planet Fitness predicament. I’d much rather deal with inflation via a modest rate increase supported by huge value delivered to 150 or 200 long-term clients. I’d be nervous about a 10, 20 or even 50 percent increase delivered to many thousands of people who have been conditioned to pay $10 for gym access for three decades.
I hope Planet Fitness navigates the current crisis. I’d like to see more gyms, not fewer. And perhaps a rate increase will right the ship. From Reuters: “Rival Life Time (LTH.N) has shown it (rate increases) can work, having jacked up dues by 12% per location since 2019. Its stock is up 32% this year.”
If you’re a microgym owner struggling to deal with inflation, you might need to increase your rates. But take heart: You’re in a better position than giant, high-volume chains, and Two-Brain mentors have an exact plan to help you adjust prices without losing all your clients.
To find out more about running a profitable gym with a mentor’s guidance, book a call here.
