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Transcription – Justin Tamsett Show 159

Chantal:               JT, welcome back! It’s been far too long since we’ve heard from you.

JT:                           Hey, I was only on last week for the Precor Quick Fire Five, what are you talking about?

Chantal:               Well that was kind of a preview, this is the main game this time.

JT:                           Yeah, well, you have so many rockstar guests now it’s unusual that I get a call up so.

Chantal:               Well, I wanted to get you on this week cause this is a topic that I think is going to be very, very popular with a lot of our listeners and I know that it’s a topic that I know that you know inside out. I think it’s fair to say that it’s a challenge that every single business owner has at one time or another and the challenge is this, do you increase your prices in your fitness business? What do you think?

JT:                           Well, that’s a pretty good question. I think it depends.

Chantal:               You think it depends, okay, so what does it depend on?

JT:                           Well, I think it really comes back to the philosophies of the owner and what they believe and there are really two schools of thought around price rises. Firstly, you should increase your prices every single year. Same time, same amount or close to the same amount every year. The other school of thought is that you reward customer loyalty and you never increase the price on your current customers you only increase the prices on new customers. And the route you want to head on either of those schools of thought is really up to you as a business owner. I guess the main thing is that whatever you decide you pretty then stick with that through the lifetime of your business.

Chantal:               Okay, let’s dive into that in a little bit more detail. Let’s explore both of those schools of thought that you mentioned so that all of our listeners can make the right decisions for their business.

JT:                           I think there is pros and cons for both. Absolutely some businesses it works some businesses doesn’t. For one school of thought and some businesses don’t for the other. So, my thought though, and I’m going to I guess be a bit opinionated through the show today but every business has increased expenses every single year and at the most basic level, if you’re a bricks and mortar business you’re going to say your rent increased. So, I guess the question becomes how do you maintain the same profitability year on year when your rent increases at a bare minimum. So, I think as you probably said in your introduction the only way to maintain close to the same profitability is to sell more memberships or more PT packages or more widgets or whatever you may want and spread that rent increase out over multiple people or platforms or whatever it may be.

But the reality though is you are still going to be making less profit because your expenses have gone up. Additionally, for many of us, everything we purchase in our life as a consumer increases annually. That could be the milk, it could be petrol or gas, to could be books that we want to buy, generally everything increases and so why wouldn’t gym memberships, why wouldn’t personal training increase? So, I think as consumers we are actually programmed to accept a price increase. We may not be happy about it but we accept it.

I know on the road that I travel a lot, particularly to the airport and around here, the tollways they go up, I think the tolls go up every 4 months. We don’t have any say in it and it’s kind of really but if you want to use it you have to just pay for it.

Now I also get totally, totally get the idea of rewarding loyalty. I think this is really important. Let me give you an example of the club around pricing that does this and I know this club is celebrating 40 years in operation this year in 2018. The owner of that facility has members from 40 years ago still paying exactly what they paid on day one of their membership some 40 years ago. I mean that’s pretty damn amazing in itself that someone’s been around that long but the people that are joining now are probably paying 5-6-7-8 time as much as that initial member, but that initial member isn’t going to go anywhere because of the loyalty factor.

Chantal:               OK, so what then about clubs or studios if they want to increase their fees. How do they do it?

JT:                           For me what makes the most sense, is that if you’re going to increase your fees on an annual basis, or your prices on an annual basis, that you do it at the same time every year. Generally, I recommend with clients that we work with that you increase it the same amount or maybe less each year.

Chantal:               Okay, I get the same amount but explain to us less. Why would we increase it by less?

JT:                           Well let’s talk it through first Chantal and, again, this is just my opinion and that is when someone starts, or joins, with your business they should be told your price rise policy from the start. So, I’d have it in the conditions of membership or the conditions of service. You might say something like on the first of February annually the membership dues will increase 3% or less automatically. So from the minute that they join your facility they know and they can expect the fees to go up on an annual basis. You’ve been completely transparent from the start. Now I believe this means you don’t have to really go back and tell them members that the fees are going up because they were told when they joined. You may want to communicate that message. That’s your choice.

Now the reason why I say less is that if you choose to increase the fees only say 2.5% or 2.25% instead of that full 3% then that’s okay and that’s a positive story to tell your members you kind of exceeded their expectations. They were expecting 3% but you’re only putting up 2% or 2.5% so you can get a little win there instead of the full price rise it’s a reduced price rise.

Chantal:               Okay, I understand now. So basically you have an annual price increase but you must tell members when that’s going to be and how much it is going to be.

JT:                           Well, I think if you tell the members when it is that also starts to hold you more accountable as a business owner. I guess the problem is, for me, is that when you don’t increase your fees on this annual basis, like you forget to or whatever your policy or you might not even have a policy around increasing your fees, but if you don’t increase it on an annual basis you kind of back yourself into a pretty ugly corner. What I mean by that is, if the increase is only 3% then it may well equate to, I don’t know, $2.00 a week or something like that and that’s far more palatable than having to go every three years and say hey I’m now increasing your fees $9.00 a week. The members are going to be more upset, you’re going to get more pushback from that. I actually think you save yourself a lot of heartbreak and energy by increasing on an annual basis rather than that substantially more on a longer period.

Chantal:               Okay JT so what if the price increase that we want to implement is not in our current terms and conditions?

JT:                           Yeah, and I think this becomes a challenge for a lot of business because all of a sudden now as we talk expenses have gone up and now they want to play with their pricing so they haven’t built it into their conditions. They haven’t even really thought about it until now because they’re now making less money. So, I think if I was starting a business or running a business now I would simply draw a line in the sand and communicate by letter or by email or both to all the clients that on the first of February, the first of September, whatever day it may be that there will be a 3% increase, 2% increase, whatever at that point. I would probably want to give all of the members 6 months notice, around 6 months notice stating that the new 2018 or 2019, or whatever year you decide to do this, the new pricing policy is something like there will be a price increase on February 1st every year. There is going to be some short term pain when you communicate that message initially but there will be long term pleasure for you.

Chantal:               JT, in your experience, is there a particular time of year that is best to do this price increase?

JT:                           I don’t think there is. I don’t really know but I don’t think there is. My personal preference is always around about 1st of February or maybe pushing it back to 1st of March. Most prices go up on an annual basis and that might be time timed around financial year or calendar year. I might consider a price increase on the 1st of October because we’ve just come out of a heavy month of usage so I guess it’s really up to the business when the business wants to do it. There are just some dates that I feel comfortable with but I don’t, honestly, I don’t think it matters too much. I think what matters most is that you do consistently increase those fees, if that’s going to be part of your business philosophy and that you don’t forget to increase them if you tell people you’re going to.

Chantal:               Do you find that many people forget?

JT:                           Yeah, actually, yes I do. I find a lot forget. Even if it’s not in their conditions they still forget and even if it is in their conditions they still forget. You know, as owner they tend to focus a lot on sales and they forget about the money that’s already in their business. So, we often forget about putting up the prices or we put it in the too hard basket. It’s a lot easier to focus on new sales than it is putting up the prices and having an awkward conversation with our current members. So, before we know it the planned price increase date passes and we think yep, too late now I’ll just have to wait until next year.

So, when I was growing up in the industry I was at IHRSA and I hear Victor Brick, the owner of Brick Bodies at the time back in the 1990’s, he said this “The only person that’s worried about a price increase is the owner.” and I think he’s right. I don’t care whether you’re a big fitness business boxes, small fitness studio, or a PT business that’s working out in a park, generally the person who worries most about putting up their price is the owner. When we make a big deal of the change in price, then our members will. Make it part of the culture of the business and it’s no big deal.

Chantal:               I guess that just reiterates the importance of having systems in place in your business so that once you’ve decided on the date and the amount that you’re going to do the annual rate increase that it just automatically happens.

JT:                           Yeah, that’s spot on. That’s exactly right.

Chantal:               Okay, so this is a bit of a tough question but can you tell us how much should we be increasing our rates?

JT:                           You’d be right, that is a much tougher question and I think it varies considerably based on your competition. I think it varies based on the goals of your business that you’re trying to achieve in the year but again I’m going to come back to what Victor said in the 1990’s in his versa presentation he said “If you put up your prices or your fees and no one cancels you probably haven’t put them up enough.” In fact, I remember having a PT that worked for me who put up her sessions by a whopping $1.50 and one of her clients, I remember having this conversation saying to her “Is that all? Is that enough for you to stay in business?” And they’re probably right, at a $1.50, is it? I mean how much is a cup of coffee these days? You’re a coffee drinker.

Chantal:               Yeah, about $4.50.

JT:                           Alright, so for a third of a cup of coffee it is almost insulting to only increase it $1.50. But this is a classic example I think that if a business owner is more worried about a price change than the consumer is worried. In reality if your members or your clients are actually getting results or getting value then a price generally, which is less than a cup of coffee, is going to be insignificant to your consumer or your member or your prospect. I’ve got to be honest, I prefer a percentage rather than a dollar amount. So, you could say you’re going to go up CPI, or Consumer Price Index, I prefer a percentage but I don’t think it matters what you use or how much the increase is. I’m coming back to, I just think it’s important that you do it consistently and you can rely on that coming into your business for your budget every single year.

Chantal:               And just to confirm JT, we are talking about only once a year. We’re not talking about doing this any more frequently than annually.

JT:                           Like, I wouldn’t do it any more than annually. There are some clubs I know that maybe do or PT businesses that do but I wouldn’t. I think annually would suffice.

Chantal:               I’m going to assume that there are probably some of our 3P family that haven’t increased their prices in a very long time. So, do you have any advice for those people?

JT:                           Yeah, look I’ve actually got a couple of clients who have been threatening to put up their price for 3 or 4 years now. I also have one client who has never changed their price in 5 years and her rate goes up on market value and I’m like “You’re doing what?” So yeah, you don’t have to assume, it is happening. There are fitness businesses all over this planet that are not putting up their prices and are absorbing the increased expenses into their cash flow and their budgets and relying solely on making more sales.

I do think you need strategy though around your pricing. We all operate in this competitive environment, some would even say a hyper competitive environment. I recommend three steps that I would go through. Now the first one is I think you need to test the market. I always suggest that you increase the fees on new members first, or new clients first. I would be looking at doing that 4-6 months before you plan on changing your current member’s rates. This will allow you to see what the market is willing to pay. If you’re going to charge $7.50, and please anyone listening, no one should increase their fees $7.50 this is an arbitrary figure I’ve just come up with as an example, does that sound like a fair deal?

Chantal:               Fair enough.

JT:                           Okay, so you’re going to charge an extra $7.50 a week and you see no dip in your sales then you might play with taking it up to $10.00 and then you see a dip so you know you kind of have a sweet spot around that $7.50 mark. But at that $7.50 mark conversely you do see a dip in sales, then you might drop that increase back to, I don’t know, $6.50, $6.00, $5.50, even $5.00 and you just try to find where there’s no dip in your sales. Then you find the sweet spot for what the market is prepared to pay 4-6 months out from before you’re making any changes to your current members.

So, step number two would be I would give all my members 3 months notice, 90 days notice, that we’re going to change their prices. Again, that’s a fairly good notice period. I would email them and I would send a letter to them and this means that you now have three months of successfully selling your new rate, whether that be that $7.50, $5.00, or even $10.00 and you can always say in your letter “We have increased the fees on new members three months ago, giving you a six month hiatus in the change in price as our way of saying thank you for being a member.” So you’ve tested the market, you’re now you’re giving them ample notice that you’re making a change to your pricing.

My third step is I would give all members an opportunity to lock in at their current rate for an additional 12, 18, or 24 months, whatever period you want, with the understanding that this is a contracted period. If they wish to cancel there will be a cancellation fee or whatever it may be and at the end of that period their fees will then rise increase to the current level. See, we are currently giving them an out to stay at that same point but for us it’s great because we’re then guaranteed that income for 12, 18, 24 months.

Chantal:               Yeah, yeah, I really like that overall strategy and in particular that point three that you just made because as you say it gives you that guaranteed longevity with the relationship with your customer because you’ve really extended that contract period as you’ve talked about so that you so much for running us through those three points. Before we finish-

JT:                           Sorry for interrupting. If you’re a personal trainer and you’re increasing your fees and you’re doing that .3 I would limit the number of sessions that they can buy. Now we don’t want them buying a hundred session that’s going to take them into 2021 because they’re only training once every fortnight. We might say you can buy a maximum of 20 sessions at your current rate.

Chantal:               Or equally could you just put a time limit on it? So that, you know you could buy X number of sessions but it needs to be used within 6 months or by this date? Is that theory?

JT:                           Yeah.

Chantal:               Okay, cool. So what about when it comes to other services or other products within our facilities? Can we, how do we, or can we apply rate increases to those?

JT:                           Well absolutely, there’s no reason why you can’t. When I had my club, everything on the 1st of February increased. We increased our personal training prices. We increased towel hire. We increased bottles of water. We increased massage. We increased tennis court. We increased anything else that we charged out for. And in Australia, again this might vary from country to country, but in Australia we see a drop off of attendance over that December/January period so most people forget how much they paid for a bottle of water at the beginning of December when they’re then back at the beginning of February or mid-January. There’s no real big deal when they do return. Maybe in the US, with quite a period over the summer holidays you look at changing your prices on the 1st of August or the 1st of September. Absolutely, everything should go up on an annual basis if this is going to be kind of your pricing policy.

We would also do a PT special in December so this is where we told the members that the new prices were coming in on the 1st of February and they could buy, like I said before, X number of sessions we didn’t put a time limit on that but they could buy X number of sessions. I think ours was a maximum of 20 at the current rate before they would have to pay the new rate. This was available to current clients but also prospective clients. It gave us a nice little cash flow in December as well. I should also say that when I client started with us in personal training they were also told that PT would increase by 3% every year on the 1st of February. We’re pretty open and transparent with our members.

Chantal:               I think we have to go back to what you mentioned earlier, which is it’s about automatically building that into the culture of the business so then it just becomes something that they expect and not something that they are surprised by when it happens each year.

JT:                           Yeah, totally. Interestingly enough Chantal I use exactly the same principle now in business today. My round table clients are told when they initially join that on the 1st of February their fees increase by 3% and this is the last discussion I am going to have on price changing with them.

Chantal:               Excellent. Thanks for all of that advice today JT. Now you know you can’t get away without giving us a little bit of fitbispiration. So, do you have a couple of tips to leave us with today?

JT:                           Yeah, I’ve got my three standard bits of fitbispiration for you. Although they are not standard for some fitness business owners so we’ll see how we go.

So number one, ideally when you start your business or as you become a business owner draw a line in the sand and say from 2018 onwards this is our price increase policy, whether that is we are only increasing new members and current members are staying the same or everybody is going up. Whatever your policy is draw a line in the sand and make it your policy.

Number two, the only person worried about changing the price is you. If you’re delivering value then no one is going to complain about paying more.

Number three, if you increase your fees and no one cancels, you can’t increased them enough.

Chantal:               They are great pieces of fitbispiration. Thank you so much. Now, before you run away today tells us about Active Management is there any news or updates or interesting stuff going on for 2018?

JT:                           Yeah, we’ve got some pretty cool things that are happening this year. We’re pretty excited because after being in this business as a consultant for 14 years we kind of got an idea of what the sticking points are in fitness businesses. I’ve narrowed it down to 11 and every month this year we’re going to have a business spotlight. This means we’re giving every club owner and fitness business owner and PT business owner around the world the opportunity to focus on one part of their business that is a sticking point or a pain point and we’re going to have them focus on that for one month. If you’re part of our Facebook fan page you’ll see what that spotlight is and you’ll be able to work and hopefully that’ll motivate you to do something. If you’re an Active Management member then we’re going to be supplying tips, we’re going to be supplying hacks, we’re going to be supplying little tiny plugs every single day to help you stay focused on that business spotlight. We’re pretty pumped up about that we think that’s going to have a bunch of fitness business owners from around the world.

The second thing that we’re rolling out this year is also what we’re calling a fortnightly focus. Again, from all the experience that I’ve had dealing with individuals within fitness businesses is that it’s really important that they are on top of their game. The business can be bubbling along nicely but if individuals are not focused, if individuals are not having self care and looking after themself then they’re going to let the business down whether they are the leader of the business or whether they are the cleaner that comes in when the business is closed. Everybody within our business has to be firing on all cylinders. So, we’ve got a fortnightly focus which will come out, and this is where we challenge every single person in the industry who is part of our community to have a real bloody minded focus for two weeks to try to achieve a challenge.

There’s some pretty cool ones so there’s about 16 of them that we’re going to roll out throughout the year and you get one week off between each of those challenges. Again, if you’re member then we’re gong to give you some extra tips and hacks on the Facebook page so that our membership, we think we’ve really beefed that up this year so that there’s more engagement and collaboration that we’re going to be rolling out. So, that’s pretty cool.

If you know anything about Active Management then you know our theme for this year is Think and Do Different. Our goal at our business is to think and do different and we also are encouraging all our clients to think and do different. If we think and do the same as the rest of the fitness industry we only get as good as the rest of the fitness industry. The information we’re going to be sharing is going to be really focused on thinking and doing different. Is that a good enough summary?

Chantal:               That is a sensational summary and I’ve got to say I particularly love the sound of that monthly focus because I know personally when you get so much information and we’re all learning constantly from different sources I think the idea of focusing on one particular theme or one particular part of our business for an entire month makes so much sense and it gives you the head space and the time to dedicate to actually make that part of the business stronger. So, it’s going to be a sensational idea.

JT:                           It’s going to be pretty cool. I mean, like I say, we’ve identified sticking points and pain points in a business so this is really just giving us laser focus for 30 days on one of those pain points so we can solve that, now there’s no way we can solve problems within 30 days but I tell you what we can take a fair chunk, a good bite out of it.

Chantal:               I love the sound of that. Well JT, thank you once again for coming on. It was good to see you as I said it’s been a long time between podcasts so it’s great to have you back on the show and thanks for joining us today.

JT:                           My pleasure.

Active Management Members receive monthly tools to make your life as a fitness business owner, manager or team members easier.  Become a member today at www.ActiveMgmt.com.a/joinnow

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