Stepping Off  A Cliff

Month to Month Memberships
Drop the phrase in a room crowded with club owners, and you’re likely to precipitate audible gasps, if not a few palpitations.

The belief that long term memberships, with their accompanying contracts, are essential to the sound functioning and financial viability of clubs has been regarded as a fact for so long that, to suggest otherwise, seems heretical.  The notion of exchanging the insurance of contracts for the unpredictability of month to month seems, at first glance, as appealing as stepping off a cliff, or performing on a trapeze without benefit of a net.

And yet, some of the sophisticated and successful club companies in the world have been using month to month for years and are firmly committed to it.  Prominent among them: 24 hour Fitness Worldwide, the largest privately held chain: Town Sports International (TSI) and Fitness First PLC, the fastest growing European chain.  My own company, Lifestyle Family Fitness, took a leap in June of 1999, and has never regretted it.  And, I hesitate to point out, another major fitness provider, the YMCA, also utlizes this approach.

Contrary to popular fears, month to month makes for a stronger, more secure, and more profitable business, but, even more importantly, enhances the industry’s credibility and stature in a way that nothing else can.  I may be a biased observer, but my own experience suggests that month to month represents the next great leap for our industry.  Let me explain.

Making The Leap.
Although I’d opened my first club in 1982, it wasn’t until a few years ago when Ray Wilson, one of the industry’s pioneers, moved into the Florida market where we do business that I finally learned what I needed to know about month to month.  I was fortunate in that I got to know him and was able to tap his expertise and later, Mark Mastrov the president,  CEO, and chairman of 24hour Fitness and Mark Smith, the CEO of TSI, proved equally helpful with information about their own experiences.  What I heard was compelling and reassuring.  Enough to convince me to switch to month-to-month, which we did in ’99.  And it did feel as though we were stepping off a cliff.  Even our bankers, our lenders were spooked.  They weren’t convinced that we’d be able to make a go of it.

But in fact it was one of the best things we’ve ever done.  Its led to a virtual revolution in our sales and customer service philosophy.  Month to month works for two reasons.  1.  Its what the customer wants. 2. It forces clubs to attend to customers needs.

It’s the difference between having a product that you have to sell… and having to produce a product that sells. 

We introduced month to month with a trademark slogan “commit to a lifestyle, not a contract’” and the response was remarkable. Calls from advertising climbed by 25%, and member referrals increased even more. 

As expected, the number of members who opted out also rose, but in the final analysis, the new business more than offset the loss of the old.  Better yet, all of the people that we were dealing with now were satisfied, prospects didn’t chaff at the prospect of having to sign a contract, and disinterested members didn’t feel handcuffed by one.  Everyone was happy.

Month-to-month gave us a product with wider appeal, a unique market position, and a sense of pride, among our employees that I’d never seen before.  We’d taken a major step away from being a sales driven organisation… and a major step towards being a customer driven one.

Increased Revenue Per Member
What else changed?  Everything – from our initiation fees, to the type of customer we attract, to our retention efforts.  Contract based memberships are traditionally marketed on a no, low or discounted initiation fee basis in order to prompt people to join, conversely with month to month.  Initiation fees are raised to induce them to stay – if they drop out, they lose the money they have invested.  We’re now collecting $100 more per member, which has made an enormous impact on our cash flow.  The low cost entry offer tends to be popular with younger customers while the high cost of entry of month to month entices ex-members and white collar professionals.  The net result is a larger, better educated and more upscale membership, and consistent growth in our other revenue programs such as personal training.

Because a member can leave at any time, retention has become as critical as sales, and we’ve reorganized the company, set new objectives, and created new incentive systems to reflect that reality.  At each club, we start the year with a certain number of members, eg 5000 and each month attempt to add at least 200 new members, collecting an initiation fee of $100, and $32 in monthly dues, from each.  We utilize quotas and contests to help our sales managers hit the target.  Our operations people, on the other hand, have the goal of holding attrition to 5.5% or less per month or 42% per year, and receive a $7.50 bonus for every member above that goal they retain.  To assist them we’ve implemented a series of retention initiatives that are designed to orientate and anchor members, and keep them coming back to the club.  As never before, each and every employee understands the importance of performing for our customers.

Over the last 3 years, month to month has been instrumental in helping Lifestyle Family Fitness grow from 7 to 14 facilities, from 33,000 to more than 65,000 members, and from $9.6million to $17 million in revenues as well as to forge a strong productive relationship with our investment partners.

We made the leap to month to month and the experience and the results have been exhilarating.

By Geoffrey A. Dwyer.