Can focusing on sales volume reduce profits?

FACT : You can predict which members will remain a paying member longer, before they even do their first workout – simply by knowing some basic information.

By analysing the retention rates for various groups within a club or centre we can see that some groups are predisposed to stay longer than others. This is true for a range of factors from age through to membership type and even home postcode. This can clearly be seen in our example club when we look at the variations in retention between members of different age groups.

Survival or retention analysis starts by plotting 100% of members as ‘live’ at the point they join (0 months from joining). As time progresses, the retention curve plots the percentage of members that remain paying. The steeper the line falls, and the lower it is, the worse the retention problem. The average membership duration is identified by drawing a line out from the 50% point on the vertical access and observing where it crosses the survival curve. Reading down to the horizontal axis from this point gives you the number of months the average member remains paying.

Figure 1 shows the 14-month retention rate for each of the age categories in the club. It is clear that higher age is associated with higher rates of retention. The average member in the older age group stays at least 4 months – or £140 – longer than the average member in the youngest age group. And this only shows the impact of membership fees, if you look at secondary spend as well the difference in value between the two types of member can be more than double!

Figure 1: Membership retention by age group.

FACT : Most clubs focus on ‘easy’ sales – not ‘quality’ sales.

Knowing which members are likely to naturally stay longer is clearly hugely powerful information. Any good sales and marketing manager should be able to create a campaign and sales strategy that appeals to such people.

However, more often than not, the length of time a member will stay at the club is not even considered in these discussions. Quite simply ‘a sale is a sale’ regardless of how long the member is likely to stay. In considering this, imagine how ridiculous it would be for a car dealership to treat the sale of low end car worth £8,000 in the same way as a high end model worth £80,000 – well this is what most health club operators are doing by ignoring the fact that each membership sale represents significantly different levels of income for the business.

As a result, operators’ strategies focus on volume of sales regardless of quality and, whether consciously or subconsciously, usually generate more lower quality sales. This results in many clubs having higher numbers of members in the lower retention groups. This can be clearly seen in Table 1 where 73% of our club’s members are from the groups with the lowest retention rate.

Table 1. Age profile of members

FACT : a small shift in the proportion of ‘high yield’ members can make a difference to your bottom line.

We can highlight this point by just looking at one basic factor – age – and reviewing the impact that this factor has on retention. Using the information from Figure 1 and Table 1, we can estimate the income over 14 months for each age group. We can take the proportion ‘surviving’ each month and multiply this figure by the monthly fee of £35.00.

Table 2 shows the total income from dues for the 3,233 members at our club using the age based retention rates shown in Figure 1. The baseline figure represents the total income based on the current age profile.

Each row then estimates the income based on reducing the number of 16-24 year olds in 10% increments and adding the same number of members to the age group 45+. So in essence we are swapping a small proportion of young members for older members. It can be seen that for each 10% reduction in the youngest age group and increasing by the same number the oldest age group we get approximately £8,000 more in income over 14 months.

Table 2. Change in income with change in age profile:

FACT : You can make this change and gain this additional £8000 easily.

There are numerous steps you could take to shift the structure of your membership. You could think about:

• Making the images, offering and pricing in your campaigns more attractive to older members.
• Identifying areas within your catchment where older members live.
• Adapting an approach in your sales consultations that connects with older members.
• Reviewing your product – making the club or centre, and the service within it, an attractive proposition for older members.  This may mean reviewing areas as diverse as your service standards and the music you play.

NOTE : We are not saying reduce your number of sales – maintain your current levels, just target the most valuable members first.

FACT : There are many more simple changes that you can make which will have a dramatic impact on your income per member.

Don’t forget, age is just one factor that we have used as an illustration in this article.  You could take the same approach with a host of other variables and by switching your membership base towards groups with naturally better retention, see gains worth tens or even hundreds of thousands of pounds. 

If you want more help with data analysis and ‘Smart Sales and Marketing’ please let us know.