If a member isn’t getting value for money from their membership then they will leave – right? This article is a summary of TRP’s latest research into understanding the value proposition, how to measure it and how it impacts a member’s risk of cancelling. This resulted in the creation of what we believe will become a powerful industry metric – the VFM index.
It is a common and hardly controversial belief that if a member is not getting value for money from their membership they will leave. In a 2004 Fitness Industry Association report on membership retention, members stated that value for money was the most important factor in determining decisions to stay or leave. So if members say value for money is important we need to know how to measure this so we can do something about it.
How can we measure Value for Money?
It is not safe to rely on what people say about whether or not they are receiving value for money, as this may be subject to bias. Equally it is clearly not a manageable measure when running a business, i.e. how would we ensure that every member answers this question on every visit?. Therefore, to overcome this problem TRP conducted extensive research to create a robust measure of value - the Value for Money (VFM) Index©, to enable us to assess Value independently of subjective measures TRP considered a variety of factors which have been proven to impact length of membership, and how these factors could be linked to value. The results produced a VFM index combining the following three factors to assess how much value a member is gaining from their membership
- How often the member is visiting.
- The level of service a member is receiving*
- How much the member is paying.
*level of service can be measured by recording service interactions.
What is the purpose or value of a VFM score
There could be several very powerful uses for our new VFM index:
- Determining how VFM relates to income and profits which would then enable strategies to be developed to move VFM scores and therefore to improve revenues and profits
- Predicting cancellations and taking proactive steps to prevent the cancellation
- As a key factor in determining the index is membership price, we believe it can help in providing a metric for deciding membership pricing levels and contract terms
We are sure there will be many more uses for this metric as we continue to work with operators on implementing strategies within the industry.
1. VFM© Scores, Retention and Revenues
In order to analyse how this new VFM index impacts income from members, we must first look at how it impacts membership life. We segmented the data into member groups, based on their individual performances on the VFM factors and computed three levels of the Value for Money (VFM) Index© for members: Low, Medium and High. An example here would be that a member who attended 3 times per week, received a service interaction once per month and paid a low fee would be perceived as having a high VFM. A member attending once per month, who had never been interacted with and was paying a high monthly fee would on the other hand have a low VFM. We then examined membership retention based on the three level index of VFM. On average, high VFM members retain their memberships for 13 months longer than medium VFM members and 18 months longer than low VFM customers. Therefore clearly moving members from a low VFM score to a high score will dramatically improve retention and overall revenue.
Retention
Figure 1: Average Length of Membership by Value for Money Group
VFM© Revenue and Profits
How much more revenue would be generated for a typical club of 1000 members if all members were currently receiving low value for money and actions were taken to mean they received high value for money?
1000 members x average fee of £35 x 18 months = £630,000
Another way to look at this is that moving a member from low VFM to Medium VFM is worth £455 per member (£35 x 13 months), whilst moving a member from low to high represents £630 per member (£35 x 18 months).
2. VFM© Scores and Risk of Cancelling
Figure 2 shows the percentage risk of members cancelling each month after joining based on the three levels of VFM. The Figure shows that in the medium and high VFM groups, there are no cancellations in months 1 and 2 but in the low VFM group there is a 13% risk of cancelling between months 1-2. In the low VFM group it is clear that the risk of cancelling is significantly higher (up to 7 times higher – 21% vs 3%) for all periods after joining compared to medium and high VFM groups.
There are two occasions when the risk of cancelling peaks in the low VFM group, at months 4-5 and 13-14. Between months 4-5 the risk of cancelling in the next month for the low VFM group is just less than 20%. At month 14 the risk of cancelling in the next month for low VFM members is 17%. The two peaks in risk are not seen in the medium and high VFM groups. The high VFM group have an approximately 2 percentage point lower risk of cancelling from around months 10-14 compared to the medium group.
This indicates clearly that members who have a higher VFM are less likely to cancel their membership at any stage during their member lifespan. Members with a low VFM on the other hand have a higher risk of cancelling throughout their membership.
Figure 2. Month by Month Risk of Cancelling by Value for Money Score
3. VFM and determining pricing levels
As seen in the retention and profits analysis, VFM can be used to predict income from different member segments. This combined with other analysis such as member gender, age or contract length can be used to determine price levels for different membership packages. For further reading on how VFM impacts different categories of members see the research summary here.
Conclusion:
TRP believe our latest research into members’ value for money which has lead to the creation of the VFM index, is a great step forward for the industry and provides some science to assist operators with difficult decisions around, pricing, retention and even resourcing of their businesses.
We are keen to see how operators will use VFM in their businesses. Please contact TRP if you are interested in working with us to implement this new metric and the strategies around improving the score.
Further research
VFM© Scores against different categories of members.
VFM© Scores and Gender
Overall 35% of members had a low VFM score, 40% had a medium score and 25% a high score. There are more males with medium scores but more females with high scores, as can be seen in Figure 3 below. This indicates that more females perceive that they are gaining higher value for money from their gym membership than males, however at the low VFM level there is very little difference.
Figure 3. Value for Money Score by Gender
VFM© Scores and Age of Members
The proportion of members with high VFM scores increases with age and fewer members in the oldest age group have low VFM scores compared to members in the lowest age group (Figure 4). This means that older members believe their gym memberships represent higher value for money than younger members, who perceive their gym memberships to be lower value for money.
Figure 4. Value for Money Score by Age Group
VFM© Scores and Contracts
Fewer members on 12 months contracts have low VFM scores compared to members without minimum term contracts. Members without contracts are slightly less likely to have high VFM scores (Figure 5).
Figure 5. Value for Money Score by Contract
