The Price is Right

Persistent inflation and rising costs have many health clubs and studios cutting expenses, seeking additional revenue sources, and raising prices.

While HVLP models are thriving largely because they are affordable forconsumers, even they aren’t immune. Just take Planet Fitness, which raised its basic membership price this summer for the first time since 1998 from $10/month to $15/month.

“Inflation and wage increases for fitness facilities can be devastating,” says Jarrod Saracco, the president and CEO of Health Club Doctor. “Clubs and studios have had to manage this chaos creatively, playing roulette with payroll and expenses.”

Amid the rising costs of goods and labor, some fitness centers have had to hike dues in order to survive, although they’ve traditionally been reluctant to do so for fear of fueling cancellations.

In fact, a recent YouGov poll indicated that price is the leading cause of gym membership cancellations.

At the same time, premier clubs (with membership rates of $80+/month) are thriving, according to Eddie Tock, the CEO of REX Roundtables, which works with 2,700 clubs globally.

“Ninety-nine percent of our member clubs are above their 2019 revenue,” Tock points out. “For some, 2024 is their best year for the past 40 years.”

Even more, Equinox has launched a high-end longevity membership, Optimize, priced at $3,000 per month, plus general membership fees.

With low- and high-price models currently flourishing, how should clubs and studios navigate the uncertain economic landscape and increasingly competitive market? CBI tapped some industry experts for best-practice recommendations regarding pricing.

The Surprising Impact of the Pandemic

Widespread shutdowns during the pandemic led to the permanent closure of 25% of health clubs and 30% of studios in the U.S. Many of those remaining were compelled to increase prices simply to keep their doors open.

“Of REX Roundtable clubs, 95% had to raise membership dues to survive,” Tock says, noting that the average club increased dues by $3 to $5 per month.

The pandemic was a good wake-up call for fitness centers, he adds. “Over the past 10 years, there was a creep in payroll and expenses, and the effects of Covid forced us to adjust.”

Lise Kuecker, the founder and CEO of Studio Grow, a fitness boutique consultancy, agrees. “In some ways, Covid was a godsend because it forced a mass evaluation of pricing across the industry. For many, that meant updating their pricing for the first time in years.”

A positive outcome of the pandemic was greater interest in fitness and wellness, which attracted new members to gyms.

“The heightened focus on exercise, health, and fitness has benefited us tremendously,”

says Todd Scartozzi, the COO of Retro Fitness, an HVLP model. “We’re seeing more dedicated individuals that exercise regularly and stay longer.”

The same is true at Discover Strength, a franchise of studios in the U.S. that provides 30-minute personalized strength workouts with an exercise physiologist.

“Our business continues to grow post-pandemic as consumers are increasingly aware that serious exercise is strongly correlated with mitigating chronic disease risk factors and all-cause mortality,” adds Luke Carlson, the CEO of Discover Strength.

Critical Considerations

Before adjusting pricing, clubs and studios must have a strong value proposition. That may come slightly easier to HVLP models like Retro Fitness.

“Operating in the HVLP sector drives volume to our clubs,” Scartozzi says. “Combined with our multiple revenue streams and offerings, this creates an overwhelming perception of value for new and existing members.”

Carlson suggests that clubs outside of the HVLP sector build a brand and value proposition that makes price somewhat irrelevant.

“Wrap your product in a service, then wrap the service in a proven process for how you deliver value,” he explains. “This way, you move away from being a commodity and toward offering unique value.”

Knowing who your customers are and understanding their perceived value also is essential when evaluating pricing.

“People will pay more for a better value, but your perceived value is different to each customer category,”

Saracco adds. “The trick is understanding that value for every individual.”

Integral to a fitness center’s value proposition and perceived value is the customer experience, which is a priority for today’s fitness-savvy and tech-savvy consumers.

“Be very intentional about the member experience,” Carlson recommends. “How will clients be greeted, what lexicon will be used, what is the staff dress code, how do you handle service errors, what are the standards for cleanliness, and more.”

Studios must build exceptional experiences to attract people at a higher price point, motivate them to come back, and inspire referrals.

"We’re not just providing exercise classes, but offer wellbeing, socialization, and a community,” Kuecker says. “Studios that have an extraordinary experience are hitting record-breaking numbers."

Run the Numbers

Industry veterans agree that there isn’t one definitive way to successfully implement dues increases.

“This is more art than science, and our pricing must connect to our brand and brand promise,” Carlson says. “We focus on a slight price increase every two years, but I’ll admit that very little science goes into this.”

That said, pricing adjustments must be thoughtful and purposeful. “When, where, and how any brand raises prices should be very strategic, and a business can only ask for more when it gives more,” Scartozzi suggests.

Some fitness centers opt for a planned annual or biannual dues increase to reduce surprise or pushback.

“When you provide what members deserve and keep things current, raising prices 3%-5% every one to two years will not be a big issue,” says Larry Conner, CPA, a business and financial consultant in the fitness industry. “Continue to invest in the products you sell, and members will understand.”

Studios have had a pricing problem for some time, according to Kuecker. “Most studios have

priced based on competition and their own perceived value, not on their demographics, operating expenses, or behavioral economics. We recommend raising prices once a year to accommodate the increased cost of living.”

Adjusting dues can look different among facilities, such as increases impacting all members, grandfathering in existing members, or providing tiered options, which are popular in HVLP facilities. Consumers are attracted by the low price, but clubs offer several membership levels to boost revenue.

“Obviously, it’s important to do the math,” Saracco says. “Some facilities may choose a flat dollar amount, while others use a straight percentage based on inflation, rent, and more.”

Communication and Cancellations

Saracco recommends using email, SMS, social media, in-app push notifications, and mailing a letter to communicate a price change to members.

“Communication is the fundamental building block of all successful relationships,” he says. “Tell members why you’re increasing prices so they understand that you’re paying employees more, making capital investments, signing a new lease, or whatever.”

Discover Strength does just that via an email to members about price increases one month before they take effect, explaining that funds are allocated for pay raises, new equipment, remodeling, 401K company match, and health insurance.

Kuecker advocates transparent pricing for studios that spells out where each dollar is allocated for a $25 class, for instance.

“By showing your clients how you earn a living, it makes pricing conversations much easier,” she says. “Nearly everyone can understand increasing pricing to pay your team more, better support your clients, and ensure the best experience.”

Also be sure to equip your team to answer members’ questions. “Staff training is critical so everyone is on the same page before the member communication goes out,” Saracco suggests. “Hold a meeting, role play, and have a FAQ cheat sheet to prepare your team to address concerns in a positive, productive way.”

Does a price increase automatically mean increased cancellations?
Tock says no. “When our REX clubs have raised pricing recently, none have seen a spike in cancellations. But they provide outstanding experiences.”

It’s all about value, Kuecker adds. “What’s most important is to price with perceived value. That can trump what one ‘expects’ to pay every single time.”

But Saracco acknowledges that some attrition may result. “Nobody likes to have prices raised, and you can’t stop people from leaving. But you can protect yourself by creating true value, building a winning community, and making your facility THE fitness destination in your market.”

Cancellations can be attributable to other reasons as well. “Price increases don’t necessarily lead to cancellations, which are more often a byproduct of other factors, like club experience or competitors with better offerings and value,” Scartozzi points out.

The Good News

Price changes come with any membership business. Regardless of price point, operators should be optimistic because the industry is growing and gaining visibility.

“The fitness industry is booming right now, and memberships and revenue are up,” Saracco says.

As the perceived value of gyms continues to grow, the cost of dues is only one part of an important offering.

"While there are pricing caps beyond which some clients are unwilling to spend, the good news is that fitness consumers are less price-sensitive than 20 years ago," Kuecker says. "They’re more willing to absorb these costs for something they love."

This article originally appeared in the September 2024 issue of Club Business International. View the full digital version of the issue online.