Think of Retention as a Profit Center

Richard Ekstrom, President

In my last article, I emphasized the necessity to take action and outlined the following fundamentals for improving retention:

  1. Take care of the basics by offering a clean, friendly and professional environment for your members. Without these basics, any retention initiatives will be short-lived.
  2. Provide comprehensive orientations and frequent support for new members.
  3. Monitor member visits and proactively communicate with low and inconsistent users.
  4. Ensure your programming reaches those members who are most likely to cancel, your low and non-users

The problem that arises when you consider instituting programs that will improve the delivery of these fundamentals is the time investment it requires from you and your staff. Is it worth the investment? Is it a sound business decision?

Evaluating the impact and viability of your current and future profits centers is standard practice. For example:

  • Do you hire Personal Trainers, treat them as independent contractors and share revenues, or charge a flat monthly usage fee? Which options are most advantageous to your business?
  • Does the potential revenue from massage or tanning offset the cost of equipment and space requirements?
  • Is your Pro Shop or Cafe viable after considering inventory, mark-up, volume, theft, etc.?

It is common to weigh the options, evaluate the risk and, finally, come to a decision on whether this venture has enough payback to pursue.

Retention is often looked at as something ambiguous and conceptual. Most clubs never calculate the cost and associated payback with regards to retention, thus, do not realize the true value of specific retention based actions. Retention is an extremely viable profit center and should not be looked at as a means of saving money but a means of making it.

Every member who leaves your club is a lost revenue source and a negative ‘hit’ on net profit. In addition, there are costs to replace that member, which is typically 2-5 times more expensive than keeping a current member.

Let’s consider a few different examples of how viewing the retention fundamentals mentioned above as a profit center can shed some light on just how much money is literally “walking out the door.” The purpose of this exercise is three-fold: 1) to show how easy it is to break your retention actions down into manageable parts, 2) to show you how to evaluate the financial benefit of that specific retention initiative, and 3) to show you that retention is a very profitable undertaking. But first, we need to set up a typical club scenario so that the impact of the ‘Profit Center’ can be realistically evaluated.

Statistics on ABC Fitness Center (for simplicity IHRSA averages are used):

  • Number of Members: 2000
  • Average Monthly Sales: 50
  • Average Dues: $50
  • Average Cost to Acquire a member: $150
  • Using these numbers, a 1% improvement in retention improves annual revenue by $15,000

Profit Center #1 -Enhanced Orientations and Follow Up: Have Fitness Instructors spend an additional hour with each new member and an additional 15 minutes per new member on follow up conversations via telephone.

Costs associated with improving orientations:
Hourly Pay Rate ($10)
X 1.25 Hours
X 50 Members
X 12 Months
= $7,500 Direct Payroll Increase

Expected Retention Improvement: 1% or greater
Calculated Revenue Impact: $15,000+

Profit Analysis:
Increased Revenue of $15,000
- Increased Payroll of $7,500
Net Profit of $7,500

Profit Center #2 -Low Usage Communication: Monitor member usage and proactively communicate with those members who have attendance drop-offs.
Time Commitment:
• 30 minutes/week to generate usage report (½ hour X $10/hour = $5)
• 20 hours/week to communicate with low usage members via telephone or email (20 hours X $10/hour = $200)
• 30 minutes/week for upper staff management/review of process ($25)

Total Weekly Costs of $230
X 52 Weeks
= $11,960 Direct Payroll Impact

Expected Retention Improvement: 2% or greater
Calculated Revenue Impact: $30,000+

Profit Analysis:
Increased Revenue of $30,000
- Increased Payroll of $11,960
Net Profit of $18,040

Profit Center #3 -Program Marketing: Ensure programming options reach those members who are most likely to cancel -the low and non-users. Keep them connected and let them know they are wanted!

Time Commitment:
• 30 minutes/week to generate usage report (½ hour X $10/hour = $5)
• 20 hours/week to communicate with low usage members via telephone or email (20 hours X $10/hour = $200)
• 30 minutes/week for upper staff management/review of process ($25)

Total Weekly Costs of $230
X 52 Weeks
= $11,960 Direct Payroll Impact

Expected Retention Improvement: 2% or greater
Calculated Revenue Impact: $30,000+

Profit Analysis:
Increased Revenue of $30,000
- Increased Payroll of $11,960
Net Profit of $18,040

Profit Center #4: By combining Profit Center #2 and #3 significant payroll efficiencies will be achieved.

Time Commitment:
• 30 minutes/week to generate usage report (½ hour X $10/hour = $5)
• 30 hours/week to communicate with low usage members via telephone or email (30 hours X $10/hour = $300)
• 30 minutes/week for upper staff management/review of process ($25)

Total Weekly Costs of $330
X 52 Weeks
= $17,160 Direct Payroll Impact

Expected Retention Improvement: 4% or greater
Calculated Revenue Impact: $60,000+

Profit Analysis:
Increased Revenue of $60,000
- Increased Payroll of $17,160
Net Profit of $42,840

You certainly have a large number of choices when it comes to deciding what retention initiatives to implement -the above was just a small sampling of those choices. This exercise was intended to show you how to evaluate those choices prior to implementation. However, as always, the specific actions you take are up to you.

Assistance is available from a variety of resources:

  1. Do it yourself in-house: Research what has been successful. Our industry’s associations and periodicals are full of useful information. You can do it; it just takes organization, commitment and persistence.
  2. Talk to your peers: You will be amazed at how open, honest and supportive they are. What a great industry!
  3. Hire a consultant: Based on their analysis, they will make specific recommendations and tell you what needs to be done and how to do it.
  4. Outsource some key components of your retention initiatives: This option was not available a few years ago; however, with the advent of the internet and the overwhelming acceptance of email communication these companies can provide significant efficiencies and cost savings.


In summary, base your retention efforts around the fundamentals - manage the basics of clean, professional & friendly, give great care and follow-up to new members, react to individual usage changes and keep your most at-risk members informed about what is going on in the club.

Objectively weighing the delivery options of these fundamentals, in terms of cost versus payback, will validate that each specific retention initiative you implement is a viable profit center and will help you to fully realize your business’s financial success.


Richard Ekstrom, President of Retention Management
Company Mission: Create a positive impact on a club’s bottom line by improving retention.
He can be reached at 800-951-8048 ext.2 or riche@retentionmanagement.com. Comments and questions are welcome and appreciated.

Date:

Chris W

Published Articles