The Economics of Membership Pricing

[Damien Del Russo]

This is not another post on why CrossFit costs "too much", but I will explain why it feels that way to a lot of clients by applying simple economic theory. In particular, incentives.

Many affiliates offer an unlimited monthly membership, for the sake of argument let's use the price of $250 per month. A dedicated client can expect to attend about 22 times per month (52 weeks x 5 = 260, 260/12 = 21.67) for an average cost of $11.36. Any additional class has a marginal cost of $0. Indeed, when this client considers missing a day, the prospective cost is $11. That is, the cost of NOT attending on any given day is $11. This is a very strong incentive that I am confident most affiliate owners see in action every day.

But what about people who can not, for whatever reason, attend that frequently? The products I have seen offered most often is the drop-in rate and the punch ticket. The drop-in rate for a gym that costs $250 per month is probably around $19, usually discounted to something like $150 for 10 visits.

The average rate here looks reasonable, however what I think many affiliate owners fail to see is that the incentive is backwards. Whereas our Unlimited client has an $11 incentive to attend on a given day, the ticket holder faces a cost. That is, staying in bed, going for a run, a bike ride, etc, saves the ticket holder $15 or $19. This is a pretty strong incentive NOT to attend the affiliate. If you doubt this, ask yourself how many clients using punch tickets buy 15 or more books per year (150 visits, or 3 times per week)? My bet would be 0.

My contention is that affiliates would make more money and better serve their clients by putting incentives to work for athletes that can not take advantage of the Unlimited membership.

Consider three imaginary clients: Yoga Mom, Biking Dad, and Active Dan. Yoga Mom already has an unlimited Yoga membership, but would like to branch out and try this CF thing for 1 day per week. Biking Dad loves to get out on two wheels but also would like to cross train with CF - 2 days per week. Active Dan is always out rock climbing, running, and doing whatever and would like to attend 3 CF classes per week.

Now look at the incentives on any given day. Mom can attend a FREE Yoga class, pay $19 for CF, or buy *10 weeks* of tickets and pay $15 for a given day. It should be no surprise when she skips CF. Dad can go for a FREE bike ride or spend $15/$19 - again an incentive not to attend. Dan has a variety of free activities competing with $15 tickets. At a minimum Dan will try to stretch his 10 tickets to last a month, which effectively costs the affiliate $450 per year (12 books @ $150 instead of 15).

So how do we get incentives to work FOR the client and affiliate? There may be several good answers. My suggestion is straightforward - offer fixed price plans that are capped for the number of weekly visits.

So Yoga Mom wants 1 visit per week, 4 or 5 per month depending on the month. As an affiliate, you want her to squeeze in that last visit as this will move her closer to two visits per week. A monthly plan at $55 for 1 visit per week would give her an average cost of $13.75. That is, an incentive of $13.75 to make every visit. A smart Mom will work to get in that 5th visit to reduce her cost to $11 - same as Unlimited. Bingo.

Biking Dad is pretty easy now - $110 per month for 2 visits per week gives the same exact incentive ($11 to $13.75 per visit). $165/month sets up Active Dan with the same incentive.

Another level of incentives would be to drop the 2 visits to $105 and 3 visits to $155.

An additional feature of this structure is that it makes it easy for clients to measure the additional cost of additional visits, and facilitates the gradual shift to more visits per month by moving up to a larger plan. Instead of looking at $15 tickets (which you should hate by now ) or $250, there are price points for every budget. The best point by far is that every client has a strong (and virtually identical) incentive to COME TO CLASS. As you know, once through the door they love it.

Hopefully this 4:30 am analysis illustrates that incentives can be used more effectively when constructing memberships. I believe there are a great number of clients who would find these structures appealing, myself included. There is more to explore, including:

1. Enforcement - how to police clients to ensure they don't over-attend (hopefully without annoying coupons)

2. How to apply military/police discounts without bringing the per-class cost too low to be profitable to the affiliate

3. How to apply these concepts to affiliates that offer a very limited number of classes - Tom Brose I am looking at you!

4. How to structure multi-month and annual plans while retaining the attractiveness of "upgrading" to more visits per week.

Enjoy,

Damien

[Tobias W. Neal]

While I think this a great look at numbers...truth is this...

I charge $150.00 a month and most come 5 days a week. Therefore most are worth $7.50 a day or in their case an hour. I have folks down the street that are personal trainers and thriving well; doing what I do and charging $75.00 an hour. If you don't see the value in a trainer that gives you training for $7.50 an hour v.s. one that charges $75.00 dollars an hour then perhaps you should take another look at your desire to train.

To be honest I don't get a whole lot of folks that just want to come 1 or 2 days a week and for that matter not to many that just come 3 days a week. Most are here 5 if not 6 days a week when we offer a Sat. class.

Just my .02

[Jesse Kodadek]

Can I butt in real quick as a member at an affiliate and not a trainer?

The people who come once a week **** me off because they are the ones who are CONSTANTLY trying to figure out what is going on so therefore, they take up an inordinate amount of our trainers time.

If there are three people in the class who have never done a clean and jerk, what are my chances of getting any personalized instruction on the intricacies of why I am stuck at a bodyweight C&J. Just an example...

[Chris Walls]

That is why there should be different levels of classes, so you don't have newbies who barely know how to squat doing C+J alongside someone stuck at a BW C+J.

Unless you're at an "all levels" class, but then you know what you're getting into...

[Tom Seryak]

damien,
we actually started our affiliate offering the 1 day/week, 2 days/week, etc. and it didn't work. let me define "work". we run the Crossfit TRAINING program at our affiliate, not the Crossfit CLASS. IMO, participating in Crossfit 1 or 2 days a week is not going the produce the intended benefit. we want our clients to adopt Crossfit as their training program, not a supplement to whatever else they are doing. From a business standpoint, word of mouth is the most effective marketing that we have, and this is not optimized by clients that are not engaged with the training program. From the client perspective, any "costs" associated with attaining a high level of fitness should be seen as investments. Are you going to get more out of a free bike ride or a $15 Crossfit training session? my wife and I were once "trainers" at the globo gym and our 1-1 rate was $90/session, group rates were $35/session/person. So, from a "value" standpoint, the unlimited package is a great value even if someone doesn't show up 22 times/month or whatever.

[Katherine Derbyshire]

Originally Posted by Tom Seryak

damien,
we actually started our affiliate offering the 1 day/week, 2 days/week, etc. and it didn't work. let me define "work". we run the CrossFit TRAINING program at our affiliate, not the CrossFit CLASS. IMO, participating in CrossFit 1 or 2 days a week is not going the produce the intended benefit. we want our clients to adopt CrossFit as their training program, not a supplement to whatever else they are doing.

You're not interested in working with athletes? Because no serious athlete is going to abandon his sport in favor of Crossfit, or sign up with a gym that suggests he do so.

FWIW, I'm actually seeing substantial benefits from 2 CF classes a week, as a supplement to my martial arts classes, and am happy to have found an affiliate that gives me that option at a reasonable price.

Katherine

[Skip Chase]

My ultimate goal is to change lifestyle and behavior. PERIOD We have NEVER offered a 1x/2 times a week program.

During the past 3 1/2 years we have taught and observed lifestyle and behavior changes. The majority of our clients train at least 3x per week, every week. If they aren't here, they are on vacation, leave, business trip or they are ill.

Our society MUST learn to change behavior. To change behavior, we MUST experience a REWARD for our effort, time and monetary investment.

The consumer CANNOT experience a REWARD and behavior change with only a 1 x or 2x per week stimulus. (Perhaps a VERY small percentage may) .

Eliminate a 1x/2x per week offering. You may think you are making the offering more affordable for some, however, it has no value to you nor the consumer. You collect a little money, and they quit. No Value.

[Skip Chase]

Katherine,
The athletes are taught, to be serious, you must do both. We've observed our 'serious athletes' at the high school level, attend their sport after school and attend our facility when we open at 5:30am. We have observed the development of state champions, record holders and team leaders.

We are also seeing their parents walking in our door to learn how to improve the quality of their lives, changing the behavior of the family.

We observe the same success with our adult 'serious athletes'. (firefighter, mma, ultra distance runners, ice hockey players, soccer players, etc).

We don't suggest they 'abandon' anything. You want to be serious and become an elite athlete, you must develop the attitude, commitment and work ethic.

[Gabriel desGarennes]

Oh, i was going to reply but i'll end up getting suspended if i say what i want to

[Chris Walls]

Originally Posted by Gabriel desGarennes

Oh, i was going to reply but i'll end up getting suspended if i say what i want to

I would actually be very interested in anything you have to say, even if it is a huge negative about affiliates. PM or email me please. I am now curious. heh