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Starting A Gym – How To Profit By Offering Free Gym Membership

on July 7th, 2009

Yesterday I started reading the (so far) excellent book Free: The Future of a Radical Price by Chris Anderson. On page 32 he tells of a gym in Denmark that offers free membership, so long as you show up at least once a week. Fail to turn up and you are charged full price for that month. He argues that the psychology is brilliant:

When you go every week, you feel great about yourself and the gym. But eventually you’ll get busy and miss a week, you’ll pay, but you’ll blame yourself alone. Unlike the usual situation where you pay for a gym you’re not going to, your instinct is not to cancel your membership; instead it’s to redouble your commitment.

That stopped me in my tracks! Sure I’ve previously written about opening a gym, but I’d never considered anything as radical as offering free gym membership. Is it even possible? How could you go about starting a gym that offered free membership? How would the business survive, let alone make a profit, when you remove its main source of revenue? I’ve been thinking about it ever since.

I have to admit it’s been a really fun intellectual exercise. At first I wasn’t sure if or how a gym offering free membership could be a viable business, but the more I think about it the more I’m convinced it could be a very successful (and therefore profitable) business.

Why offer free gym membership?

When you first consider it, offering free gym membership seems to be quite a stupid idea – after all the gym membership fee is the primary revenue stream for a gym. So why would you offer it for free? Well if you look at most gyms they have two problems that they regularly need to overcome:

  • keeping existing members – the reality is most people stop attending the gym within the first two months of their membership as a result many do not renew their membership;
  • acquiring new members – it costs money to market to and acquire new members.

As a result most gyms are continually trying to find new customers, just to replace the customers they are losing – never mind finding new members in order to grow their revenue and increase profits. This means that membership and joining fees need to be pitched at a level that covers the ongoing cost of finding and signing up new members and the high cost of membership puts off many of potential members.

But what if membership was free? Now everyone can afford to join. It’s much easier to convert a prospect into a customer when the price is FREE and it’s much easier to generate a regular stream of prospects when the price is FREE. In short FREE resolves the two problems mentioned above. The downside however is that you now have a new problem – how to generate any revenue.

So how would I go about opening a gym that offers free membership?

To open a gym that offers free membership and make it work as a profitable business would mean re-thinking the typical gym. As membership is free you will now need to generate revenue by selling other products and services to the members. In short the gym becomes a retail outlet and the gym owner/staff retailers. So what can you sell to the members? Here’s some thoughts:

  • clothes and equipment – sports/training clothing and equipment, you can increase the profitability of this by selling your own brand and/or using it as a marketing opportunity i.e. “John’s Gym”;
  • sports supplements – the sports supplements market is massive, well in excess of £1 Billion per year and many gym members spend hundreds of pounds per month on supplements;
  • personal training – I suspect that if membership is free, more people would pay for personal training;
  • charging personal trainers for access to the members – if membership is free you could potentially capture the majority of the local market, you can then charge personal trainers a monthly fee for the right to market themselves to the members;
  • running classes and courses – again with free membership you’re going to have more members and hence more people to sell classes to.
  • selling ready prepared food – many people going to the gym are trying to eat a healthy diet, few places cater for them so why not offer suitable meals/takeaways.

I’m sure there are many, many more possibilities and those are just some of the ones that occurred to me. But to make any of them work you need to ensure that the members regularly attend the gym, so free membership would need to be conditional on attending the gym at least once per week – failure to do so resulting in either a charge to retain your membership or withdrawal of your membership – the membership being offered to the next person on the waiting list.

Does this work financially? I think it could. If we assume that using the traditional gym business model membership would be £40 per month and there are 4 weeks in each month. To cover the membership fees you need to generate the equivalent of £10 per week from each member. However as membership is free you’ll probably have a lot more members than you would otherwise have had, say twice as many members. Your costs however are unlikely to have increased by much, if at all, so instead you only need to generate an average of £5 per member per week. If you charge members a no show fee and manage to sell something to the members that do show up you should be able to generate an average of £5 per member per week – and if just 25% of members fail to show up every week the no show fees will largely cover your running costs (assuming that the traditional model had a gross profit of 50%).

But what if you’ve already started a gym?

If you’ve already gone through the process of opening a gym and the business is already up and running then you’ve no doubt begun to experience the problems mentioned above. The trouble is having already invested your capital, designed the gym and signed up paying members you may not be able to afford to make such a radical change to the business model. So instead I’d suggest that you consider adopting a version of the freemium business model. Perhaps offering free membership which allows members to use the gym during off peak hours and restricting access to premium members only at peak times. You can then use one or more of the strategies mentioned above to create a revenue stream from these free members.

In both cases the free membership could well prove such a compelling offer that you capture members from other local gyms, shrinking their membership levels to the point that they are no longer financially viable, thus eliminating your competition.

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7
  • 1

    Great article John
    You can download Chris Anderson’s book for FREE! on http://www.thelongtail.com/

    Tom on July 8th, 2009
  • 2

    I’m guessing you would save money on marketing, as you can just send a press release which will more than likely get printed, maybe even front page of your local paper. After that it would be word of mouth, as a free gym will be the talk of the city or town.
    Also you could look at selling advertising space in the gym, getting sponsors . Then you have as you mentioned merchandise etc.

    Then you charge extra for everything other than basic gym use. Such as changing rooms etc (I know not having changing rooms as standard would be unhygienic but look in the yellow pages and you will see loads of gyms without such facilities).

    Lastly you implement “But eventually you’ll get busy and miss a week, you’ll pay”. Most people will forget about this small condition and because the gym is free they will have a more relaxed mind state regarding the gym.

    Saf on July 8th, 2009
  • 3

    well if i had this membership and couldn’t be bothered going i would still call in just to scan my membership card then leave to avoid paying any fees.. most of your clientele proberbly be on the lower wage bracket and would recognise this flaw.. ‘common people’ have less desposable income so would not be as interested in spending at your gym.. also people with money dont mind paying premium fees to keep away from the common man.

    lee mcadoo on September 3rd, 2009
  • 4

    Lee,

    That’s simply avoided by having members scan in and out, or just staff watching for abuse. However I’m not sure I’d agree with your assertions that the ‘common people’ are essentially dishonest, or that those with money would pay to avoid them.

    John on September 4th, 2009
  • 5

    But do you really think that people who go to a gym (that is completely free) would be prepared to spend enough money at the gym to make this idea viable? After all, how many people bother taking their wallets to gyms when going for a workout? Also, do you really expect 25% of the membership to not show up? As there’s a possibility of getting completely free gym membership surely members will be more determined than ever to turn up?

    Darren on October 15th, 2009
  • 6

    In order to make this business work, you would surely need a huge number of members – we’re talking well over 1,000 – 2,000. Given that (say) 90% of the members turn up to the gym every week (to avoid having to pay anything), the gym would soon get jam packed.

    Most gyms manage to control how many members are actually at the gym at any given time by offering both peak and off-peak membership packages. With a free gym however, nobody would be interested in off-peak membership (given that they are no worse off financially by taking peak membership).

    Also, as its professional people that you would wish to have as members of the gym (as these people have more disposable income to spend at the gym) the gym could expect to be even more jam-packed between 6pm and 8pm – when everyone floods in after work.

    For the above reasons, overcrowding would surely catch up with the gym.

    David on October 16th, 2009
  • 7

    I too have been pondering this idea since I read it in the book, and was happy to see this blog! After reading the blog and posts, I still have a couple of pressing questions. With regard to the “abusers”, I don’t know that most common people are dishonest, but I would like to see the business model on how they handle this aspect of the business. I don’t think it is fair to make assumptions without more information. Additionally, I think members would pick up on schemes of charging for everything else, and might see through the benefit of ‘free’. A better approach would be to exercise co-marketing strategies instead, passing along the cost to others and the consumer indirectly. If you have not read the book… do yourself a favor and read it. I think some good brainstorming around the concepts explained could result in some great economic strides that are sorely needed in many economies.

    Valerie on October 21st, 2009

 


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