5 Pricing Methods For Your Fitness Business
How’d you determine your current pricing structure?
If you’re like most gym owners, there’s a good chance you looked at what your competition was doing or asked a few of your peers and you followed their lead, pricing your programs similar to theirs.
It seems that pricing was much easier when you simply charged $45/session or sold 10 pack for $400.
However, with the popularity of automatic billing and recurring revenue better ways have emerged. Pricing should be more of a strategic move and less of a guessing game.
In the book Simplify by Robert Koch there are two positions you can take with your pricing if you want to be a dominant player in your market. There’s the price simplifier and the proposition simplifier.
The price simplifier aims to produce their product or service at the lowest possible cost so that they can sell it at the lowest price. The strategy is aimed at having narrow margins but winning the market by selling a lot of volume.
The proposition simplifier aims to make their product or service more enjoyable, easier to use and more useful. This eliminates needing to sell at the lowest cost. They want to be first to market and then dominate the market through innovation.
Price simplifiers include McDonald’s, Charles Schwab and Dell computers. Proposition simplifiers are Uber, Apple, etc.
Ultimately how you price your training programs will determine the profitability of your fitness business. It will impact key decisions with your marketing and delivery of your services. It can define a majority of your business.
Understanding Pricing Methods
There are many different pricing methods that you can take with your business, in this article we’ll only cover the few most relevant to the fitness industry and delivering services.
Cost Plus Pricing
Using this method you set your prices based off your costs to provide your service. Your costs include the expenses to run your facility, payroll for your team and other costs associated with running your business.
For example if your expenses each month average $5,000 to run your facility and you run 100 sessions a month (25 per week) your average cost per session is $50.
If you need to make 20% margins on your services then you need to make at least $60 per session on average.
1-1 Personal Training sessions would need to be priced so that you average $60/session. Charging $60/session only works if you are booked at capacity ALL THE TIME. If not you need to add in a buffer so that you average $60/session, especially if your expenses are relatively fixed. If your expenses are variable based on the amount of sessions you provide then you can account for that in your pricing.
Semi Private Training sessions would need to average out so that you are making $60/session total. If you average 3 people per session for all 25 sessions then you need to charge each of them at least $20/session to meet your goals.
Group Training sessions have more flexibility and allow you some buffer. If you’re training groups of 12 with this format you can charge as little as $5/session for each member. However you need to determine if you can fill 25 sessions a week with 12 people.
Pros for Cost Plus Pricing :
- If a majority of your expenses are tied up in the delivery of your services this could be a good model. You’ll be able to nearly guarantee that you are hitting your profit goals.
- It’s easy to justify this type of pricing. Your costs are dictating what you charge.
Cons for Cost Plus Pricing:
- You’re not factoring in your competition and position in the market with this pricing method. You are relying solely on your expenses to justify your prices. This could leave you vulnerable if you price too low or too high.
- If you inflate your expenses you will have to increase rates to maintain your margins. Unless you have a good guide for increasing expenses you could overspend, driving up prices and eliminating your market.
- It’s not always simple to use the average cost per session to determine pricing. In some Core Offers select session times may not be as valuable as others.
If you’re new to the market or launching a new program this could be your way to make a big impact in the market. Penetration Pricing uses the strategy of undercutting the prices of competitors in hopes of building a client base.
This only works if you know you can market your program extremely well and steal some clients from competitors.
There’s a good chance that you won’t be profitable with this method out of the gates. It’s often required that you increase prices for future clients to create your profit.
This method may work well if you can deliver your services at a lower cost than your competitors and can bring in a large volume of clients.
An example of this method would be offering your boot camp for just $99/mo for your first year during the grand opening of your new facility.
Pros of Penetration Pricing:
- It can provide you the opportunity to gain market share quickly and take clients from your competitors.
- It allows you to see if there is a desire for your services in your area.
Cons of Penetration Pricing:
- You may operate at a loss with this pricing method unless you can sell your clients more services or keep your costs incredibly low.
- You risk creating unloyal clients that will move from offer to offer instead of staying with your business over the long term.
This is what Wal-Mart and other high volume discount providers use in their business. It requires you to work off lower margins and high volume. Planet Fitness is a good example in the fitness world.
Love it or hate it, this method can work. It’s certainly a different strategy than most trainers want to focus on though.
If you choose Economy Pricing you’re most likely going to cut all the extra benefits and reduce the level of service you provide. I’d imagine that to survive you would simply be providing a place for people to workout. You wouldn’t require a highly skilled staff and you wouldn’t provide extra benefits like accountability, nutrition or even much coaching/individualization with this method.
However, if you look at some group exercise classes it would seem that you could get this method to work if you could market well enough to get the volume.
Pros of Economy Pricing:
- You will be able to target a large market due to low costs to join your program
- It can be easier to run and staff due to the lower level of service needed
Cons of Economy Pricing:
- You have to constantly work to keep your expenses down to maintain your margins
- You will have competition that tries to undercut your pricing
- You have slim margins that leave little room for error
- Customers may not be as loyal to your business as those paying a higher price.
Value Based Pricing
Setting your prices at the perceived value to the client is known as Value Based Pricing. Your expenses, margins and market prices are not taken into consideration with this method.
Typically this type of pricing results in higher prices for the client and higher margins for the business owner. The trick is getting your clients to understand the value and be willing to pay for it.
Specialists and niche markets often use Value Based Pricing. If your training business has a smaller niche market or specializes in delivering a specific result this may be a method you can apply.
It is possible to increase the perceived value of your services with good marketing and sales presentations. The concept is explained in the post titled “Should You Offer A Trial?”
An example of this method is focusing your training programs on helping people get ready for a fitness competition, bodybuilding show, or photo shoot. You can charge a premium if you deliver the results but your market will be small. These people see the value in your training or prep services but others may not.
This pricing method is the most commonly used, but not recognized by trainers.
Pros of Value Based Pricing:
- You will enjoy high prices and profits most of the time with Value Based Pricing.
- There’s a good chance that you’ll build a very loyal customer base if your service produces the results that your clients want.
Cons of Value Based Pricing:
- It may require that you use highly skilled team members to deliver your service to get the results that you are promising which can drive up your costs.
- By pricing yourself at the high end of the market and specializing you may have a smaller market to service.
- Your competition could provide comparable service at a lower price, stealing away your clients.
This method has you pricing your services higher than the rest of the market with the expectation that clients will buy it simply because it’s the highest price option. The expectation is that the quality of the service matches the price. Though that’s not always the case.
Marketing is a must with Premium Pricing. You have to be able to attract the right clients and portray a high perceived value in your marketing.
Oftentimes products or services that follow a Premium Pricing model have the perception that it is a luxury. Think First Class Seats on a plane, a Bentley, etc.
If you have a limited amount of space in your program Premium Pricing may work for you as well.
An example of this method would be charging $999/mo for a fitness concierge service to high powered executives and entrepreneurs that want a one stop shop for their fitness & nutrition needs. You would train them 3-5x per week, organize meal preparation/delivery, schedule recovery activities like massages and be on call to help them as needed.
Pros of Premium Pricing:
- You can expect high margins for your services.
- It can be tough for a competitor to come into your market if you get a head start on them.
Cons of Premium Pricing:
- Marketing costs are high. You have to find the right clients and create the impression that you are a luxury brand.
- There is a smaller market for most premium services.
- Losing a premium client could have a big negative impact for your business and replacing them could be a challenge.
How to pick the right pricing strategy?
To determine the pricing strategy that may be right for you and your business it’s best to start by looking at your long term vision.
What do you eventually want to accomplish with your business? What’s the end goal?
Now, what do you want to accomplish in 3-5 years? What does your business look like?
The key is picking the pricing strategy to get there.
If you want to have multiple facilities and help thousands of people you probably shouldn’t go with Premium Pricing.
For most fitness businesses Value Based Pricing will be the most successful route, but you should also take the principles that make Cost Plus Pricing successful. You want to understand your expenses and set yourself up to be as profitable as possible.
You may choose to start your business with a Penetration Pricing method and then move to Value Based Pricing once you are off the ground.
It’s also important that you take into account the skills needed to make each pricing method work. Marketing being the primary skill needed to make most of these methods effective.
Lower cost methods require marketing to hit the volume that you need to be successful. Higher priced methods require you to market the value of your programs clearly to attract clients that are willing to pay more.
You can see there are several paths to hit your end goal. My job here is to lay out your options and give you a few things to think about to make the best decision.