Defining a successful path for a gym to follow has changed over the years. The thinking used to be that you needed a big complex with room for a weights area, machines, a changing room, and a swimming pool to top it all it off. However, there has been a seismic shift in the industry in recent times. Specifically, the emergence of boutique fitness, with its more class-based approach, has given people more of an opportunity to set up studios.
The reason for this is all you need an indoor space that can fit a class of 10 to 15 members, a set of weights, and you are good to go. Some of the most successful boutique franchises over the last number of years base themselves on this stripped-down fitness concept. However, this doesn’t mean that this model is the best way to go. Easy access to the market causes a higher rate of entry. For a lot of first-time studio owners, failure is an unfortunate reality.
So what is the best business model to follow?
Membership or pay as you go? Dynamic pricing or an integrated model?
In truth, there is no right or wrong answer to these questions. A lot of it comes down to things like your passion or where your talents lie. Another significant factor is what your local market actually wants.
So in this article, we will go through what exactly a business model is, the importance of having a defined business model, and list what the different types of business models are.
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What Is a Business Model?
A business model is a plan on how your fitness business will make money. It will explain the price of the product, the type of customer you are selling to, the value you are delivering to the customer, and the cost to make the product. The business model is closely linked to the writing of the business plan, which lays out the strategies you are going to use to make the business model successful.
Any new business must have a concrete business model and plan to attract investment, motivate management, and recruit talent. Established businesses and companies have to update or revisit the business plan and sometimes the business model to anticipate current challenges and trends.
What Makes a Successful Business Model?
Your business model is a structure for making profits by operating a business in a particular market. One of the primary components of a business model is the value proposition that you are going to use to describe the services and goods your company will offer. It also includes why these services and products are desirable to clients. Ideally, it differentiates your products and services from your competitors in the market.
An effective business model for a new company also covers startup costs, financing sources, marketing strategies, revenue projections, and expenses.
The Importance of a Business Model
As mentioned earlier, a well-planned business model can have a significant impact on the success of your gym or studio. It provides an action plan that your gym will use to generate profits. If you want to be a successful fitness entrepreneur, it is essential to develop a business model that enables you to think thoroughly about your business plan.
Having a transparent model laid out also gives investors confidence in how exactly your gym will draw revenue from its services. In the next part of this article, we will look at the different types of gym business models and go over exactly what defines each one.
Different Gym Business Models
Membership Business Model
The membership model is typical in the industry, and most studios and gyms will run a membership-based service. It is the basic model that most fitness entrepreneurs will start with. The big plus of this model is the monthly recurring revenue. Basically, if you have members signed up to a contract where they are paying membership each month – that’s cash coming in the door regularly.
However, what is worth noting here is that the model only works well when you have a large number of members paying fees monthly or annually. If the number of members is small, it may cost the gym owner a high amount to maintain the running facilities at the fitness center.
While the membership model can be an excellent opportunity for fitness professionals to make money if they find the right target audience and location, it requires a great effort to persuade people to buy a membership. For more information on selling memberships, take a look at our foolproof framework for selling gym memberships.
Pay as You Go or Class Packages
As the name implies, “Pay as you go” is a class-based model. The advantage of this model is its customizability. In this model, you can also offer class packages. For example, you could offer a class pack of 5 classes for $300.
It is entirely different from the monthly membership model in which clients pay monthly, usually in advance. On the other hand, in the class-based model, clients pay for each class whenever they visit the gym. A big champion of this model is Soulcycle, who has popularized it in the boutique fitness space.
Class packs or pay as you go are more appealing to people who are either not consistent gym-goers or do not want to enter into a commitment before they find the right option. Sometimes, people who go to different gyms for different needs can also opt for this option.
This business model not only facilitates clients in a number of ways but also serves as a powerful model for attracting new customers. Class packages do not require much commitment. Once a client is in the gym, it all depends on the services you provide to give your customer the best experience.
If the client feels the offered benefits or gym facilities suit his/her fitness needs, they might purchase a long-term membership plan. Besides that, the business model eliminates the stress of fighting attrition or selling membership.
However, if a person feels they aren’t getting the best out of the facility they could choose to go to a different studio. Another important thing to consider in this business model is an unpredictable stream of revenue. The profits can be seasonal, depending on the lifestyle of the customers.
The third option is relatively new in the fitness industry. The model is particularly popular among studios that prefer using ClassPass. Plus, it’s ideal for gyms located in high-dense cities, such as London and New York.
Dynamic pricing uses the popularity of certain trainers, classes, and times. The business model determines the best price or charges to smooth out customer demands. If all fitness classes are of the same value, clients can choose a class that makes a desirable option for them. The decision is often based on the schedule of the customers.
While this type of structure guarantees you a good stream of revenue, it may cause crowding in your gym during specific hours, particularly during peak hours. Plus, it can place strain on the fitness studio’s resources.
However, by offering discounts and lower prices for unsold classes and off-peak times, you can combat this problem. For example, if your 6 am Yoga class is overbooked for five days a week, offering a 40% discount on the same class at 11.00 am will help you achieve a good occupancy.
Not only will it help you capture more customers, but it also maximizes profit. In addition to that, the clients who opt for this class love that they get proper attention from their trainer.
Overall, dynamic pricing suits almost all types of fitness clubs as an owner can increase class occupancy whenever he/she wants, and that brings additional revenues. If you have proper gym management and software systems that support the gym’s functionality, it is undeniably an attractive structure for your business.
The integrated model is the perfect option if you want to leverage aspects of various business models in one place. Generally, this model is the combination of multiple membership models to allow fitness centers to generate a regular stream of revenues. It also uses the pay as you go model as an added flexibility. The integration allows clients to upgrade their experience by purchasing a membership or paying charges for the fitness class that appeal to them the most. The integrated business model offers the following benefits to both fitness professionals and clients:
- If managed efficiently, this model can provide an additional source of revenue to help fitness professionals invest in resources and facilities.
- The income and revenue in this gym business model are predictable and consistent, which translates to a successful business.
- Integrating two models in a gym business means you will not face any cash-flow problems because of an additional source of earning. That means if you run a gym at a location that has seasonal clients, you can switch to another source of revenue during off-seasons.
- Clients can buy a membership to enjoy access to plenty of facilities that they need to accomplish fitness goals.
- Whether a client purchases monthly membership or not, he/she always has this flexibility to add to their experience by opting for the facilities (that suit their objectives) in the class-based model.
Despite having tons of benefits, an integrated gym business model can be overwhelming for fitness professionals who are new in the industry. It is not only tough to execute but cannot be successful if you do not have differentiated experience.
The fitness industry has entered a new era. It has responded to the demands of members who are interested in choice and variety. Choosing the right gym business model and executing it ensures the success of your gym or studio. Pick the one that suits your strategy the best and then create a marketing plan that complements your model in the most fitting manner.