They say that price setting is an art form, but in my experience, so is juggling flaming torches. They both can be impressive done well, but there is serious potential of getting burned as you go up the learning curve. Changing prices, after your members have had time to get used to a previous price, is a unique challenge where you can get burned if you are not careful.
Any kind of decision-making about prices in business has to be based in the real world of business success. Sales, marketing and finance are the main groupings for factors in your pricing decisions. If you are interested in finding more information I recommend a recent article about general business pricing at Inc.com.
The Gym industry is a pretty healthy free-market. Pricing is mainly constrained by the changes in market demand. The factors are the classics: Power of your suppliers, ease of entry into your market, competitor prices, available alternatives, and power of the consumers.
Market Power of Suppliers
The power of your suppliers is limited once you have equipped your gym, so this is not really an industry where suppliers dictate terms. The market for trainers and other staff seems to be tilted in favor of employers because there are many trainers who are almost ready to work for the shear love of being in the gym and helping others get fit. This is not a factor.
It is easy enough to get started with a gym, if you can put together the capital. That means cash, loans, leases or partners. There is a turn over of small businesses in the fitness center business, partly because of the passion that people rightly have for it and also from the ambitions of professionals to take control and apply their experience. There is a moderate barrier to entry and once you are in you are going to have to fight for business. You need to be aware of the new entries into the marketplace and how they impact your pricing.
Gym Industry Competitors
The threat from the industry itself is real as there are some big companies that have deep pockets who are always looking to expand their market presence. The big-box gyms won’t undercut you on price but they have proven duplicate business models. You are going to have to fight to provide competitive value at a competitive price and be seen to do so.
The alternatives to gym memberships are things like the self-forming groups that organize through the Internet, and on mobile applications, to meet-up in public spaces and follow volunteer leaders or pay trainers directly for the sort of classes that are an important source of income for gyms. These are like new entrants into the gym business but as technological and creative innovation continues you just never know where the threat is coming from until it’s out there.
Consumers Call The Shots
The real power in this industry is in the hands of the consumers. You are either going to have to win them over by doing what every other gym is doing, as well as your competitors are doing it but cheaper, or by hitting your value proposition with a sledgehammer.
The Fine Art
Another thing to consider is that pricing is negotiation. You get the highest possible price for your offering by emphasizing the value that you give. Whether you increase your price or drop it members and prospects must see that there is a credible reason for it. But you do need to get out there and carefully make some decisions and take action. Then rely on your own ability to measure the outcomes and perform an after action review. You need to provide value and a reason for any price change.
The pressure is on to provide value through price and service. In this industry we are most influenced by competitors in the form of startups, established brand gyms, disruptive alternatives and consumers. These are the factors in the environment that will influence your prices so try to think of your price at anyone time as a negotiation where you have to juggle all of these flaming factors.
Calogridis, Michael. “What are the minimum requirements to enable a successful pricing strategy?” Journal of Revenue and Pricing Management 5, no. 3 (October 2006): 184-187.
Nagle, Thomas. “Economic Foundations for Pricing.” Journal of Business 57, no. 1 (january 1984): 3-26.
Wasserman, Elizabeth. How To Price Business Services. November 1, 2009. http://www.inc.com/guides/price-your-services.html (accessed July 24, 2014).