When we talk about the idea of aiming to make small improvements in member retention, it often sets that stage for everything underneath this guiding principle.
If a health club owner or manager has the mindset that member retention is hard to change or only small changes can be made, they are missing a considerable opportunity for higher levels of profitability.
Many clubs focus so much on customer acquisition that they fail to pay any attention to the large amount of cancellations they are experiencing each month.
The problem with this strategy is that it is expensive to bring in new customers as you need to spend money on marketing to acquire new customers. It is much cheaper to focus on keeping members once you have acquired them than trying to replace the members that you are losing each month.
Many clubs are experiencing what could be described as the leaking bucket syndrome, for every member they add to the club, another member cancels their membership. This creates equilibrium where their club’s membership numbers tend to stay much the same.
Research is suggesting large clubs lose up to 150 members per year that are preventable. If clubs are going to improve their profitability and survive for the long term, they must plug this leaking bucket.
A large amount of study has been done on the financial impact of retention. The IHRSA guide to retention suggests that clubs should “think small” when it comes to retention, as small improvements in retention can have a powerful impact on a club’s financial performance.
One particular study demonstrated that a 2% increase in retention to an average sized club could be worth up to an additional $32,000 in annual revenue. This is not to mention the additional value of increased referrals that high retention delivers.
A further study demonstrated the importance of extending the membership life of every new member. For a club with 2,000 memberships and average revenue-per member-per-month of $70, and an annual attrition rate of 40% (800 members), extending the life of the average terminating member by only one month can increase revenue at that club by $56,000. More surprising was the findings surrounding the long term or compounding effect of retention.
One study from the IRSHA guide to retention suggested that over a 5 year period, only a 5% increase in retention could be worth 1 million dollars in additional revenue.
Example
The study compares two clubs, with exactly the same number of memberships (3,000), and exactly the same pricing structure ($800 per year per member), and exactly the same success in new membership acquisition (1,000 new memberships per year), but one club has a retention rate of 65% while the retention rate at the other club is 70%. At the end of the first year, the difference between the two clubs would be more than $100,000!!
Over a 5 year period only a 5% increase in retention could be worth 1 million dollars in additional revenue.
These findings further highlight the importance of retention for health clubs. Many clubs do not focus on member retention because they feel there is little they can do and any efforts to improve retention results will not produce a meaningful profit. When you look at the figures, nothing could be further from the truth! Investing time and financial resources into member retention initiatives such as processes, software and training can lead to positive results.
