Does Your Health Club Show the Warning Signs of Trouble

June 25, 2012

By: Jim Thomas
Jim Thomas’ Fitness Management & Consulting

I was speaking with a health club owner recently. He was thinking of making a change in club management. In meeting with him, he mentioned that sales had stalled, expenses were going up and there seemed to be some complacency in key positions. Of course, one of the challenges in the consulting field is the client calling when it’s too late, so we discussed the key issues to be looking for when evaluating his current situation. If the warning signs can be recognized quick enough perhaps the minor issues can be solved before they become major problems.

The reality is that your health club can’t run out of cash. So you must diagnose the problem quickly and get it fixed right away.

Here are the different things we discussed – how would you answer each with regard to your health club?

1. Has your health club lost market share?
Your membership sales may be growing, but your share of the market may be falling. As competitors enter your market, you have to work even harder to maintain your share or your health club may get into trouble.

2. Do you have declining member purchases?
Membership sales may be holding steady, but fewer and fewer members are making other purchases in your health club. Your other members are spending more, possibly because of price increases. You have to find a way to attract more business from your existing members or your health club is headed for trouble.

3. Do you have high attrition and low referral business?

You need strong member retention because it’s much less expensive to keep a health club member than to get a new one. It also shows that your health club is still meeting the needs of a core base of members who will refer other people to you. If your members aren’t coming back, your health club may face trouble.

4. Do you have declining membership sales?
If your membership sales are falling, your health club is definitely headed for trouble. Isolate whether it’s a problem with your health club or the health club industry as a whole to know your best strategy.

5. Are you experiencing disproportionate sales to a small group of corporate clients?
Imagine this extreme situation – a few years ago we had club in a similar situation and they were dependent on one corporate client providing an annual corporate membership purchase of $100,000. They were totally at the mercy of that corporate client.

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6. Does your health club have high employee turnover?
When you lose employees, health club members are affected – they deal with less experienced staffers who don’t know your health club or the member’s needs as well as long-time club employees. If you can’t retain club employees, your health club will likely face trouble.

7. Are costs rising faster than sales (declining profit margins)?
Costs in a health club rise for a number of reasons. As your membership and ancillary sales rise, so will your costs. If they don’t, why do you need that cost at all? So rising costs in your health club are expected. However, costs that rise faster than club sales means your health club will face trouble at some point because you’ll have less and less profit for each dollar of sales.

8. Do you have an increase in member delinquency?
It’s great to make membership sales, but not if you don’t get paid. That’s worse than not making the membership sale at all because it costs you money to make a sale. Slow paying members also create problems because you can’t pay your bills with receivables. If you don’t control your account receivables, your health club may be headed for trouble.

Now, go fix the trouble.