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Stop Selling Paid-in-Full Memberships!

Understand the pros and cons of membership payment options BY MICHAEL RAPHAEL


hat’s not to like about selling paid-in-full mem- berships? After all, they provide a nice boost to

your club’s current cash flow while eliminating the administrative head- aches that can result from managing declined payments. But if you take a moment to consider

all of the related opportunity costs, it brings into question the value of the paid-in-full membership. It is obvious that with a paid-in-

full membership you are not selling a recurring-dues membership (e.g., one with bi-weekly or monthly payments). What is less obvious is how much rev- enue you are losing by doing so.

Use the following formula to determine the amount of this loss:

• lost revenue = (total amount

received from average recurring- dues member) – (total amount received from average paid-in- full member)

Based on my company’s find-

ings from a random sample of 15 clubs, we determined that the average recurring-dues mem- ber pays $45/month and stays for four years, while the average paid-in-full member pays $500 annually and renews just once. This means that the average

club, in our sample, loses $1,160 each time it sells a paid-in-full membership.

$1,160 = ($45 x 48) – ($500 x 2) Of course your club’s specific lost

revenue amount will differ depending on its prices and renewal rates. But your analysis is very likely to

yield the same conclusion: a recurring- dues member generates more revenue than a paid-in-full member.

If leaving money on the table doesn’t

persuade you to stop selling paid-in-full memberships, then perhaps this exami- nation of the steps and costs of getting paid-in-full members to renew will do the trick: 1. First, your membership salespeople

need to constantly track each paid-in-full member before their expiration dates. 2. Then, they need to reach out with

a mail-out (expensive), phone call (time consuming) and/or an email blast (likely ignored). 3. Aſter getting the member’s atten-

tion, the real work starts with trying to sell a new membership (better hope he or she has been using the gym regularly!).

36 Fitness Business Canada March/April 2014 It is clear to see that selling a re-

curring-dues membership elimi- nates these hassles and allows your sales team to focus on attracting new members. But there’s more. If lower reve-

nues and wasting staff time aren’t bad enough, selling paid-in-full member- ships also complicates your ability to prepare reliable sales forecasts, which in turn undermines the quality of your budget. And without an accurate bud- get, your club must keep excessive lev- els of cash on hand to ensure all up- coming expenses are covered. The most challenging aspect of pre-

paring an accurate budget is forecast- ing revenues. And this becomes more difficult when a significant share of a club’s income is tied to paid-in-full memberships because of their dispro- portionate relative value compared to that of a recurring due, since each paid-in-full payment is worth nearly 10 to 11 times that of one monthly due. For example, if your club sells an

average of 50 paid-in-full member- ships (valued at $500) each month, but

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