231. Don’t play the Middle Pricing Option Game, finally decided how to monetize this journey of mine

Navigate the precarious world of pricing strategies with us as we peel back the layers of complexity in the fitness industry—a landscape where I, your host and a gym owner, live the daily challenge of balancing the books. Hear how businesses, from high-end havens like Equinox to the budget-friendly Planet Fitness, are tackling the economic pressures that squeeze the middle-tier gyms I operate. We candidly discuss the pandemic's impact and the potential reshaping of the fitness sector, raising questions about the future of mid-tier services and the pivotal decisions owners must make to stay afloat.

Tune in for a broader examination of how inflation is reshaping consumer behavior and business models, drawing comparisons with the food industry and beyond. As a kickboxing franchise studio owner, I reveal the critical importance of selling transformative experiences, not just workouts—key to differentiating in a crowded market. Plus, we'll explore the business growth journey, the value of forging partnerships with ethical companies like Century Media, and the power of support and trust in steering a business through the choppy waters of today's market. Join us for insights and real-life lessons on thriving amidst the challenges of entrepreneurship and competitive pricing.

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Chapters

• 0:32 Challenges of Pricing in Different Industries
• 8:17 Navigating Price Points in Business
• 16:51 Entrepreneurship and Business Growth

Transcript

Speaker 1: 0:32

Good morning. Well, today I want to talk about pricing and some of the pinches that puts a business in. So I'll just use the context of the gym space because I'm in it, but it applies to restaurants, hotels, media subscriptions, like anything in general. So let's focus on the gym space. And I'm noticing a lot of these pricing frustrations with consumers because right now in the fast food world at least, like newsweek wise, wendy's just did a big price hike during surge hours, and what was it like two weeks ago? Mcdonald's came under fire because their meals are getting unaffordable for lower income people and certainly they've been like the staple for low income folks to get fast food, and so everything's just getting expensive for the current market. So that's the context. Let's come back to the gym space.

Speaker 1: 1:28

So right now, as of today, there's three main pricing models. There's the high end, high results model, like the, like the equinox, the lifetime fitnesses, if you just want, like a general fitness club. Those memberships were like 250, like I don't know what equinox is, I think like 500, 600 bucks, but they're like the, the fanciest, bougiest gym out there, and so a very high price point. It's very much a social networking thing. We'll just say it's a price point of $300. There's the middle tier space which is like boutique fitness studios, like strip malls, standalone buildings and so for that think of like an Orange Theory, fit Body, boot Camp, pilates, a kickboxing studio, that kind of thing, and those are like $150 a month, $150, maybe $200. And then there's like your low-price gyms. Think of like a Snap Anytime Planet Fitness, that kind of thing. So those clumping the gyms into three spaces, those are kind of the space Well gyms, the gym profit margin in the world, most in the US.

Speaker 1: 2:46

If you're at a low price point, like a plan of fitness, you have really good margins because you have tons of members and low usage and so with a ton of members you'll actually have a decent price. Most are franchises and so those numbers are not super easy to find the profit on. For the high price point, where it's 300 bucks a month, those usually have large commercial buildings. If you have economies of scale you can offer a nice service like warm towels, listerine, breath cups, massage therapists, all sorts of fancy services, and since you have so many members at a location in a commercial building they can sell memberships at a decent rate. But they're big moneymakers going to be in owning the real estate and upselling services like hair massage, acupuncture, all the premium add-ins.

Speaker 1: 3:40

Unfortunately, the folks in the middle that are pinched big time, those are usually small time one, two, three location owners where they don't have economies of scale. They don't have 50 employees. If you lose an employee you don't have an impact. In my studio I've got one general manager, three assistant manager, shift lead type folks and I have 20, 18 instructors and so if I lose an instructor there's someone to fill in, but I lose my general manager. I don't really have a solid replacement option since my assistant managers work other jobs or have other commitments. And so even though my price point is a pretty high price point for a lot of people $150 to $200 a month I don't have the thousands of members.

Speaker 1: 4:32

I have maybe 250 members and it fluctuates month over month. Let's say like 250 members and it fluctuates month over month. Let's say like 250 members and we're operating at a. I mean I'm losing money right now, so a negative profit margin. And so when folks see like these classes are full, paying a lot of money, we should be getting a lot for like, yeah, I want to give you a lot for this Rent and payroll the SBA loan. It takes me like 200 members just to cover, like my, my cost of the business or keeping the doors open and then to get somebody to cover the cost of a loan. So all that to say, it's the folks in the middle that usually are pinched to either go up or go down in your offering. And so in the group fitness space, if you look at um, just go ahead and look at like different franchise disclosures, public information, like a name drop, a lot of middle tier, at least group fitness gems the number of franchise locations are shrinking and not just like losing a couple here and there, like ever since COVID there's one brand I'm thinking of.

Speaker 1: 5:47

I don't remember the exact numbers they had so I'll just make it up, but the ratios would be about the same. So they used to have like 500 locations, the next year they had 300. So they used to have like 500 locations, the next year they had 300. And today they're at like 200. So over the course of three years they've lost half of all franchisees. Some may just not renew their license. Most of them are closing down, applying bankruptcy, going through whatever they need to, because they cannot profitably keep the gym open, they can't subsidize it. These businesses are small enough where the owner is having to subsidize out of their own personal funds or refinance their house or do something, and so, as a pricing thing, that's a common pattern you see in the market as a whole and in this case, group fitness.

Speaker 1: 6:36

So, fast forward a handful of years. What is this going to end up doing? Well, the franchise is at least. The brands are going to shrink, the number of locations are going to shrink dramatically and unless you have new blood, new life, new models in the middle, you're going to lose that middle price point. You're going to have either more Snap, anytime Planet Fitnesses Also going to have a couple more Lifetime Equinox high-end locations. Because the folks in the middle that are paying $200 a month for fare service, they'll realize, you know I could just pay $100 more. Pay $ 200 a month for fair service. They'll realize, you know I could just pay 100 bucks more, pay 300 a month. And now I get a personal masseuse, a personal trainer, warm hand towels, a free massage a month and it pays. It costs hardly anything to upgrade and if I downgrade to a planet fitness I'm gonna lose like eight out of the ten things I want at a gym, and so it's the middle, if you will. That gets squeezed out, and so a lot of group fitness places are having to make up their prices and figure out how they're going to justify that with value inclusion. So that's the gym space.

Speaker 1: 7:43

Let's talk about the food space. Right now, a lot of and like one restaurant that comes to mind, or a couple are going to be like sit-down restaurants, but like quick-service restaurants where you still sit down in so for no other reason. Ones that come to mind like a Potbelly's, panera Bread, lee Chin, panda Express, places where you order food, not necessarily for takeout, but you order it. It's a quick turnaround, feels like a fast food restaurant, but you're assuming you're going to sit down and sit in there. They're struggling.

Speaker 1: 8:17

A lot of consumers are in a tough spot with inflation. Their rent is going up, their cost of groceries going up, cost of clothing is going up, their paycheck is inching up three percent a year, and so they can't really it's harder to go out and get Panera and sit down and eat Panera for a little while. However, the top end restaurants there's more and more bougie, fancy restaurants for people to go to. That's because the middle upper, middle middle class consumer is having to either upgrade what they're paying, buying because there's a big value jump, so a few more bucks gets them a lot more value or they have to downgrade, save a couple dollars because they can't afford it. It was a tremendous amount of value and at the end of the day that's a pinch for the consumer.

Speaker 1: 9:08

And right now, with Wendy's and McDonald's, just with the cost of doing business, cost of food, a lot of people say corporate greed, which I would push back and say how much is a franchisee making? How much are they hoarding? If you look at financials, they're not making as much as you would think they ought to be making. And they're thinking the exact same thing. They should be making way more money than reality. And you think they should be making way more money than reality. But it's another conversation. So at the end of the day, even like a McDonald's or a Wendy's, the price points are taking up this cover of their costs to hit this middle price point tier. So McDonald's and a Panera bread are not the same price offering. So what does that mean for the consumer? The consumer is now losing on low price point things because no one can afford to deliver mcdonald's can't even afford to make delivery mcdonald's anymore on a profitable level. So you either either shut down McDonald's which McDonald's is not going to shut down McDonald's or you have McDonald's have to improve their value offering, inch up the pricing.

Speaker 1: 10:18

We have to survive and be a compelling business in the market. They can't just hang around that low price point. As of today, at least, they don't think they can, and so that's all the philosophy. That's my college lecture. What does that mean for you? From what I'm gathering as an owner, seeing the marketplace with high price point, low price point, mid price point companies, you've got to pick one or the other and buckle down.

Speaker 1: 10:46

And the studio that I own, we're in that middle tier. We're a kickboxing franchise studio and we're not selling workouts, we're not selling equipment. We're actually selling the result, the transformation. It's something that's almost like a different thing that we're selling, and that's the way that we're having to differentiate, because we can't compete with a Planet Fitness price point. Our doors would close within three months if we price ourselves like a planet fitness. We also can't price ourselves like a lifetime because we don't have the manpower to deliver that value. So if we charge 300 a month, people say you're stupid, no way. And then they we're going to lose to a lifetime. And so all that.

Speaker 1: 11:31

To say, whatever you're going to be offering whether it be a service, um, a good, some sort of lead generation thing, equipment, repair, a book supplier, a shipping freight company you have to figure out who you're servicing, what that price point looks like and, if at all possible, go for the high value high price or the low value low price, because if you go for that middle tier, oh goodness, you're going to get pinched At some point or another. Something's going to happen. You're going to get pinched. So that's what I'm learning right now. That's how we turn our studio around. We will be offering some high ticket price points and it'll be comparable to if you bought, like, a personal training package from Lifetime Fitness. We can get it through our studio. Instead of being one of 30 high value clients for a trainer at a lifetime, you can be one of six clients for a trainer at the studio. So we're going to deliver a higher value same price point because we don't have the same overhead. So that's our strategy.

Speaker 1: 12:46

That's all that's going on there had a conversation yesterday with the marketing agency. That's been a lifesaver for the studio and they have a great referral program Not as juicy as it used to be, because, with the marketing agency, that's been a lifesaver for the studio and they have a great referral program Not as juicy as it used to be because they've scaled up. They used to be that middle price point, middle value, and now they're inching up to that scalable, high value, middle upper price point, 100% worth it. Oh my gosh, I can't even tell you they're the best invest, other than my staff. They're the best investment I've made and I'll gladly throw money at them all day long. So I'm looking at doing a partnership, referral-ship type stuff with them, since they've helped me.

Speaker 1: 13:30

And I have a bad taste in my mouth when it comes to affiliates, referral programs and that kind of thing, because it always seems like people are trying to be a celebrity or an influencer and say, hey, I'm cool, I'm fun, I'm exciting. Hashtag, buy my supplements and buy my window cleaner because I am so cool and so fun. Get this collagen thing for your skin, it's okay, it's going to cost. As a scammer, like a snake oil salesman, I'd rather find someone that's doing really cool, like here's something really cool. I saw a rock climbing video the other day of a guy that, like, was doing insane rock climbing things. I checked out his instagram profile and he said, hey, here are the here's the rock climbing gear I use. Here's the chalk I use, here's the brushes I use to clean off my grips before I climb a certain route. And I don't know anything about rock climbing, but this guy looks cool, he's doing fun things, he's someone I aspire to be and he's not being braggy, he's just being fun. And so if someone's braggy or like a Kim Kardashian celebrity person that I'll never be able to like grab a beer with, then I'm not going to really follow them, and so I think that's the angle I want to take on.

Speaker 1: 14:42

I don't want to take on affiliates and referrals and start doing like networking podcast things. This whole journey is just so everyone can see. Business ownership kind of drives you insane the staffing, the gossip, the lenders, the vendors, the people you report to, the people that report to you. And yeah, from here going forward, we'll be on like episode 230 or something. Yeah, I want to start referring out people that have helped me get here, gotten me to where I am today. I want to start referring people that have changed my world and help you get plugged into them. So, first and foremost, uh, make a decision to start referring people to the marketing agency. So santer media. It's taken me over 200 episodes to make a decision on how to monetize this. But Santer Media, s-a-n-t-e-r. They're the ones that have changed my gym. They charge an agency fee, they do ad spend and then I pay ad spend on top of that. I'm going to have my own sales team do some work as well. So talk to them about pricing.

Speaker 1: 15:53

If you own a business that needs quality traffic, people that will buy. I'm not going to make income earnings because I don't want to have that liability, but I'm making far more money a multiple. Me personally, the best month we were at a 9x return on money Standard month. We were at a a 9x return on money Standard month. We're at like a 3 to 2x return on investment. Days will fluctuate. There's requirements on my team to help perform.

Speaker 1: 16:24

I'm not going to claim anything whatsoever for what you would get working with Santa Media, but as of today, I'm going to start plugging them into my intros because, yeah, I want to refer them. They've done great work. I'm partnering with them for several months now. They're consistent in what they do and I don't have to get plugged into them. So by now you've probably heard about them a couple hundred times.

Speaker 1: 16:51

But I want to show it's fine to not have a monetization strategy, but at this point I want to put more time, energy and investment on multiple levels into this entrepreneurship route, this business, the vendors, the partners I work with, and I only want to connect you to people that have changed my life. So that's where we're at. You don't need to have a plan from the beginning. You need to have momentum and direction. So we'll see how this all goes. I'm going to refer you over to Century Media. Good call with them. Sure, what is that Link in the bio? Subscribe, download, like, comment, whatever the buzzwords are, but if growing your business is something that's on your radar, something that you want to do, you want to have more sales, give them a ring. They're going to be the ones to get you there.

Speaker 1: 17:41

I've used other folks that did bait and switch trickery pricing, wanting to get fancy ways to trick people into making a sale or a purchase. Not, santer, they're above par, they're ethical and, as of leap year of 24, they're stellar people. I love working with them, happy to refer you over to them. So that's where we're going. That's what I see in the pricing world and I want to start continue to people that have saved my gym, literally saved my gym. If there was a bed and work center, I don't know where this gym would be, other than on the edge of closing its doors, hands down. You need people that are going to get you where you need to be. That's all right. That's where we're going. Go check Center out, let's rock and roll.