Whatever your other goals for opening a children’s gym – you probably want it to earn money. Even if you’ve decided to open it as a nonprofit community gym, it still needs to sustain itself financially. All this begs the question: What is the financial opportunity for your kids’ gym in your area?
We’re going to help you work through three tasks you need in order to answer this question for your locale:
- What information do you need to know about your area?
- What are your pricing model options?
- How do you increase your audience’s perception of value toward your kids’ gym?
Gathering the details
When you started planning your children’s gym, we recommended that you begin by clarifying what your vision for your gym is. You got a long list of questions to ask yourself about why you want to open a gym now and who your ideal students will be. These were primarily open-ended, “how do you feel about this” type of questions. Now it’s time to list just a few of the hard data questions you also need to answer:
- Demographic questions: What’s the age distribution of residents within a certain mile radius from where you want to open your gym? What’s the average and mean family income, and both the high-end and the low-end? Does household income range wildly or is most of the population gathered around the mean?
- Psychographic questions: How important is fitness to your local community? How physically active are the kids? Do they have a lot of sports or other activities in the schools? Which activities are most popular? What other types of businesses seem to thrive in the area? What other types of community resources, e.g. religious institutions or volunteer organizations thrive there?
- Competitor questions: How many children’s gyms are there in your target radius? How old are they? What are they offering? How closely do any resemble your vision? What other closely-related businesses, e.g. a children’s fitness center, exist? How much do they charge? How do they charge (e.g. by class, by membership, etc.)? How do parents pay (by check, cash, credit card)? What extra services do they offer? Any products?
The data you collect by researching these three groups of questions will help you set some financial benchmarks and expectations regarding level of interest in your chosen area, as well as the economic realities of what it can (or is currently willing to pay) to send their kids to gymnastic classes.
You need this data to help you determine how to set your prices and which pricing model you want to use.
Understanding different pricing models
Frank Sahlein, founder & CEO of 3rd Level Consulting, has identified these common pricing models used by gyms and fitness centers:
- Using local rates as a baseline: If your target area already has a number of children’s gyms, you may decide to set your pricing based on what you see your market is already bearing. If your local market is supporting many kids’ gyms already, that’s good news/bad news. Clearly, there’s interest and opportunity, but it’s also likely to be a highly competitive market where others have already staked out their ground. In this case, you probably won’t be able to price yourself above local rates without first achieving a high-value perception in your area.
- Using industry rates as a baseline: This model operates similarly to the local rates baseline but looks at the market more broadly. If your local area isn’t highly competitive in children’s gyms (that is, there aren’t that many to help you set a local baseline), looking at industry rates can be a helpful starting point. However, the wide variation in geographic and demographic data (e.g., average class price, revenue/profit per square foot, student churn rate) argue against using industry rates as the primary influencing factor in setting your gym’s rates.
- Economic sustenance goals: In this model, your starting point is to cover your costs, not what your market is willing to pay (although you still need to consider that). Two economic sustenance models are:
- Break-even + profit: Calculating out what you need to bill to reach break-even on an acceptable time frame and then transition to a profit margin goal.
- Compensation: Looking at local or industry compensation rates for similar positions and then setting your compensation rates, typically geared towards attracting the best local talent. From there, your goal is to bill enough to cover a monthly payroll that will be higher than the average local gym. This may require a combination of reducing costs in other areas while setting a fee structure higher than average as well.
While these are useful, common pricing models, Sahlein recommends adopting a more strategic pricing model. A strategic pricing model is based on clear definition of who you want to serve (your ideal student and family) and determining where your best opportunity for profit is based on this ideal: cost, product, or total solution.
- Cost: Competing on cost means your biggest opportunity is to operate a high-volume gym with lower rates. This can work in a highly competitive market that includes a wide range of household income. Your goal here is to gain market share. That is, you need to capture as a high percentage of the local market as possible.
- Product: If your profit opportunity is in the product, it means that you have niche services to offer a niche market that justifies billing higher fees than a larger competitor. In this scenario, your per-student profit margin is higher, so your kids’ gym can earn money with a lower volume of students.
- Total solution: This model is the sweet spot between cost and product. Your gym may not be hyper-niched but does offer some unique service or value that lets you set rates on the high-end, although not top of the market. Because your rates are above local average, you don’t need to maximize market share, but you do need an attractive, high-value proposition that boosts your gym’s value perception.
Increasing your kids’ gym’s “value perception” to increase your prices
Sahlein explains the foundational principle that helps a kids’ gym use value perception to set advantageous pricing,
“Those that are able to differentiate their services from the competition’s and are able to articulate that difference are more likely to be able to raise prices – and keep them raised – above those of the competition.”
Value perception is closely tied to your gym’s ability to provide something unique and highly valuable to students and families. It’s not enough to offer something unique. It also has to be something your target audience will value and they have to associate that service exclusively in their minds with your kids’ gym.
You can boost “value perception” in the minds of your potential families by:
- Focusing on value-add services
- Creating a sense of exclusivity around your services or potential outcomes their kids can achieve at your gym
- Strategic, restrained use of discounts that reward commitment and loyalty, and don’t seem to come from a place of financial desperation. Examples of positive discounts are:
- Families with 2+ students actively enrolled always earn a family discount
- Have fixed, early-bird discounts (e.g. 60-30 days prior to the high season or do the opposite, before the low season)
Clear, realistic pricing model supports your vision
When you develop a well-researched, strategic pricing model, you’ll have realistic numbers to show bankers, landlords, investors – anyone who needs to see the viability of your kids’ gym before entering into a contract with you. Without realistic, justifiable projections, you won’t get far in your efforts to raise start-up funds. So no dewey-eyed optimism here. Sober, well-grounded optimism is far more helpful.