This conversation (often an argument) is a classic among gym owners in the fitness industry. While there is no shortage of business topics to have passionate discussion about, the concept of requiring your customers to sign contracts vs. allowing them to have a month-to-month membership (M2M) is by far one of the most heavily debated items.
And where do I stand on this topic?
I don’t really give a shit what you do. Honestly.
- I don’t care if you have 6-, 9-, and 12-month contracts
- I don’t care if you allow M2M memberships
- I don’t care if you have a cancellation fee
- I don’t care if you require members to give notice before ending their membership agreement
Because it’s not WHAT you do. It’s HOW and WHY you do it that matters to me.
So I’m going to break down both options, pros and cons to both. And then I'll give you practical advice about HOW you can make either option a success. I'll also help provide you with the WHY behind your efforts, so you can benefit both the business and the clients.
So, Should Your Gym Have Contracts?
Membership contracts/agreements are typically associated with the large chain globo-gym.
You meet the cheesy sales manager who gives you an over-the-top tour of the brand new cardio cinema and state-of-the-art aquatics-yoga-TRX room, and you can have it all….for $19.99/mo if you sign a 12 month contract + a $39.99 activation fee. Now if you cancel your contract early, no big deal. You’ll just get charged 15 more times and have to call a collections agency, which apparently doesn’t know how to answer your phone call, only ding your credit score by 25 points. Here…use my pen.
Heard of that? We all have.
Now while that used car salesman approach is effective, it has left a lot of fitness goers very hesitant when it comes to signing a contract for a gym membership.
However, it’s my belief that the microgym is able to escape being lumped into that stereotype because it is very obvious that we are mom & pop style small business.
Typically, the head sales manager is also the head coach and the head of HR and the head of customer service, if you were to ever have a complaint. So in my opinion, microgym owners shouldn’t suffer too much from the actions of a few bad apples when it comes to selling memberships on contract.
Contracts: The Pros
Now why would anyone want to sell a membership on contract? What are the benefits?
1. Create a Mindset
If your customer believes they are committed to a gym membership for a certain period of time, it may help them tough through those cold months when they feel less motivated to go to the gym at 6am. They might want to mail in their cancellation notice when their personal finances go south, but the belief that they are locked into a commitment might be enough to keep that disposable income coming into your gym.
2. Revenue Projections
For many gym owners, it’s preferable to have their customers on annual contracts so they can more confidently anticipate their revenue for the months to come. In addition, some would say this creates a higher valuation of your business - however, I’m not one of those people.
Contracts: Two Words of Caution
So if that sounds great to you and you’re ready to start introducing membership contracts into your gym, just make sure you cover the following bases:
1. Plan For Cancellations
Even though you are making an effort to control the mindset of the customer to stay committed, realize that life happens and cancellations will most certainly happen. Have a policy in place to enforce your cancellations.
If you discounted the membership in return for the contract length, make sure you recoup the monies that were discounted for them to stay the entire year, or create a cancellation fee that will at least equal the discount you provided.
In addition, it would be very wise to research collections agencies and negotiate the best rate possible for when you have to use one of these companies….which if you are truly going to sell and enforce your contracts, you will have to at some point unfortunately.
2. Do Not Severely Discount Your Contracts
While what is obviously the give and take here is length of membership for a price concession…make sure you are carefully doing the math on how much you are actually discounting in trade of that client staying the course of the agreement. If your retention rate is strong, you may want to really think on this one…but more on that later.
*instead of discounting the actual price, make the client earn it on the back end. So instead of discounting each month, give them the equivalent (generally 1-2 months worth of dues) at the end of the contract. So a 12-month contract would be the same price as M2M, but you get month 13 free. This way the client has to stick around to recoup their discount. You’re welcome.
2. Month-to-Month (M2M)
So on the other side of the coin we have M2M contracts. These memberships allow the customer to cancel at anytime, presumably with some type of notice.
Many microgyms have gone to this model to create flexibility for the client and to keep their price point as high as possible. While most of the services we all render - Netflix, SaaS products, etc. - all embody this “cancel anytime you want” policy - you need to consider if this is the right route for your business.
M2M: The Pros
So what are the benefits of offering M2M memberships at your gym?
1. Price Point Integrity
In exchange for allowing your customer to walk away from your service at anytime, you will be charging a premium for your service. Since most microgyms hang their hat on their retention rates, this is a smart play for anyone who knows they have low attrition among their customers.
By keeping your price point high, you won’t be deleting your average client value (ACV) by discounting your membership in return for continued patronage.
2. Forces You Into a Retention Mindset
Anyone who has been in the fitness industry long enough will tell you this one truth: “retention, not sales, is the name of the game.” It costs less money to retain a current client than it does acquire a new one.
When a gym offers only M2M memberships, even with some sort of cancellation notice, the owner realizes that his customers could walk at anytime and that it is his main priority to continue to “re-sell” them on the amazing service they are getting every single month.
3. Or...Do Both
So what do I recommend YOU DO? Well, here’s how I handle it at my facility, Urban MVMNT. If you dig it, then feel free to steal it. Just give me a shoutout and let me know how it works out for you.
1. Only Offer M2M
This will keep your price point at the highest possible level and will allow you fluctuate your prices throughout the years without worrying about breaking the contract you have with your members.
2. Require An Initial 90-Day Membership Agreement
All new memberships are required to sign an initial 90-day agreement. Why?
- Because that’s how long it takes for us to start showing you some results
- Because that’s how long it takes us to teach you all the different exercises and show you the variety we offer in our exercise programming
- Because that’s how long it’s going to take to get you acclimated to your new nutrition program
- Because we fucking said so *While I say that as some comedic relief, I do want you to realize that this is YOUR business, and if you decide a certain path is appropriate to benefit the client, the coach, and the business - never steer away in fear of what a customer might say
3. Mandatory 30-Day Cancellation Notice Required
All membership agreements can be canceled at anytime…with a 30-day cancellation notice. This does two things:
- Forces clients to actually make formal contact with you (email) to submit cancellation
- Gives you an additional month of their membership dues to now pivot marketing efforts to replace that client.
Now You Decide
So there you have it.
While I work with gyms all over the world that have proven each of these models can work, it ultimately boils down to the model you feel can provide the best HOW and WHY….because we all know that WHAT you’re doing doesn’t mean shit without the appropriate execution and intent.