Stop Undercharging: The Right Way to Set Gym Rates

Most gym owners don’t make enough money—not because they need more clients but because their rates are too low.

In this episode of “Run a Profitable Gym,” Chris Cooper explains how to set your prices the right way so your gym becomes profitable and pays you what you deserve.

Too many gym owners copy their competitors’ pricing or assume their clients can’t afford to pay more. Chris walks you through a better approach, starting with using the Rule of 50 to determine your minimum membership price.

He explains how to set a target for average revenue per member (ARM) and why constantly chasing more clients won’t increase your gym’s profitability if your rates are too low. Using a profit-and-loss statement (P&L), he shows you exactly how to calculate rates that cover your gym’s expenses with 50 members so you can build a strong, profitable business.   

To download Chris’ sample P&L, join Gym Owners United.

And find out what other gyms are charging in our “State of the Industry” guide, linked below.

Links

"State of the Industry" Guide

Gym Owners United

Book a Call  

03:35 - Find your break-even point

08:17 - Average revenue per member (ARM)

14:12 - Do you need more clients?

18:00 - Increase ARM without raising rates 

20:29 - Recap: How to set rates

Transcript

Speaker 1: 0:02

Hey, I am Chris Cooper. This is RA Profitable Gym . Most gyms don't make enough money, and not because they don't have enough clients, but because they don't charge enough. In this video, I'm gonna show you exactly how to set your race to be what they should instead of what maybe they are right now . This is done so that you make your gym profitable, sustainable, and pays you well. Most gym owners make one of three mistakes. They copy the competition assuming that the competition knows better, right? They look at what else is being charged in the area, and they then they charge five bucks less. That's crazy. Um, second, they under price because they think that their clients can't afford coaching. They project their own budget as a broke gym owner or trainer onto everybody else, which isn't true, or they just guess, and that guess costs them thousands of dollars every single month and tens of thousand dollars every single year and eventually drives 'em out of business. So, stick with me tonight . I'm gonna show you how to calculate your rates and avoid these costly, costly, costly mistakes. There are really three ways to do this. The first is to copy what the other local gyms are doing. And this presupposes that the other gym owners knew what they were doing, you know, did a great analysis, looked at a p and l, like you're about to, and made the decision on what the right rate should be. Or they did some kind of market research, right? But they didn't. This is false. What they probably did is the same thing that you're about to do, which is look at what everybody else is charging and charge five bucks less and then promise the best service at the lowest price, which is impossible. The right way to do this are twofold. Number one, you can look at industry data. You can look at what the best gyms in the world are actually charging, and you get that data from our state of the industry guide. If you go to two brain business.com/data, you can download this guide, which is the best in the world. I'll pop it up on the screen here so that you can see what the best gyms in the world are actually charging. And then instead of saying, oh, I can't charge that, or How on earth would people pay that? You need to ask yourself, what value can I provide that's worth that rate? Okay? Now, option three is what we're gonna actually work backward , um, and do today. And that is, you know, start with your financial goals and work backward from there to figure out what you should be charging to hit those goals. This is the best case scenario. So instead of guessing, we're gonna actually calculate what your rates should be here in a moment. So, copying the market wrong, the market is probably wrong, and you're copying a broken model. Looking at industry data does better. You can see what the a RM targets are, and many top gyms earn $205 per client per month. How you can start digging in and figuring that out. And option three is what we're gonna walk through right now, which is working backward from your actual financial goals. Instead of guessing, we're gonna actually do some math here. This document is called a profit and loss statement. And it might be a little bit intimidating if you're not used to looking at your business' financials, but once you get the hang of it, it becomes very comfortable and it becomes a great way for you to decide how your business is doing and what levers you can pull to improve. This is a fundamental skill, and every entrepreneur should know how to read this basic financial document. We teach it to you step by step in the two Brain Business Mentorship program. If you want just a copy of a sample p and l, you can just go into gym owners united.com, find me in there. It's a Facebook group. Send me a message. Hey, coop , will you please send me a sample? PNL? That's profit and loss statement. Now, the one that I've got here is a sample that we use for group coaching businesses like F 45 and CrossFit. I've also got one that's just for personal training. Today, I'm gonna talk you through some of the numbers that you need to hit. So we're gonna actually start off with your expenses, right? So these are the, these are the things that are going out every single month, no matter what, before a single dollar comes in, before a client shows up, these are the bills that you've gotta pay. If you're a CrossFit affiliate, you know, you need to put that number in by month. That's closer to 400 a month. Now, if you are a, a licensee of another brand, you need to put that in, okay? If you're paying high rocks or whatever that needs to go in , um, if you're paying for marketing or advertising, like a specific website, you know, that might be a little bit less. It's typically around 400 a month. You need to put your rent in here. Uh , maybe you don't maintain an inventory of pro shop stuff, that's fine. You can take that out, okay? And what you'll notice here is that this number is getting adjusted down below. If you're not paying for certifications training, you know, you can remove that now and you'll see this number adjust. This is the number that you have to hit to stay open. This is you not getting paid a thing. This is you not paying any coaches, you not buying any extras. This is the bare bones required for you to stay open. Now, I've got a simple rule here, okay? This 50 clients should cover these expenses with 50 clients. These are 50 people who know you, love you, trust you. They'll do anything that you say, you should be able to pay all of your bills and a lease stay open. So this is the 50 clients rule. Now, this will help you determine what your a RM should be, okay? So if we're looking at, we've got 50 clients here, here's your average price, and we're gonna play with that in a moment, and we scroll all the way down, we're losing $25,000 a year. Now, if you don't have $25,000 a year to put into your business to make sure that the landlord and the government and the equipment manufacturer and the bank gets paid, then you need to raise your prices. Getting more clients in here will not solve your problem, okay? Getting more than 50 clients, if you want to play that game, you know, we can add 50, 75 clients, we can add 25. That gets you profitable. But the reality here is that adding another 25 clients means you need more space. So this number is gonna go up, okay? Now it's 6,500 a month. It means that you can't coach 'em all yourself. You've gotta hire people. And so every time you see that happening, just adding more clients, you're adding more expenses too . And so the rule of 50 is that 50 clients are, that's a number that you can serve in about 2000 square feet. It's a number that you can serve with, you know, a , a half a dozen barbells or, you know, a smaller group of equipment. Uh , smaller space, smaller overhead, 50 clients is doable, right? And so if you gear your, here we go. If you gear all of your pricing to those clients, you have lower rent probably. Okay? You know, office supplies and stuff are probably pretty low, I would guess your marketing, all that stuff, like these numbers are going to be low. Your gym management software, your marketing software might be different. In fact, with under 50 clients, your gym management software is probably gonna be under 150 bucks a month. You can see like you're getting more and more profitable just because you're focusing on them. However, you wanna at least break even with 50 clients. And so what we're gonna do here, instead of adjusting our client head count , is adjust our a RM. Our a RM is average revenue or member, but we're gonna start by just adjusting your membership price to what it should be to break even all bills paid with 50 clients. Okay? So let's try this. Let's go to one 70. What happens if we charge one 70 a month to the average client? Well, you know, now we're slightly profitable. We're making about $200 a month to the good, okay? So we know that bare minimum, we need to be charging one 70 just to pay our bills, okay? And that's, that's the first thing that we wanna look at. The real number is probably more like you can play around with this. This is a sandbox. I want you to be comfortable. So 1 65 gets us very, very close. Probably 1 67 is what's gonna actually be required. There you go. So you're breaking even. You're paying the rent, you're paying rogue, you're paying the loans, you're paying your insurance. You've got very little leftover , but you know you're good. You're not going bankrupt yet, right? And I know you can grind. So that's the key is the rule of 50. You need to start there. Now, the problem is, of course, that you need to get paid. You need to eat, you're probably gonna need to hire some coaches. But when you start off with this rate, okay, that tells you what the absolute floor is. That's the minimum. If you start negotiating discounts, I'll give you 20% off you, 30 you 10% off. I'll give you 40% off. If you pay for a year in advance, then you're , these numbers don't work anymore at this level. This is the absolute minimum you can charge per client. You cannot discount, you cannot undercharge, you cannot do special deals. You cannot go 50% off for coaches. Like you have to make this much money per client. And this is where we start, okay? The next thing that I want to introduce you to is a RM, because we are gonna be looking to get to a goal of $205 per client per month. If you've been in the industry for five minutes, you'll know that not every client wants the same thing. And if you've been in the industry for 10 minutes, you'll know that most clients don't want what you want. And so what you'll find over time is that your clients will actually fall along a bell curve. And after doing this with thousands of gyms, it's amazing how predictive this is. So your clients will fall into generally one of these four categories. Your top 10% of clients will want more. They'll want everything, okay? And generally, they're gonna be the ones who want personal training. If you sell nutrition coaching, they'll want that. If there's a new T-shirt, they'll want that. If there's a supplement you recommend, they want that, right? So there's 10% of your clients who generally pay about 30% more than anybody else, and that's gonna pull up what we call your A RM. A RM is your average revenue per member. Focusing on your a RM really helps you give people what they want. Now this, this first group is nice, but like, obviously that's not everybody in your gym. This next group is probably about 40% of your clients, okay ? They're happy with what they're getting, and they might want a little bit more. Occasionally they want that new t-shirt. They , they're gonna sign up for the intramural open so they're happy with what they're getting, and a little more so they're happy in your group class. And they might do a personal training session once a month. They're happy in your group class, and they might do a nutrition challenge once a year . Okay? This group here is about 40% of your clients, and they're fairly happy, but they might want a little bit less, okay? That doesn't mean that they're looking for a , a price competitor, but they are price sensitive. And that means if somebody opens up and gives them exactly what you're giving them for $5 less a month, they're probably gonna look pretty hard at that. Um, they might think like, hi , I wish I could downgrade my membership. These are the ones who wanna put their membership on hold. They're, they're just slightly not seeing the value of what they're paying. They think that they're may be slightly overpaying for the service that they're getting. So while these guys think that they're underpaying, and these guys think that the value that they're getting is about, you know, good for what they're paying, they're getting good value, these guys are kind of like , uh, you know, I , I don't know, it's, it's high, but I like it. Okay? They're probably not gonna leave if you address it with a prescriptive model. I just want you to be aware that you know, the , these people, they are a little bit more price sensitive. And then you've got 10% down here, okay ? They're down here and they want less. They're looking to downgrade, they're looking to save money, they're always going to be churning out. If there's a new gym, a new method, a new tactic, they're gone, right? Uh , somebody's gonna charge 10 bucks less, they're gone. I just want you to be aware that those people are out there and they will always be around over time. You're gonna find, you know, if you're doing a good job of this, that you're getting less and less of those people, because we're gonna be focusing more and more on these people and what they want. But generally, a RM gets pulled up as you focus more and more on these people, okay? These people are gonna pay your average group rate, okay ? So a RM plus personal training, plus everything else you've got to sell. These people are gonna pay your average group rate and a little bit more, right? So they're gonna boost your a RM. These guys are gonna pay your average group rate unless there's an opportunity to downgrade. And these people, I , I mean, they're just gone. Don't wanna even worry about them . Alright ? So this is how a RM works. We're gonna give people options to give them what they want. They're gonna train the way that they want. They're gonna pull your a RM up. Now, let's look at how that works on the p and l. So we're back to our p and l again, and we're still charging one 40 a month. And what we see here is our A RM is 1 52. Our A RM is slightly higher than our group membership rate because we've got this new on-ramp program where people can come in and they are properly onboarded, they're set up for long-term retention and success. And that boosts up our a RMA little bit. What's interesting is that in some gyms, you can actually have an a RM that's lower than their membership price. So they might have a membership price of one 40, but they're not doing anything to add value. They are doing discounts to drop the price for different people, and they're chasing the left side of that bell curve. The people who are likely to churn and leave anyway, instead of pursuing the right side, the people who want more from you, the way that you pursue that right side is the same way that you drive up your a RM. So, for example, there's a few ways to do this. Uh , we've got an on-ramp already. We could also offer personal training. So let's say that we offered personal training to people a , a package, you know, and , and we gave people that option and 10% of your clients took that instead of taking the normal thing, you know, the group class or whatever. Well, that's dramatic. That's probably gonna be worth at least $3,000 a month. Okay? Now look what happens to our A RM . That's great. Is it enough? Well, for that, we have to actually look at the bottom line. So if we offer some personal training and we've got 150 clients paying about 140 bucks a month for group training, we can stand to earn $88,000 a year take home . That's pretty cool. And we can also afford to pay a coach, you know, around $88,000 a year, right? The coach is doing as well as the owner's doing in this model. But what's interesting here is that if we don't offer this one-on-one option, everybody suffers. So the coach doesn't make boom, right? The coach doesn't make that money. The owner's income goes down dramatically. And all we've done there is we've offered the clients what they want. The alternative here is to just say, well, we'll make up the difference with more clients. So what happens if we go 200 clients here? Well, our A RM doesn't really change, does it? Our revenue goes up, but most of that new revenue, well , the coach pay didn't go up at all. And like, while the owner pay went up, the reality here is that we'd probably have to adjust some of these expenses, so we'd have to pay more rent. You know, what happens then? Well, all of the gains that's gone down, all the gains are really going to like the landlord. We'd have to buy more equipment, we'd have to buy more insurance. You know, we'd have to pay more cleaners, we'd have to have coaches running more classes, et cetera. So while this, this model does look good, I'm just gonna get more clients, more clients will solve the problem. The real problem is that clients come with other expenses. Like your marketing budget's gonna have to go up, right? Um, your software price is going to go up. You're gonna have to certify more coaches every month to train these people. Your number of classes, okay? You're gonna have to offer more classes. So you're probably gonna go up to like 40 classes now. And when that happens, oh, okay, now the coach is making more because they're just coaching more classes. But the owner income has actually gone down. We haven't done anything. We've, we've increased the revenue of the business, the size of the business, but the owner's not doing any better. All that money is going to the landlord, the government, the bank, or the staff. Instead. What if we stuck with 150 clients, but we focused on increasing our a RM, increasing our value to our clients? Well, we've added $3,000 in personal training revenue just by making that an option. We've already got an on-ramp here. You know , what if our base membership price was instead something more like one 60? That's not a huge difference. And you, I'm sure as a coach, can provide more than $160 a month in value. What happens now? Well, if we go down to our owner pay, we can see that the owner's now making about 122,000 a year. Now the coach, the owner, is coaching 25 classes a week, which is a lot. But you know, there's a way to fix that, right? You can hire out somebody because you've got a little bit of extra money, all right ? So maybe you don't wanna go to one 60, but if you went to one 50, let's say, what happens then? Our a RM is at 180 2 and our owner income is about 1 0 5. Pretty good. You're paying , uh, your staff about $88,000 a year, right? There's some good income opportunity there for a staff. You're making a good income. And what we focused on was not changing head count . What we focused on was changing a RM . Now, here's what's really, really interesting. The top gyms in the world for profitability, for revenue, for paying full-time coaches, for client retention, their a RM is about 2 0 5. And if you look in the state of the industry guide from two brain , you'll see that's a great target. This is a good first target to hit. Um, but at, if you can get up to 2 0 5, that's even better. And you're gonna do that by a combination of charging the right rates, selling personal training, and you know, you might even have a third strategy here. You might sell some nutrition coaching or something like that to bring this a RM up. All we're doing here is pricing appropriately and giving people what they want instead of constantly chasing the next client. The next client worried about crazy churn, trying to stay on top of new marketing and burning ourselves and our coaches out. Because the other thing here is like if you're doing 200 clients a month, you're gonna increase your churn, your costs , your coaches are gonna make less, and you're gonna turn your coaches too , and they are gonna go open. And what are they gonna do when they open? They're going to run the same program that you are and charge $5 less a month because they don't know what else to do. How do you increase your a RM without raising rates? First, you have to have a couple of options. And all you're doing here is you're giving people what they want. So when you're doing a prescriptive model intake with somebody, you can say, based on your goals, here's what I recommend. As a professional coach, would you be more comfortable doing this in a group setting? Or would you be more comfortable doing this one-on-one with me? 10% of people will say one-on-one that will immediately boost your a RM , keep them happy and hey, this is secret. But the reality is that not everybody wants to do your group program. And so if all you offer is group, especially without an on-ramp, you're gonna push away the most valuable clients to come into your gym because, hey, no, I need flexible schedule. Hey, no, I don't wanna throw up in front of strangers. I wanna do this one-on-one with you by appointment, by not offering that, you're pushing the most valuable people out. Another way to boost a RM is, you know, to have like a one-on-one membership option to have a nutrition option, and of course to have your on-ramp program. Now, the way that you present this is really important. These are sample pages that we give clients in the two brain mentorship program out of a pricing binder. That means when a client sits down, if you really wanna look professional, you don't just say, well, here's what our group membership costs. What you say is based on the outcome you wanna get, and the starting place that you have here is my prescription. Would you be more comfortable doing this in a small group setting or one-on-one with me? And then here are the rates. You present the rates like this professionally so they know that you're not just making it up, that you're not willing to negotiate that the next person coming in the door isn't getting a different rate than they are. Okay? That's how you do this professionally. And that's a big part of raising a RM . Okay? So the pricing binder, the value stack is basically saying, based on your goals to get there fastest, you're gonna need nutrition, you're gonna need exercise, here's what that is. And then finally, some clients will pay for the most premium offer that you have just because it's the most premium offer that you have. And they want all of it. Don't forget, you know, yes, you want a lot of clients in your gym and , and know they won't all be your top tier premium clients, but some people do want that. And you , you don't wanna limit yourself based on your own value projection. Remember, you are not always your best client. You know, the group coaching might be what you prefer, but it's not what everybody prefers. The cheapest membership might be what you wanna buy, but it's not what everybody wants to buy. And the more time you spend pursuing the people who are, you know, up at the far end of, of the spectrum, the better. Just a quick refresher here. The people at this end of the spectrum up here, they are the ones who want your help the most and they want the most help. If all you offer is this your group program, these people, like, they're gone. They, they're not even going to exist, okay? They, they won't be there. You're pushing them out the door. In fact, I would even say that you're potentially discriminating against them , but that's maybe going a little bit too far. These people down here, these are the ones who just want to use your facilities, who just want to use your space. Hey , how do, why do I have to pay for coaching? Why do I have to do on-ramp? How can I just buy access to your space? And when I opened up my gym, I made a massive mistake of thinking that if I recruited a lot of people down here, that they would be so impressed by my coaching that they would gradually become these clients. That is not the case. They will never become those clients. What they will always want is, what can I get cheaper? You know , how can I do this less expensively? How can I do this on my own? How can I do this without coaching? Which is your actual service? Okay? If you really wanna grow your business, of course you wanna be inclusive, of course your gym is for everyone, but it's really, you wanna be targeting and getting more of these people. Because when these people come in, they might not stay there forever. They might go down to become these people. They will also recruit people just like themselves. But if you've got a lot of these people in your gym, you know who I'm talking about? I wanna compete at the CrossFit game , so I'm gonna show up. I'm gonna be there for three hours. I'm gonna blast my music loud, I'm gonna make a mess. I'm gonna intimidate, you know, these people, I'm not gonna talk to them . I'm gonna be antisocial, you know, maybe give me a, a coaching membership so I don't have to trade. Like, those are going to push your best people out. And I , I had to learn that the hard way. You know? And if you focus on these clients, that's how you're gonna actually increase your a RM. And actually, you know, it sounds like, oh, we're just catering to the elites. That's not it. These are the people who really pay for your gym to be available and accessible to these people who also contribute a little bit to keep your gym open and accessible to these people who aren't sure they can afford it. Okay? If you really wanna help these people, you have to have these people paying for your premium services or else you're, you're going to be sucked into training these people all the time and just constantly on this, you know , whirlwind of, of churn. To recap here, getting more clients will not fix your broken gym. If you cannot make a great living with 150 clients, then getting 200 clients will not solve your problem. If you can't break even at 50 clients, then getting another 50 clients probably won't solve your problem. Chasing client headcount is not the solution. So there are three steps to follow to getting your pricing right. First, you need to know your true expenses, and that means you need to open up your p and l and track those expenses. Second, you know, use the bell curve model. Think about who your best clients are and what they might want and what not offering that might keep them from coming to the gym. Aim for a target a RM of 2 0 5 if you can. That is kind of the industry standard. That's not the the peak by any means. That's just the base of what the best gyms are doing. And finally, use tools to improve your a RM Present professionally. Be prescriptive, use a sales binder . Okay? Now you can get the micro gym p and l model from me. All you have to do is go to gym owners united.com. That's a Facebook group. Find me in there, send me a DM on Facebook. Coup , can I get that? Model p and l, we give this out to gym owners because it's something that you need to know how to use, okay? Then use our p and l spreadsheet to find your break even rate and your a RM target to earn a hundred thousand dollars per year. Play around with it if you want expert help and who doesn't book a call with me and my team and, you know, get some mentorship. Get that a RM moved up. Learn how to use a p and l. Become a real self-sufficient entrepreneur. Stop guessing and take control of your business.