Member Retention - Contract vs. Pay As You Go

Gym member retention is built on one of two payment models. Contract (subscription) or pay as you go. For gym members, they offer the flexibility to make fitness a regular part of their lives.
October 3rd, 2019
Member Retention - Contract vs. Pay As You Go

Updated - June 14 2023

Gym member retention is built on one of two payment models. Contract (subscription) or pay as you go. For gym members, they offer the flexibility to make fitness a regular part of their lives.

For gym enthusiasts, a contract essentially rewards them for doing something they were going to do anyway. They just make a saving on the day rate for using the gym. And get access to certain perks or facilities for free. 

Pay-as-you-go, however, allows those who want to use the gym to do so when they can. For those with busy home lives and/or work changeable shift patterns, pay-as-you-go allows them to use the gym when they can. Without the guilt of knowing they’re paying a monthly fee. 

Understanding what effect membership options have on gym membership retention rates can provide useful insight. It enables operators to market each option to the right audience, using the data to devise a highly targeted and personalized smart retention strategy. 

There are, of course, benefits to both members and the club to offer different membership types. Most gyms can charge more if they offer a ‘drop-in’ or pay-as-you-go service. However, convincing members to sign up for a 12-month contract means that the business has greater financial security and can forecast and make budgeting and growth plans more easily. 

So, understanding how each membership affects retention rates is important. 

The 12-month Contract

While, on the surface, 12-month contracts have a higher retention rate, this is hardly surprising. Members are tied into a contract. The important data is how many members attempt to cancel or do cancel within the cooling-off period. 

This will give you a far more accurate view of how well-received your contracts are.

Marry this with data tracking attendance and you’ll start to get a more accurate view of how many members make use of their 12-month contract. 

Finally, you need to understand how many are renewing, how many cancel, and how many attempts to cancel but are re-engaged.

There is no doubt driving sign-ups for a 12-month contract can give operators recurring revenues, making financial planning easier. However, you need to know attrition rates as well otherwise the business will end up spending more and more on acquisition. 

The more gyms spend on acquiring members, the less profitable each member becomes. And, chances are, it’ll be more expensive to retain them too. 

Where memberships will easily renew if members feel motivated, engaged and valued by their gym.

Offering flexibility and freedom in member contracts changes the dynamic of the relationship from transactional to value.

Members who don’t feel ‘trapped’ and who see going to the gym as a choice are more likely to remain motivated and inspired to renew. Members will quickly lose enthusiasm for fitness and your gym if they feel coerced into going. 

Similarly, if a member can’t afford to pay the monthly fee, the option to pause their membership is significant. It puts the member first and makes them feel valued, rather than just another number and just another monthly fee. 

That degree of flexibility and care will make it far more likely the member will return when their circumstances improve. 

Membership Types – the figures

Studies suggest that members who commit to 12-month membership agreements have a higher rate of retention than month-to-month members. The research shows that churn rates for month-to-month members increase significantly after month three.

The same study also revealed that of the 1.47 million memberships sold, 80% of these are month-to-month plans, and only 20% are 12-month agreements. 

This indicates that gym-goers want options, get-out clauses, and flexibility in their memberships. However, being given that choice, then makes it much easier to leave – and they are reminded of that possibility every month when given the option to renew. 

In short, those who have a month-by-month contract have 12 chances to leave every year, while those who sign up for a 12-month contract only have one. As a gym operator, it’s easy to see which odds are more attractive when trying to boost member retention rates. 

In terms of revenue, however, it might not make a great deal of difference. Since the more attractive option to entice new members appears to be the month-by-month payment option, selling a greater number of these membership types could offset losses made when members do quit. What it does mean, however, is that gyms have to put more time and money into acquisition efforts. 

If all gyms are having the same difficulties around member retention then the cost of acquisition will start to increase. 

Better Sales Techniques mean Better Retention

The truth of the matter is that the more value you demonstrate to a member, the better the chances are of them remaining committed to the gym. Joining fees, longer contract lengths, added extras, and higher price points are all challenging to sell. 

Your salesperson can communicate the value of gym membership, beyond the obvious health benefits, members are more like members to make that commitment. 

Should Gym Operators push 12-month contracts?

Gym operators need to gather data, research member behaviour, and offer relevant, personalised memberships.

Focusing on delivering the service gym members want, with excellent orientation and onboarding procedures can help to increase member retention.

Encouraging members into a fitness routine can also help to boost retention. Relevance and value are key. If members feel fitness is a relevant part of their lifetime then the value is evident.

Certainly, operators have begun to change their business models. Brands such as The Gym Group and PayasUGym use these flexible contract types as one of their main benefits to entice members away from bigger gyms that want to tie them into a longer contract length.

However, these gyms are appealing to the casual gym-goer who does not necessarily see the value in long-term contracts. Partly because their lifestyle or commitments doesn’t make a long-term commitment relevant. 

While long-term contracts are more profitable, it’s not the right option for every gym member. Pushing them on every gym member in pursuit of predictable revenue and profit is likely to have the opposite effect.

No one likes the hard sell.

Rather leverage your customer data and your marketing to target those pay-as-you-go gym goers who attend more than the average.

Demonstrate the value of annual members and add incentives and rewards.

Overcoming the perceived imbalance in the value exchange is where gyms can win over long-term members. 

Providing you’re putting your message in front of the right audience, a 12-month contract can have a positive psychological effect too. If a member signs up for this length of time, they start their gym-going feeling committed to attending longer term. Statistics show that if gym-goers attend more sessions when they first join, they are more likely to continue to use the gym going forwards.

Engage your Audience 

There are pros and cons for both contract and pay-as-you-go options, and a gym needs to be able to calculate how to achieve the best balance for optimum revenue and retention. While the evidence seems to suggest that longer, fixed-term contracts tend to improve rendition rates, month-to-month contracts appear easier to sell.  

Gyms must be careful not to push too hard for one at the expense of the other, and as always it is by engaging with members, listening to their needs and investing time and resources into understanding their behaviour that gyms will provide unique, satisfying fitness experiences and retention rates will remain high.

To learn more about how Keepme can help you to engage with your members more effectively, click here to request a demo.

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