October 3, 2019 Beth Cadman

Contract vs. Pay As You Go: Members Who Commit To Staying

Contract vs Pay As You Go

Should gym operators focus on persuading members to sign up for longer contract lengths, or is pay as you go better for retention? A careful combination might be the best way.

Understanding what effect membership plans have on gym membership retention rates can provide a useful insight to enable operators to market one or the other more strongly, and should be considered when devising a 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 how does each membership type effect retention rates?

Let’s investigate.

The 12-month contract

Those who commit to a 12-month contract, be that by paying a monthly fee or paying the entire sum upfront, naturally have a higher retention rate than those who only pay from month to month or simply pay each time they visit. This, of course, is understandable as if a person feels tied into a service that they have committed to pay for for a particular length of time, they are more likely to use it to get their monies worth.

Persuading members to sign up for a 12-month contract can give operators more stability and financial security, and because this is the standard for many gyms, there is less likely to be much resistance if dealing with an engaged and motivated member.

However, it is important to acknowledge that offering flexibility and freedom in a members contract can also work well. Members who don’t feel ‘trapped’ and who see going to the gym as a choice that they are fully in control of, rather than an activity that they have been coerced into are perhaps more likely to remain motivated and inspired to continue. Exercise quickly becomes unenjoyable if a person feels as though they are being forced into it against their will. 

Similarly, if a person can no longer afford to pay the monthly fee, and has the flexibility to pause their membership for a while, they may be more likely to return to the gym when their income increases again. Those who have committed to a 12-month contract they can’t get out of, who then fall upon hard times, may end up feeling extremely resentful towards the gym when they have to continue to pay even though they are struggling to afford it. This could lead to a negative association, and even if they then become more affluent and can afford to rejoin, may refuse to do so because of the negative experience they underwent the first time. 

Members Gym

Membership types – the figures

According to a study, numbers indicate that members who commit to 12-month membership agreements have a higher rate of retention than members who join month-to-month without any commitment. The research shows that those who pay month-to-month decrease significantly beginning at three months.

What is interesting to point out, however, is that 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 month to month contracts remains a more popular choice for people and that they do crave 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. 

The maths makes this even more plain to see. 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 chance. 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, it that gyms have to fight each month to find new members, where those who are signed up to a 12-month contract remain secure, for the time being. 

Better sales techniques = better retention rates

The truth of the matter is that the more you can sell to a member, the better the chances are of them remaining committed to the gym. Joining fees, longer contract lengths, added extras, higher price points – these are all challenging to sell. However, if a salesperson is able to get a potential member to make that commitment, once they have signed on the dotted line, they will be more motivated to ensure that they obtain value from that commitment. 

So should operators push for 12-month contracts?

It is important, as always, for gym operators to gather data, research member behaviour, and offer tailored marketing plans, personalised memberships, and flexible options if they wish to optimise retention rates. For example, focusing on customer service, on excellent orientation and onboarding procedures can help to ensure a member remains more committed. Encouraging members to attend the gym more frequently and create a routine can also help to boost retention. In fact, doing so means a member is likely to stay an additional six months longer than one who visits the gym on a more ad hoc basis.  

Certainly, operators have begun to change their business models, and 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 who want to tie them into a longer contract length.

Research from energy firm JD Power in the utility sector revealed that billing and payment factors could account for 20 percent or more of total customer satisfaction scores. Making sure that the payment process is smooth and error-free is, therefore, imperative. By paying attention to how much time the team spends correcting payment errors, gym owners can get a clearer idea of whether payment experience is positive or poor. 

It also might be worth considering and revising systems for chasing those customers who fail to pay. Debt collection should be handled sensitively and if not done so could trigger a backlash from upset members, which could then damage the reputation of the gym. 

Providing flexibility is also crucial. While collecting monies via direct debit is the preferred option, it could be well worth gyms offering different payment offers to suit various cohorts of customers, such as allowing members to pay on any day in a given month. Being sensitive to different members budgets can also help operators come up with a range of membership plans to cater to everyone. Offering different types of payment plans and lower-cost memberships can encourage members to commit for longer, and can also foster customer loyalty from a broader range of members. The rise in popularity of fitness passports which offers those who sign up access to a wide variety of gyms and other health and fitness facilities in their local area is also a consideration that gym owners should consider buying into.

Pushing for 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 a gym-goers attend more sessions when they first join, they are more likely to continue to use the gym going forwards.

There are pros and cons for both contract, pay monthly and pay as you go options, and it is important for a gym 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 to 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.