When just setting out on the journey of opening my first parkour gym in 2014, I found myself making what I now recognize as a common rookie mistake in the realm of business pricing strategies.
Eager to establish my gym, I looked to the pricing model of a local gymnastics gym for guidance, setting our rates at $80 per month for a once-a-week membership, mirroring their approach. We even introduced a $65 twice-a-month option, aiming to offer competitive and accessible pricing to our community. This decision, based on the existing legacy gym's pricing structure, seemed like a solid footing.
However, the closure of that very gymnastics gym three years later illuminated a stark reality: we hadn't turned a profit since opening our doors, constantly teetering on the brink of financial instability.
This experience highlighted a critical flaw in our pricing strategy. By basing our rates on the competition without understanding the underlying factors they considered, we unknowingly participated in a race to the bottom, where the only outcome was a struggle for survival. This approach to pricing, focusing solely on what others charge, misses the mark on sustainable business practices.
Crafting a Logical Pricing Model For Parkour Gym
The lesson here is clear: pricing should not be dictated merely by the rates of surrounding gyms. Seasoned gym owners understand that pricing is a multifaceted equation, influenced by a variety of factors that can, and often do, change over time.
To set your gym's pricing thoughtfully, consider the following methodology. Begin by examining the typical membership base for most gyms before they get help from a mentor often ranges between 60 and 120 members. A well-structured gym should aim to cover its fixed expenses with the revenue generated from the first 50 members.
Fixed expenses encompass those costs that remain constant, such as rent, insurance, and software fees. It's important to note that payroll does not fall into this category and should be considered separately as your gym grows.
Calculating the Average Revenue per Member (ARM) is crucial, but it's not as straightforward as it might seem. Your base membership fee is only part of the equation; additional revenue from merchandise, open gym passes, and event tickets also contribute to the ARM.
Typically, the ARM is about fifteen percent higher than the base membership price (Because members purchase more than just their membership in a given month). By reverse engineering this figure, we can subtract fifteen percent from the calculated ARM to find our base membership rate.
For instance, the average micro (whole industry) gym's monthly fixed costs are $11,000, dividing this by 50 members yields an ARM of $220. After adjusting for the additional fifteen percent revenue from other sources, the base membership price settles at approximately $187 per month.
Refining Your Parkour Gym's Pricing Strategy
As your gym's membership expands beyond 50, additional costs begin to play a role in your pricing formula. Hiring staff and coaches becomes necessary to maintain and enhance the quality of your gym's offerings and member experience.
A common milestone for micro gyms is reaching 150 members, which necessitates a more sophisticated approach to managing expenses.
Enter the concept of Target Allocation Percentage (TAP), inspired by insights from Mike Michalowicz, author of "Profit First." TAP allows you to designate a specific percentage of your revenue to cover various expenses. For example, if you aim to limit software subscription costs to two percent of your revenue, TAP helps you manage your budget effectively, ensuring that no single expense category disproportionately drains your resources.
Consider setting a TAP for your gym's rent. If your rent is $5,000 and you've decided it should not exceed 15% of your revenue, you can use a quick calculation to determine the necessary total revenue. Multiplying $5,000 by 6.6 (a simplified method to avoid complex math) indicates a target revenue of $33,000. With 150 members, this calculation suggests an ARM of $220, leading to a base membership price of $187 after adjusting for the additional revenue sources.
Navigating Price Increases
Discovering that your gym’s pricing is too low is an epiphany many parkour gym owners encounter, an uncomfortable one at that for most.
Adjusting your prices is not just a necessity for the financial health of your business; it's an opportunity to refine your value proposition and ensure the sustainability of your gym. Will a well-priced program you can serve your community better than you currently do. The process, however, requires careful handling to maintain trust and satisfaction among your members.
The first step in this delicate endeavor is to draft a comprehensive and heartfelt communication to your members. This isn't merely an announcement but a transparent dialogue about the forthcoming changes. Begin with a clear statement that prices will be adjusted by a specific amount starting from a future date, providing at least 30 to 45 days' notice. This will be emailed out multiple times and posted physically in your gym.
This notice is crucial for fostering goodwill and understanding, giving your members ample time to adjust to the new pricing.
Your communication should then vividly articulate the reasons behind the price increase and the direct benefits to your members. This is your chance to align your gym’s vision with the interests of your members, highlighting how the increased fees will translate into tangible improvements in their gym experience.
Whether it’s investing in staff training, hiring additional staff for better customer service, or upgrading the gym’s facilities, make sure your members see themselves as the primary beneficiaries of these enhancements. The goal is to excite and reassure them about the future, demonstrating that the price increase is a pathway to enriching their parkour journey.
Finally, addressing potential concerns is essential. Acknowledge that for some members, even a small increase might pose a challenge. Offering a preemptive solution not only shows empathy but also reinforces the community-centric values of your gym.
An example could be allowing families to lock in current rates by pre-purchasing memberships for a 6-18 month period before the new rates take effect. This approach serves dual purposes: it provides immediate financial support to your gym, aiding in the implementation of the promised upgrades, and it offers a financially viable option for members worried about the increase.
This comprehensive strategy for managing price increases not only helps in maintaining a positive relationship with your existing members but also sets a precedent for how your gym addresses changes and challenges. With open communication, a clear explanation of the benefits, and empathetic solutions to potential concerns, your gym can navigate price increases smoothly, leading to a more profitable and sustainable business.
Get a free price increase template
Want to see the price increase letter template we have successfully used with the parkour gyms we mentor? Book a call with us right here and we will forward you the template as well as advise you on your new pricing and implementation for your gym.
Balancing Profitability and Accessibility
Ensuring parkour remains accessible to low-income families while running a profitable business is a challenge many gym owners face. However, it's possible to achieve both through thoughtful programming and community engagement.
Offering scholarships and low-cost events can maintain inclusivity, enhancing your gym's reputation and fostering a strong, supportive community.
In summary
setting the right prices for your parkour gym involves a nuanced understanding of your costs, value proposition, and market dynamics. Embracing a strategic approach to pricing, guided by detailed analysis and mindful of your community's needs, positions your gym for sustainable success.
By carefully considering your fixed and variable expenses, leveraging the concept of Target Allocation Percentage (TAP), and communicating price changes with transparency and empathy, you can build a thriving parkour gym that serves your members well and remains financially healthy. Remember, the goal is to create a space where the excitement of parkour is accessible to all, while ensuring your business grows and prospers.
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