Integrated Revenue Models vs. Ancillary Revenue Models
Why did you open your club? To help people and make a good living doing so? There are ample opportunities in the fitness industry to help your clients and to increase the profitability of your club, but for this article, we’ll focus on … well, focus.
Let’s face it: The lion’s share of our revenue comes from membership and a growing minority comes from personal or small group training sales. However, we spend an exorbitant amount of time thinking through opportunities to drive ancillary revenue, because we look at this revenue as free cash flow. Yet, we seldom or never take into account the time and energy that goes into selecting the products, sourcing the products, the logistics of inventory management, and the fact that it is non-recurring (a.k.a. it has to be sold each and every time) as you make your “ROI” assessment. We generally think about ancillary revenue in terms of unit economics: If I buy at X and sell at Y, my profit is Y—X?
To take this a step further, what better way to generate ancillary revenue than purchasing a wellness assessment technology or filling your club with apparel inventory, nutrition supplements or a juice bar? Be sure to consider this: Does all of the work to drive ancillary revenue really pay off?
I chose this as a topic because I have seen hundreds of clubs fall into the same thought process by trying to focus on the illusion of ancillary revenue. Though some have tremendous success, the majority struggle to integrate yet another new revenue model, and the focus on ancillary revenue becomes a major headache, as well as leftover inventory (AKA cash).
Instead, we have a high percentage of clubs that integrate services into their membership as well as personal and small group training sales models. They use the tools at their disposal, often wellness assessment technology such as 3D body scans or body composition tools, as a value-added service, which we call the Integration Revenue Model (IRM) as opposed to the Ancillary Revenue Model (ARM). I have seen a multitude of clubs increase their membership and personal training sales conversion rates by as much as two times (2X) when integrating the aforementioned services into an IRM as opposed to an ARM, reaping recurring, sustainable and compounding revenue.
The point of this article is to drive and motivate us to think more creatively about what we can do to make our businesses better by being more efficient and cash flow positive, as opposed to being overly complex and fragmented. Let’s build on what we have and maintain scalable focus.
Greg Moore is the CEO of Fit3D, Inc. For more information visit fit3d.com.