When To Move Billing In-House
Karl Koutroupas, the vice president of strategy and customer insights at Exerp, shares when you should move your billing in-house.
One of the most common questions I hear from fitness operators is “When should I move my billing in-house?”
Most of these operators run billing through their club management system (CMS) where their CMS is taking a cut of client revenue in return for their billing services. This expense is justified when an operator’s revenue is small — as the expense is a fraction of what it would be to run billing internally. As the operator’s revenue grows, however, it reaches a point where it makes financial sense to bring billing in-house.
The breakeven point between running billing internally vs externally varies based on a multitude of factors, but for most operators it is around $25 million per year. At this level, running billing externally will usually result in your CMS collecting between $100K and $300K of your annual revenue (via taking their cut of transaction fees, member late fees, etc). This amount is comparable to the cost of supporting a small team in-house to run billing. As your revenue continues to grow, the business case to run billing in-house will only get stronger.
Now let’s address some myths about running billing internally:
MYTH: You can only run billing internally with a large team
FACT: Best-in-class CMS vendors make it possible for you to (1) automate the full billing and dues recovery cycle, and (2) offer comprehensive member self-service capabilities like enabling members to change payment information, pay off debt, and view their invoices themselves. By automating key processes and passing most of the administrative burden onto members, you can run billing and dues recovery in-house with a small team (ex: two partially allocated FTEs.)
MYTH: Your collection rates will decrease if you move billing in-house
FACT: CMS vendors often tout conversion rates of 95% to 98% within 60 days of initial billing submissions. By bringing billing in-house, you can do even better by personalizing billing and dues recovery processes to fit your unique offerings and membership base while enabling capabilities that aren’t supported by your CMS (ex: balance checks, credit card updater for AMEX and Discover, et al.)
MYTH: You’ll have higher transaction fee rates if you move billing in-house
FACT: For credit card and debit card transactions, you’ll likely be able to knock a few cents off of fixed fees and several basis points off of acquirer’s fees. For direct debit (ACH), you can transact directly with your bank and enjoy significant savings.
MYTH: It’s too risky to move billing in-house
FACT: There are risks, but they can be mitigated. For example, you will want to test running billing internally on a small set of pilot clubs before methodically rolling out across all clubs — iteratively honing processes and validating the business case throughout the rollout.