In my last article, I gave you 4 of the FASTEST strategies I know of for creating an IMMEDIATE influx of cash flow in your fitness business. There are times in life when things happen and you really DO need to break glass in case of emergency. And when that happens, here’s your fast-action plan for business and cash flow triage.

STEP #1: Fix Your Packaging & Pricing

STEP #2: Raise Your Rates to Current Clients

STEP #3: Launch a Reactivation Campaign to All Your Past Inactive Clients

STEP #4: Fix Your Sales Process

I gave each of these strategies quite meaty discussion and shared examples of each in the December issue. So if you don’t have a copy, I suggest you pick one up for your reference. Right now I’m in the middle of a coaching program walking 66 folks through implementing each of these steps. Everyone is making very good progress so far and I look forward to helping each of them finish executing these strategies so they can blow things up in the year ahead. Since I’ve been getting a LOT of questions during the coaching calls, I thought for this article it would be fun do go with more of a Q & A format on this subject. Rather than talk about theory, I’d rather dig into specific questions I get from clients that are probably VERY relevant to you and your business. So let’s cover some of the top questions I’ve been receiving.

Q: I’m totally on board with raising my rates. After going through the exercises you’ve given me to understand margin and cash flow in my business, it’s very clear that I have to raise prices. But I do have some clients who have paid in full at my older lower rates. How should I handle this? Are they grandfathered into the new pricing/packages?

A: Great question. First off, congratulations on coming to a clear decision about the need for raising your rates and better understanding the financial numbers in your business. That’s the first step toward becoming a much more successful business owner.

Now when you need to raise rates, but you have clients that have already paid you ahead, you’ve got a trickier situation to deal with. Here are some choices.

Option #1: Do nothing. Allow current clients programs to continue until their time expires on what they have paid for in advance. And bite the bullet, with some good learning that you should ONLY make that offer in the future from a place where you have a much greater understanding of the money in your business. There is a big difference between cash flow (how much cash you take in and when) and margin (how much of that cash is actually profits). This is a tough lesson to learn that unfortunately most people have to learn the hard way, by really screwing things up. But sometimes that’s part of your tuition in learning how to run a business successfully. Just make sure you learn some good lessons here, so you don’t have to repeat this again!

Option #2: Do something. I understand integrity is a big thing and very important. I value mine tremendously and it’s one of my company’s core values. So there is nothing worse than being in a situation where you’ve said one thing and now feel like that’s put you in a real bind. You know it needs to be addressed, but to go back and do so would mean addressing what you perceive to be as demonstrating a lack of integrity. That’s a really tough rub. However, that being said, if your business is REALLY hurting financially, which is worse? Going out of business and not being around to help your clients and fulfill on what they’ve paid for in advance or having some painful conversations to address the realities of the situation that you screwed up and you’ve now got to make some adjustments to keep your business running?

Recognize that INTEGRITY isn’t just about what you say to others, but how you are living in alignment with your own values. And if you’re busting hump in your business but going broke, how much are you really living with integrity of your own health and fitness? My guess is not too well, because I know you’re stress levels are probably through the roof.

Now I recognize that addressing this is not easy to do. But if you’ve got solid relationships with your clients, and they know you care about them and have their best interests at heart, I think you’ll find that the majority of them are more than happy to support you in making necessary adjustments to take better care of yourself and the business.

Obviously, HOW you address this conversation is the big key. And that’s why I’ve provided everyone in the coaching program a very specific letter template that demonstrates how to present your case for raising the rates. This additional piece of the conversation to a handful of clients who have pre-paid is now just an add-on to that conversation and communication.

Q: Sean, thanks for helping us rework our packaging and rates. I feel really good about making recommendations to my clients about a longer-term commitment that is more closely matched to their fitness goals. But I have one more question. How do you feel about flex plans or punch cards for group training clients that have busy schedules or for those who like the classes but already do personal training with us?

I’m personally not a big fan of punch cards, but let’s address this question from the 2 scenarios you’ve brought up here.

First, offering punch cards for clients who have busy schedules and can’t commit to a regular schedule. I think it’s really tough as a coach to help client who can’t (or won’t?) make a commitment to a regular and frequent training schedule. And I think that there is a whole lot of value in having a bit of a closed community that only works with clients who are very committed to their goals and programs. You simply can’t help everyone, and when you try to do so by being creative with different options on the menu that are NOT directly tied to how you can best serve and help people, I think you’re asking for trouble. Commitment levels go down, the close-knit nature of your community goes down, and you really didn’t bring in that much additional revenue for your facility at the end of the day.

As a coach AND a business owner, I’d MUCH rather take 25 committed clients who were all signed on for a year and coming into the facility 3x a week than 50 clients who were inconsistent and all over the place with their training schedule. The group of 25 is going to be a whole lot more fun to work with and will be a strong community that you can grow with.

In the second scenario, you’ve asked about clients that are training with you privately but also want to attend some group classes. Now that’s a much different scenario. If adding them into group classes makes sense for their program, and they will benefit from it and have fun, then I’m all for it. But I think you’re better served as a coach to direct their training a bit more than just leaving it up to the client to randomly decide what they want to do and when. I imagine you’ve probably got a training schedule built out for them already, and you’re going to want to make sure that what they are adding to their program won’t derail what you’ve already designed for them. So rather than a punch card, I would recommend working with the client on an individual basis to determine how many classes you plan for them to attend in their schedule, and then add that into their program so it’s simply one fee that includes both their private training sessions and now the additional group training classes. Make it simple for the client to pay just one fee, and it includes all that they want to do and you’ve approved and built into their schedule as their coach.

Q: We’ve already worked through your recommendations on raising price and adjusting our packages for 12, 6, and 3 month terms. But I have another question. Once our new rates have been established, by how much % should rates per session should be increase there after, from the time you first raised them? 5%, 10%, or 15%? And how often should rates be raised? Every year, every two years?

First off, great to hear you are making good adjustments in your business. Now you’re also thinking ahead and that’s great. So let’s address that, but don’t let that stop you from completing what needs to be IMPLEMENTED now- your new rates and packages!

In the last 6 years I’ve been coaching and consulting fitness business owners on this, I’ll tell you there are no hard and fast rules on this stuff--but there are some best practices I think make sense. Generally speaking, a 1x/year rate increase is just fine. Sooner than that and you give the impression you don’t know what the heck you’re doing as a business owner. And waiting longer than that, you’re usually allowing your margin to slip as inflation goes up, other business costs go up, you give small raises to your staff, etc. So a 1x/time a year increase makes good sense. You can simply build this into your yearly marketing calendar. And just to jump ahead to what I believe will probably be your next question, there is no perfect time of year to do this. We’ve had folks run a raise the rates campaign in the spring, summer, fall, and winter, all quite successfully. As a business coach I’m more concerned with you just doing it, rather than when you do it.

Now for the second part of your question, how much to increase rates by on an annual basis. Again, there are no hard and fast rules here. I think it makes good sense to evaluate where you’re at and the financials of your business at that time, because a LOT can change in 12 months. You can move locations and overhead can change, the volume of clients you serve may have varied significantly, your payroll may be quite different now, etc. So I don’t think giving you an answer NOW for where you’re going to be in 1 year from now will be entirely relevant.

But, that being said, I think 5% increase is pretty weak. So I’d probably look at more the 10-20% range for price increases. The same exercises you worked through to evaluate your margins, net profit, etc. now should be done again in a year, and then an appropriate decision on this made at that time given the new variables and landscape of your business at that time.

Q: Let’s say you have a current program/pricing model that works and is competitive within your local business of similar styles, but have 50% of older clients on older, less expensive pricing options. Assuming you want to keep your current rate structure, would you just communicate the new rate structure to the old clients who are still paying the old rates?

Ah, the some clients pay you X while others pay you Y scenario. This situation comes up VERY frequently, so let me take a moment to address my thoughts on it. A lot of business owners get themselves painted into corner here. They have clients that have been with them a long time (often years) and out of loyalty to the client for their continued patronage to the business, they have never raised their rates in accordance with what a new person coming in the door would pay now for the same service.

In some cases I do accept that wanting to recognize loyalty was the primary motivation for not wanting to raise rates on a client. But I think most of the time the REAL reason why business owners don’t address this issue is because of FEAR. They are scared to rock the boat with a client they have developed a close and intimate relationship with. And because they have become emotionally attached to the relationship, they don’t want to upset the client and risk rejection of the client being upset with them or leaving. But this is a very weak position.

If you believe in your value, and you are delivering value (and continuing to improve the value you deliver to your clients), then rates should continue to go up accordingly with everyone. When you AVOID doing this, you make the situation worse, and you eventually end up in a situation where you have a big gap between what OLD clients are paying vs. what NEW clients are paying, and rather than looking like a caring coach, you really end up pissing off the new clients who don’t understand why they are paying so much more for the exact same service as someone else is.

Not only that, but if you have any sense of self-esteem or self-worth, then this gap is also going to eventually sit uncomfortably with you because you are not being compensated fairly for your worth and value you are delivering, and you know you could and should be. So my advice is to clean this mess up, and then NEVER get caught in this situation again. Everyone should pay the same rate. Don’t prostitute your margin. There’s no need to. And stop being afraid to ask for what you’re worth. There is nothing wrong with you being appropriately compensated for your work. And if you think that NOT taking action here is going to keep everyone happy, I’ve got news for you. You’re NEVER going to keep everyone happy! So don’t try to! Honor yourself, serve your clients to the best of your ability, and then be compensated accordingly. Anything else gets too complicated and messy. So if you need to raise rates, raise them across the board. And remember it’s not about price, it’s about VALUE. If you don’t think your clients perceive you as more valuable than the compensation your asking for in exchange, then either add more value to fix that, or learn how to market and go get some new clients.

Q: I have a small group of inactive clients - still paying just not coming in and I am wondering if your client reactivation process can be tweaked to help me get those folks back in and using our services - I don't feel good about taking folks’ money if they are not using our service/however it is a cash flow thing at the moment - so my best case out come would be to re-engage a large portion of them prior to sending this raise the rates letter to them. Do you have any thoughts/advice?

A: Ah yes. We call these folks lost sheep. Lost sheep are clients who are still paying you but have disappeared. So what do you do with your lost sheep? How do you re-engage them? My recommendation is to not run away from them, but go right for it head on. Give the folks who’ve disappeared a call. Ask how they are doing. And invite them to come back into the gym.

Now, don’t get me wrong. I don’t believe in babysitting and I’m not suggesting you become one unless you want to run that kind of business. But I do know that there are LOTS of reasons clients stop coming into our facilities. And almost all of them have NOTHING to do with you or your services. Life comes up and gets in the way. Things are crazy and hectic at work. A family member dies. They get an injury. You name it. There are endless scenarios. That’s why folks STOP COMING.

But the real question is WHY DON’T THEY COME BACK? And that may be for a number of reasons. They may be embarrassed to come back because they’re now seen as a quitter. Or they think they will be ridiculed for having disappeared for a while. Or they are still recovering from an injury and don’t think they can participate yet, when in reality just coming into the gym and doing some correctives or light training may in fact be exactly what they need. The point is that you don’t know. And you’ll only know if you pick up the phone and reach out to them.
Ask them how it’s going, let you know you care about them, extend an invitation, and see if you might be able to help them out! Not only is this good business (because there are potentially thousands of dollars worth of revenue in each of those client relationships you are allowing to die on the vine), but it’s just being a good coach and person to see if you can direct someone back into the facility where they can get some help and support they probably need right now. So my advice is pick up the phone, and start dialing.

I have one client that has done this time and time again over the years and he has a loyal following now of hundreds of clients that would do ANYTHING for him, because he’s demonstrated time and time again to his folks that he cares about their lives and helping them where he can. And that it’s okay if you fall off the fitness wagon from time to time. Everyone does. Life’s not perfect. But the community is there to support it’s members and sometimes folks just need to be reminded of that.

Okay, so all that being said, I would not simply send a letter to these folks that rates are going up and expect that will help them out. Reach out on the phone first, and then mail them your raise the rates letter just like everyone else.

Now one final point here, about you not feeling good about accepting folks’ money that signed up and are not coming in right now. We’re all big boys and girls here, and you can’t accept someone else’s responsibility for them. That’s their job. You can be a helpful and supportive coach, but only they can get in the car and drive to your gym. And they made the commitment to your services and agreed to pay for them. You shouldn’t feel bad about that. I can’t call the bank and say I don’t want to pay my mortgage this month because I’m going on vacation and won’t be using my house for a couple weeks. And I guarantee the bank doesn’t feel bad about accepting and receiving my check, because they loaned me money, I agreed to pay it pay on very specific terms, and now it’s my job to honor that commitment I agreed to.

I know sometimes we get a little twisted here in the service industry and working with clients, because it’s easy to become emotionally attached to folks you are spending so much time with, but you are running a business, And you need to remember that and not feel guilty or responsible for everything everyone else does or doesn’t do. Your job is to serve the people in front of you today, honor yourself and your commitments, and extend a hand to help folks out where you can.

If you’re got questions on these issues in your own business, simply send them over to support@netprofitexplosion.com with the subject line “Performance Menu Journal subscriber question” and ask that the message be forwarded to my attention. I’d be glad to answer your question in a future article. Let’s make it a great 2012!