You’ve done all the hard work. You’ve created your training space, obtained the gear, and hired staff. Now your brand new gymnastics business is ready to launch. Before signing up members, however, you’ve got to work out your pricing schedule.
After everything that’s come before, setting tuition fees may seem like a technicality. Yet, the prices you set will have a huge impact on the success or failure of your business. In this article, we’ll break down the factors you need to consider when pricing your gymnastics programs.
Check Competitor Pricing
When you price a service, it’s a lot different than pricing a product. In the latter case, you have a formula: simply add up your production costs and then add a markup that allows you to make a profit. When it comes to pricing a service, such as gym tuition, however, things get murkier.
For one thing, the experience level of the trainer can and should affect the pricing. When you buy a product, it doesn’t matter whether the guy who made it has been in the industry for 6 months or 20 years. So long as the quality is the same, it won’t affect the price.
But when it comes to gymnastics training, you would expect to pay more to be trained by an Olympian than by a high school senior who has never competed beyond the regional level.
Your first step in working out your pricing strategy should be to conduct market research to see what your competition is charging. When collecting that information, however, you need to consider the experience level of the trainers, as well as the types of classes they offer, the class sizes, and the market segment they are targeting.
If you have developed a reputation in the industry, people will expect to pay more to train with you. So, don’t be afraid to set a premium price if your experience warrants it.
Here is a round up of the average prices being charged for a range of gymnastics services in the United States …
- Recreational gym classes for kids cost $15-20 per class
- Competitive gym classes cost $200-400 per month
- Gymnastics summer camps cost $100-200 per week
Consider Your Costs
Now that you’ve got a handle on what your competition is doing price-wise, you need to work out what your costs are. After all, you won’t be in business long if you aren’t able to cover all of those costs, with a healthy profit on top.
Include all of the direct, indirect, and variable costs of the business. They should include …
- Lease costs
Try not to be conservative when calculating these numbers. Once you have totaled up these costs, you will have an annual outgoings figure. Now you should consider your client projections for the first 12 months. You should have worked this out in the business and marketing plans that you created throughout the process of getting your business to the point it is now at.
Now take your total annual outgoings figure and divide it by your 1st-year client projection. This will tell you how much you must charge each client simply to cover your costs. That is your set point to build from. Anything above it is profit.
Choose a Strategy
Now that you’ve done your homework by surveying the competition and drilling down on your per potential client costs, you’re ready to decide on your specific pricing target. There are a huge number of pricing strategies that businesses use but when it comes to the gym industry, three stand out:
- Cost Plus Pricing
- Competitor Based Pricing
Cost Plus Pricing
Cost Plus pricing is precisely what it sounds like; you work out your costs, just as we outlined in the previous section, and then add a reasonable markup to make a profit. In reality, it can be very difficult to work out actual costs, as there are a lot of variables involved.
Gymnastics participation is seasonal, especially for recreational participants, too, so it is no easy task to correctly predict membership. Then there is the challenge of determining just what a ‘reasonable’ markup is, without pricing yourself out of the market.
Competitor Based Pricing
With competitor based pricing, you set your prices mainly in response to what your competition is doing. There are three competitor based pricing strategies:
- Skimming where you set prices slightly higher than the competition to position yourself as higher quality.
- Neutral where you set the same prices to directly compete with the competition.
- Penetrative where you set a lower price to appeal directly on dollar terms.
One problem with competitor based pricing is that you are using your competitor’s pricing model as your foundation. However, there is no guarantee that he or she has set their prices sensibly in the first place. If the costs they have set aren’t going to cover your costs and allow a decent profit, why use them?
SWAG stands for “Scientific Wild-Ass Guess” and combines the previous two methods. As the name suggests, it is an amalgamation of data and best guess to arrive at a final price.
While most people will end up using SWAG to determine their pricing, there is no single magic formula here. The reality is that there is just as much art as there is a science to pricing strategy. This realization gives rise to a fourth pricing strategy, which is known as Value Based Pricing.
Value based pricing is all about establishing value through branding and marketing. As a result of the selling of the benefits of the service, the customer is then more likely to pay a higher price for the service.
In starting out on your value based pricing strategy, the first question you should ask is …
How much would a reasonable customer pay for my service if they had a complete understanding of what the service is worth?
The answer to this question determines just who the customer is and how you are marketing to them. Think for a moment about a busy parent who is planning a birthday party for a four-year-old girl.
Ask firstly how much a parent would be willing to pay to have a birthday party at your gym. That will provide what we could call your X price.
Now think how much that parent would be willing to pay to avoid having to put up with a couple of dozen four-year-olds invading their home, not to mention their parents. No post-party cleanup, either. That will give you your X plus Y price.
This time think how much the parent would be willing to pay to create a precious childhood memory for his or her child along with everyone else gathered to celebrate the only fourth birthday the child will ever have.
That will provide you with your X x Y price!.
Value based pricing has proven itself in terms of improving business bottom lines. In a recent survey of 200 businesses, it was seen that businesses who developed a values based pricing strategy were able to increase their operating income by 31 percent compared to competitors who used a cost plus or competition based model.
To appreciate value based pricing, we need to understand that people don’t just buy a product or service not only to solve a problem but also to create a feeling.
Think back to the birthday example above. The X and Y prices were based on solving a problem (what to do about the birthday party / the hassle and clean up issue). Yet, the X x Y price was based upon a feeling (a lifetime memory for a beloved child).
The value that you are marketing needs to be based on real features that the service will deliver on. And they need to appeal to the target audience.
Once you have answered the first question of Value Based Pricing, you need to dig deeper with three more questions …
- What are your customer segments and what do they value?
- What are your customer’s alternatives?
- What is your gym’s story?
Let’s consider these one by one.
What are your customer segments and what do they value?
Different customer segments will value different things. As an obvious example, the parent of an elite competitive gymnast will value that you are an Olympic level coach far more than will the parent of a 5-year-old. For that parent, a clean, colorful, welcoming environment and plenty of youngster friendly equipment will have far more value.
Your job is to, firstly determine the various market segments that you are marketing to and then find out what matters most to them.
What are your customer’s alternatives?
You owe it to your business to conduct an in-depth analysis of your competition. Find out just what they offer, what their strengths are, and what they don’t do so well. Think about how you can differentiate your business to capitalize on their weakness. How will you communicate those differences to potential customers?
Keep in mind that gymnastics studios are not your only competition. So, too, are soccer, ballet, ice skating, and basketball clubs. In your marketing, you need to cover off why gymnastics stands out in comparison to those other options.
Determine where your gym sits in comparison to the competition in terms of branding, quality, convenience, service, and style.
What is your gym’s story?
The story of your gym is encapsulated in your mission statement, vision, and philosophy. How well you are able to communicate that story to your potential clients will determine whether or not you are able to charge higher prices.
How To Raise Prices Without Upsetting Customers
Setting initial prices is, as we’ve seen, hard enough. Raising those prices can be even more challenging. You may fear alienating your clients or, even worse, losing them. Yet, there are things you can do to ease the pain, for you and your clients.
Rather than letting your clients discover that they suddenly have to pay more, you should send them an email to advise of the change. The way you deliver that message, though, can make all the difference.
The focus of the message should be the upgrades and innovations you’ve been introducing to improve your service. Don’t be afraid to promote yourself as the premier local provider of limited class size gym instruction, quality lesson plans, or top-notch, clean, well maintained equipment.
Once you have explained all the great new things you’re doing, then mention that you’ve had to slightly adjust your prices and list them.
Here are four messages to help you to soothe the introduction of a price increase …
- We’ve reduced our class sizes to ensure that every student gets individual instruction.
- We’re excited to introduce innovative new lesson plans to help you gain skills and strength faster.
- We’ve invested heavily in staff training to ensure that our trainers are the best qualified in town.
- We’ve ramped up our already industry leading cleaning policy so that you can have confidence that our gym is the healthiest in town.
One thing you should not do is to position yourself as the lowest price gymnastics studio in your town. Sell your value to your customers and they’ll be happy to pay the price you set.
When it comes to pricing your gymnastics services, there is no plug and go formula to follow. The ideal price that you end up charging will be based on a wide range of variables including …
- your market
- the segments of that market you are trying to appeal to
- the perceived value of your services
- the quality you deliver
- the prices your competitors charge
Working towards a value based pricing strategy will allow you to hit that pricing sweet spot between meeting customer comfort levels and strengthening your bottom line. At the same time, it will help to develop your gym’s uniqueness in the market.