How to Use Dynamic Pricing to Increase Fitness Class Attendance
One of the biggest challenges that fitness businesses face today is handling the ups and downs of demand. Class attendance can fluctuate for a variety of reasons, ranging from the day of the week and time of the session, to seasonal behavior and even the weather. Demand is rarely constant, and if you do not have a robust strategy in place to manage changes in the market, your business runs the risk of half-empty classes and lost revenue.
Dynamic pricing can be an effective way to mitigate this risk. This strategy provides a flexible option for fitness businesses that are looking to capture more customers, increase class occupancy rates, and maximize revenue in the process.
What is dynamic pricing for fitness studios?
Dynamic pricing is a flexible approach that allows businesses to set variable prices according to market demand. Whereas most traditional fitness business pricing models offer a fixed rate (per month, or per class), dynamic pricing enables fitness businesses to charge more for classes when demand is high, and to charge less for classes when demand is low, to incentivize customers to help fill in less popular classes.
Dynamic pricing has been used successfully in a variety industries for many years. Airlines, for example, alter their pricing based on flight times and availability. Uber is also well-known for implementing "surge pricing," which detects periods of high customer demand and low driver availability, and increases fares accordingly, in order to incentivize drivers to meet the customer demand.
The same concept can be applied to fitness studios that offer classes.
Key benefits of dynamic pricing for fitness businesses
Here are some of the key benefits that dynamic pricing offers for boutique fitness studios.
Maximize your revenue
Maximizing class occupancy is essential to increasing profitability per class. Empty spots ultimately mean lost revenue, and dynamic pricing can help fill the spots in your less popular classes by offering the right price at the right time. If you offer discounted rates for some of your less popular classes, for example, you'll motivate customers to fill in classes that may otherwise go underutilized. Since these classes will occur regardless of whether there are empty slots or not, you can increase your bottom line and also offer customers a great deal, resulting in a win-win situation for everyone.
Let's consider a class that has a maximum capacity of 15 people, but typically only attracts 5 attendees, all of whom are already members of your studio. If your typical drop-in rate is $30/class, the 10 empty slots effectively translate into an additional $300 in revenue left on the table. If you're able to fill some of these remaining 10 slots by offering a discounted rate of say, $20, you'll be able to recover much of that revenue. Intelligent dynamic pricing algorithms can help ensure that, as more people sign up, the price will automatically increase, enabling you to maximize your revenue while filling in empty class slots.
Smooth out seasonal and daily demand
Many fitness businesses struggle with managing seasonal fluctuations and daily demand. For example, in January, classes might be at full capacity, but as New Year's resolutions fade, demand typically diminishes. While static pricing overlooks seasonal shifts in demand, dynamic pricing can be used to smooth out your business's revenue by accounting for historical data and real-time trends to help you earn more during busy periods and fill classes during slower ones.
Dynamic pricing helps encourage customers to book favorite classes early when demand is low, and may prompt people to try new or less popular classes at a discounted rate—which ultimately helps ensure that your classes have adequate attendance.
Attract new customers
Dynamic pricing can help you get more customers in the door and reach a larger audience. As an example, the MINDBODY app has millions of users worldwide, many of whom are looking to take advantage of “Last-minute Offers.” By engaging potential clients who are actively searching for new fitness experiences and the best deals, you can capitalize on the growing community of third-party companies and reach new customers who have not previously heard of your business.
How to get started with dynamic pricing
Though dynamic pricing offers many potential benefits for fitness businesses, it can be tricky to implement at first. Before diving in, here's some important advice to help get you started.
Use software that supports dynamic pricing
Though dynamic pricing may be standard in other industries, the concept is relatively new to the fitness industry. This is because fitness business management software and similar technologies have typically been unable to support such complicated logic, and it can be difficult for fitness businesses to implement dynamic pricing strategies on a manual basis. However, with MINDBODY launching dynamic pricing in early 2018 for customers in the U.S., and with ClassPass also offering similar functionality, dynamic pricing is quickly becoming more accessible than ever to boutique fitness studios.
MINDBODY facilitates dynamic pricing by using an algorithm that analyzes historical class data to determine the popularity of each class, and compares this information with the class's current capacity in order to automatically adjust prices according to a predefined price range. Since MINDBODY keeps track of all of this data in its system, it can use the data to intelligently price classes. Classes that use dynamic pricing on MINDBODY will gain additional exposure through the MINDBODY app, since they'll be featured as "Last-Minute-Offers" on the app. In exchange for leveraging MINDBODY's dynamic pricing functionality, the company charges 15 percent of the revenue for every a customer who books a class.
ClassPass offers similar dynamic pricing capabilities, but the company uses a different type of business model. ClassPass aims to provide its customers with flexible fitness options at a competitive price point, without requiring a long-term commitment to any specific fitness studio. While customers can benefit from trying several new classes at a lower cost compared to drop-in rates, the model makes it more difficult for studio owners to retain these new clients, as the company limits the number of visits to one location each month. ClassPass members are allocated a certain number of credits to spend each month, and each class they attend costs a variable number of credits. Typically, if you try to visit the same studio twice in the same month, you'll be charged a higher number of credits compared to the first class (or be unable to do so at all, depending on the ClassPass package).
Though MINDBODY and ClassPass serve different purposes, they're two of the most popular systems that can help fitness studios quickly get started with dynamic pricing.
Reduce risk by starting gradually
Systems that support dynamic pricing typically provide users with the ability to decide which classes should be dynamically priced, and how many slots in each class you’re willing to offer at a flexible rate. While it may be tempting to begin dynamically pricing your entire schedule right away, it’s best to try it out with a few classes initially and review the results. MINDBODY recommends starting with 30 percent of your total inventory, and gradually increasing up to 75 percent (to ensure that the algorithm works efficiently and that you're getting the desired results). With MINDBODY, you can also specify how many slots you want to make available with dynamic pricing for each class. This further reduces your risk, since you can start out by only allowing a few slots per class to be dynamically priced, which leaves space for your traditional members to attend as well.
When selecting classes to price dynamically, you can start with a mix of popular and less popular classes. Though popular classes easily fill up under a flat pricing strategy, you'll be able to use dynamic pricing to increase revenue for these classes, since some members may be willing to pay a premium in order to reserve a slot for a class that would be difficult to get otherwise.
Leverage price safeguards
Above all, your dynamic pricing strategy should keep your fitness business safe. To maintain your margins and protect your brand value, you can strategically set minimum and maximum prices for each class. MINDBODY suggests setting your minimum price 50 percent below your drop-in rate, and your maximum price 25 percent higher than your drop-in rate when first starting out. For example, if your standard drop-in rate is $30, your minimum will be set at $15 and your maximum at $37.50.
Finding the right price range is an ongoing challenge. Setting the minimum too low can result in an increase in bookings, but can also potentially devalue your memberships or other packages. It can also reduce your profit margins if you pay instructors based on attendance rates.
Monitor the right metrics
When experimenting with dynamic pricing, it's important to establish a few KPIs (Key Performance Indicators) that you want to monitor, and make sure that dynamic pricing is moving them in the right direction. For example, you may want to monitor the number of attendees for each class, or the total revenue that the class brings in. Depending on your studio's specific circumstances, you may care about one metric more than another.
For example, if your studio pays instructors on an hourly basis, you may care more about the class's total revenue than the number of attendees, since increasing the total revenue makes the instructor's time more efficient. On the other hand, if your studio pays instructors for each attendee, then simply increasing revenue may not be enough—you may want to monitor a metric like revenue per attendee. Select just a few KPIs to monitor—you don't want to be inundated with too much data and suffer from paralysis by analysis.
Once you've selected the right KPIs to monitor, you'll be able to make data-driven decisions when you experiment with dynamic pricing.
Focus on building long-lasting relationships
While dynamic pricing can help bring in new customers quickly, and market your business to a primed audience, you still need to exceed their expectations and deliver an exceptional customer experience if you want them to return. After all, a customer who returns time and time again is substantially more valuable to your business than a "one and done" customer. Since some customers may only be drawn in at first by an attractive discount, it's especially important that you provide them with an exceptional experience, so that they ultimately convert into repeat customers. Acknowledge new customers and introduce yourself whenever possible to make them feel welcome.
Do your research before diving into dynamic pricing
Dynamic pricing has the potential to expand and elevate your fitness business. However, when deciding whether to adopt a dynamic pricing strategy, don’t go full steam ahead without doing your research first. Consider the impact that variable rates will have on your customer experience and perceptions, especially when it comes to your current members. Formulate a strategy to ensure that short-term gains don't compromise long-term loyalty, and implement dynamic pricing as a tool in your arsenal that can help increase your bottom line.