OT Pricing A Competitive Team Program

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JBS

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We have had this on the forum before somewhere... but I figured now was a good time to bring it back up as we have had some threads talking about pricing. Here are a couple posts from USA Gymnastics back in the day...

Jeff Metzger's Business Tips​

Pricing Your Team-Part I​

This month we will inspect the unique dynamics of team pricing. Allow me to weave the logic behind Queen City's team pricing strategy. As this is a fairly vertical argument, please take time to assimilate each point before moving on to the next. It is true that:
  1. A company benefits from having the public perceive its prices as reasonable.
  2. Because the expenses of operating a team are far greater than what most parents' intuit, sticker shock is inevitable.
  3. Point #1 and #2 are in direct conflict and will remain so unless leadership intervenes.
  4. The most effective way to resolve this conflict is a two pronged approach: (a) make public the costs of operating team while at the same time; (b) unabashedly highlight the truly wonderful benefits of team participation (thereby raising the perceived value and 'lowering' the perceived price).
It is also true that:
  1. If a GymClub TRULY breaks even on its team,* the profit from a reasonably strong class base should offer a nice overall company profit.
  2. You can mitigate the last vestiges of a high price argument by seeking and publicly proclaiming a break even pricing strategy: "Mom, Dad, we are not looking to make money on your child but you certainly can't expect us to lose money, can you?" To argue against this understandable business goal tends to ring unreasonable even to the person making the argument. After all, even nonbusiness-savvy parents can intuit that it is not in their best interest for their child's GymClub to go belly-up!
As a fun exercise for Cincinnati Boot Camp Grads (who are familiar with the 'lingo' of the Boot Camp Business Building Strategy), let's identify a few Boot Camp concepts used in identifying our pricing strategy: We recognized 'Common Cause' in parents' almost universal unawareness of the high cost of operating a team; we chose a Leadership Strategy grounded by 'Sharing Perspectives', more specifically, by using 'Open Book Management.' Additionally, we relied heavily on our understanding of 'Marketing Strategy' to avoid getting sucked into the 'low price trap,' a no-win game in a 'Value Added Industry,' such as ours.
* Because most GymClub owners do not know how to calculate their team's operating expenses, Part II will address how to determine your team's TRUE break-even.

Make it a great May! Jeff Metzger

Jeff Metzger
USA Gymnastics Business Development Partner
President, GymClub Owners Boot Camp
President, Kids First Sports Center

Pricing Your Team-Part II​


In Part 1, I sought to make a case for the need to UNDERSTAND the parents' perspective that team is expensive and therefore the need to SELL the idea that team is a BARGAIN. Here, I will sketch out one way to calculate a TRUE break-even on your team. Most GymClub owners believe that if team tuition pays for coaching wage that they are breaking even or at least close to it. Surprise! often, 'overhead' exceeds coaching wage. The below example is a 'sampling' of what is actually happening out in the real world of progressive GymClubs having high level optional athletes in 2003. The example assumes only one gymnastics venue-and a teaching ratio of 8:1. If you are a true MVP (multiple venues), you must first find the gymnastics venue's share of the total.

1. Calculate YEARLY OVERHEAD. Using your year end P&L statement, tally ALL of your business expenses-facility costs, admin wage, insurances, interest, education...the works*-EXCEPT, coaching wage. Real life example: $275,000 yearly overhead.

2. Calculate YEARLY STUDENT HOURS. Using enrollment data, program by program, add together: (rec. students X 1 hour) + (level 4 X no. of training hours/wk) + (level 5 X no. of training hours/wk) + etc. Don't forget to include preschool, cheer, tumbling, birthday parties-ALL students who use the gymnastics venue. This sum is a weekly figure and must be converted to YEARLY STUDENT HOURS by a multiplier appropriate for your yearly up/down cycle. Real life example: 100,000 st.hr. per year.

3. Calculate OVERHEAD/STUDENT/HOUR. Divide #1 by #2. $275,000 ÷ 100,000st.hr. = $2.75/st./hr. Remember, coaching wage has NOT yet been included.

4. Calculate GROUP OVERHEAD/HOUR. Multiply #3 X 8 students. $2.75/st./hr. X 8st. = $22.00/hr. group overhead.

5. From internal payroll records calculate your AVERAGE HOURLY COACHING WAGE. Don't forget to add in ALL benefits not previously considered including Fed and state P/R taxes, W/C, FICA, health, dental, vacation, 401K, employee discounts, etc. A good multiple for a progressive Ohio club is +24%. $15.00/hr. + 24% = $18.60/hr average coaching wage.

6. Calculate TOTAL GROUP COST PER HOUR. Add #4 and #5. $22.00/hr. + $18.60/hr. = $40.60/hr. total group cost.

7. Calculate BREAK-EVEN PER GYMNAST PER HOUR. Divide #6 by #8. $40.60/hr. ÷ 8st = $5.08/st./hr. as a true break-even.

It is not too difficult to achieve a $5/hr tuition for entry level athletes, but very difficult at an optional level. It is Queen City's goal to have a perpetually wide enough base of profitable entry level athletes to subsidize our upper level athletes so that our TEAM breaks even, as a whole. Note, we do NOT look to our classes to subsidize our team: that is a taboo. A team can and should support itself.

* note that Queen City Gymnastics also excludes marketing costs (team actually aids the marketing effort) and sales tax as, in Ohio, it applies only to tangible product.

Jeff Metzger
USA Gymnastics Business Development Partner
President, GymClub Owners Boot Camp
President, Kids First Sports Center
 

JBS

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I went pretty crazy in this thread back in the day... so don't quote me now... but it's a good thread...


I'm still working to try to change things... but it's hard.
 

JBS

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Over the last couple of years our average coaching wage has nearly doubled.

Here are the three reasons why it is increasing at our club...
  1. We are paying higher wages
  2. We are trying to staff a floating manager in each area than does not have their own class / group. This person helps direct the program and coaches. With the team... this person is the Head Coach.
  3. We have had to over staff greatly due to people missing work.
 

JBS

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Using the above pricing model (which is not the only way to look at things)... our gym loses money every hour on every Level 10 athlete.

This means that in order for our team to break even... the lower level / hour athletes must pay more per hour.
 

TheXcelMom

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Apr 14, 2022
38
This means that in order for our team to break even... the lower level / hour athletes must pay more per hour.

Definitely the model at my daughter's previous gym.
Rec classes also subsidized team, or at least...I'm not saying they paid for coaches or anything specific...but those classes definitely kept the lights on. Not sure why that's taboo. You gotta run the business however you gotta run it.
 
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