I never perfected an invention that I did not think about in terms of the service it might give others… I find out what the world needs, then I proceed to invent – Thomas Edison
Last week, in Part 1 of this series on business strategies, we saw how locking people into monthly memberships has the potential to smooth cash flow, BUT it can also very easily lead down the road to complacency, laziness, lack of innovation and business stagnation.
In that post, we used the example of a standard health club. This week, we’re going to look at how another brick and mortar fitness company has taken a very different approach and is not only packing the house, but relentlessly innovating along the way.
So, let’s zoom in on SoulCycle®, an indoor cycling brand in NYC that taps innovative business strategy to drive revenue and buzz without locking people into monthly contracts.
SoulCycle was founded by Julie Rice and Elizabeth Cutler, two friends who, in their own words:
…believed indoor cycling could be inspiring…believed you could incorporate upper body and core workout into the routine; and finally they believed with some great branding, a beautiful environment, and outstanding customer service, the 45-minute class could be transformed into a special experience each time.
Unlike most in the fitness world, SoulCycle’s business strategy is not to sell recurring membership contracts, but rather individual sessions and series’.
Drop-in sessions cost between $32 and $36. ACK! You heard right! That’s a price point many would consider insanely expensive. While there is a bit of a discount when you buy a series, it’s not a lot, and because there’s no automated billing, every time a series is done, you need to re-decide to buy a new series.
SoulCycle’s bikes are also all equipped with click-in pedals, meaning you can’t use sneakers. You either have to rent special cleated riding shoes every time or buy your own. And, if you reserve a bike and don’t cancel by 5pm the day before your class, you lose your money.
Man, that sounds like an awful lot of hoops to jump through…
And, with nearly every other gym offering some variation of indoor cycling class as part of their membership fees, SoulCycle’s model sounds like fitness suicide.
Terrible business strategy, right?
But, it’s not. It’s genius.
SoulCycle now boasts 5 locations. Most classes are sold out, often days in advance.
From a solution standpoint. From a marketing standpoint. And, from a business model standpoint. They’ve essentially done everything opposite of the big box fitness membership model.
You’d think running their model on a modified fee-for-service basis would be a burden for SoulCycle. You’d think it’d be so much easier to just lock people into automated billing with discounts. Indeed, it might. But, then, without even intending it, the risk of complacency and stagnation rise dramatically.
No longer feeling the weight and responsibility to have to consistently blow people’s minds, to re-earn the right to people’s hearts, souls, time and money, every single day. To create a truly differentiated experience, setting and present teachers who don’t just make you sweat, but mesmerize, engage and inspire on an extraordinary level.
By charging top of the market fees, they can afford to create cooler facilities, hire mindblowing teachers, offer high-end rentals and amenities and invest in constant innovation and new programming.
It’s pretty clear, the founders of SoulCycle understand…
The lifeblood of business lies not in figuring out ways to lock people into longer and longer financial commitments, but rather, in consistently conjuring innovative new ways to leave their clients breathless.
And, not only is that vastly more fun, it also happens to be good business on number of levels.
Without the monthly auto-bill net, the challenge of constantly innovating and serving to drive sales is very high. BUT, with drop-ins and series clients, revenue per visit is also extremely high. Way higher than you’d normally find in any monthly billing model. I learned this in the yoga world when I owned a studio in NYC. We sold individual sessions, serieses and discounted monthly memberships (yes, I’m guilty).
We realized very quickly, our revenue per visit for a drop-in was nearly twice that of a monthly member. So, while we liked the cash flow evening effect of monthly members, we were also regularly balancing that with the higher per-visit revenue of drop-ins and series members. And, yes, innovation did become a challenge over time as we added more monthly members. But, not so much because of complacency (okay, maybe a little, at least for me), more because of an odd tension in the yoga word between preserving ancient traditions and infusing them with modern interpretation (I was once shredded in Yoga Journal for my “progressive” take, lol).
Also, because series’ expire, clients are incentivized to come often, so they “get their money’s worth.” That increased level of participation often yields faster results, ingrains the “habit” of attenting more deeply and leads to more friendships and a deeper connection to the community.
Now, what about that nagging shift in sales burden we talked about the Part 1 of this series?
There are actually plenty of ways to incentivize clients to “re-up” on or before the time their current series expires. For example, you could offer some added benefit, like free rentals, towels or water, a 10% discount, a locker or priority reservations. I’ve tried a number of these and, depending on your community, they can be very effective.
Okay, so what about marketing? A couple of thoughts…
From a marketing standpoint:
Price implies quality.
When people see a facility or pro charging way more than anyone else, some say, “that’s just plain nuts,” but others say, “man, they must be offering something extraordinary that I want to get in on.” That latter group is comprised of your dream clients. The ones who want the best and aren’t afraid to pay for it. The ones who aren’t shopping entirely for price. And, that’s the group that SoulCycle gets.
And, of course, because those high fees set a giant expectations and the owners can’t rely on monthly billing to coast, they need to deliver the goods every single day. And, they do.
But, SoulCycle also did something very cool with their website…
Something that pushed their mystique over the edge and added some serious social proof to their marketing engine.
They integrated an online reservation system that shows a visual map of the room and the bikes for each class, along with available bikes and reserved bikes. Much like airlines do when you reserve your seat online. So, you can click on the Monday 9:30am class and see how many spots are open, then reserve your bike in advance…if any are free.
The online reservation system alone adds a coolness and convenience factor, BUT, it also does something powerful from a psychology of persuasion standpoint.
Many classes sell out, some even within minutes after reservations open…a week in advance!
When you click on a class and see that nearly every bike is reserved days in advance, that makes a lot of people say…
Woah, this IS the place to be!
Then, when you click on 5 other classes and find the same thing, you say,
OMFG, who do I have to bribe to get me in the room
So, while the intent of the online booking system may have been largely about coolness and convenience in the beginning, it also spurs a “rush to reserve” whenever peak class reservations open that, from a marketing and social proof standpoint, is just pure genius!
The downside, of course, is that in the early days or even now, if the classes were constantly empty, everyone would know and it would have the reverse effect. It would make people ask, “why does nobody want to go to these classes? They must suck.” So, the cats at SoulCycle had to be willing to risk “going naked” with their demand, then working like crazy to build massive interest by any means necessary.
And, that’s what being an entrepreneur is all about.
Creating stunning solutions, charging real money because you’re worth it, being transparent about demand, then working insanely hard, innovating, solving and serving your clients like nobody else.
This type of magic rarely ever happens when you’re working with the giant net of monthly fees underneath you.
It’s not impossible (as we’ll see in Part 3 of this series). It just takes a far more deliberate effort.
Now, how do we apply the lessons from SoulCycle’s business strategy and the recurring income trap to the online world?
Can we blend elements of each to somehow create kick-ass integrated online business models?
This is the question we’ll answer in the third and finall installment of this series next week.
So, stay tuned (and be sure you’re subscribed so you don’t miss it).
This is part 2 in a 3 part series on business strategies, with a special look at membership sites versus for for service. Check out part 1 of this series, Business Strategy: The Recurring Income Trap, if you missed it.
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