So many individuals and businesses see innovation not as an opportunity, but a burden.
People are always asking me about business strategy and business models…
“What’s the best one?” they ask. And, because I was a brick and mortar entrepreneur in the membership-driven fitness world and now operate largely online, membership websites, continuity and recurring income strategies tend to come up a lot.
Folks just love the idea of set it and forget it monthly income.
No doubt, there is something nice about knowing what’s coming in each month. But, there’s also a lot of myth about the certainty of recurring income, along with a dastardy underbelly that nobody ever talks about. Instead of starting online, though, let’s start with an offline example—health clubs, since they represent a multibillion dollar industry run almost entirely on automated monthly billing. Then, we’ll apply those lessons to the online world, more specifically, to membership websites.
Recurring income business strategy and the fitness industry.
The business model for your average mainstream gym revolves around automated monthly billing (some facilities have other profit centers, but we’ll exclude them for now to keep things clean). New members sign up, often pay an up front fee, then agree to have their credit cards hit every month in advance. Depending on the contract, they may also agree to a minimum commitment (classically, a year) or a simple monthly payment structure. To end the monthly billing, a member must (a) wait until their commitment, if any, has run, then (b) send notice of termination by the precise channels laid out in the contract.
The alleged beauty of this model is that it shifts the burden of reselling and re-earning the membership fee away from the club and, instead, places the burden of termination on the member. Put another way, instead of the club having to resell members every month, the billing only stops when the member proactively says, “no more.”
Sounds like a killer business model, right?
Automatic monthly credit cards payments that are charged in advance keep cash flow not only smooth and predictable, but actually leave most clubs in a cash-flow positive position. That’s rare in any industry. And, tons of clubs have gotten by with a 10% – 20% bottom line for years.
But, here’s where it gets a bit ugly.
This same model also fosters:
- Widespread lack of innovation,
- Declining emphasis on remarkability and delight
- Exceptionally poor differentiation that requires non-stop aggressive marketing
- Uninspired, disengaged staff working for unsatisfactory pay, and
- A 40% annual drop-out that keeps the sales burden exceptionally high
Because, with automated monthly payments almost always comes institutionalized complacency.
The sense that you don’t have to consistently blow peoples’ minds, because they’re locked in. It makes you LAZY!
This sorry side-effect often manifests itself in ways that aren’t in-your-face apparent, yet slowly and methodically degrade not only the quality of the business (as seen above), but the joy that anyone at any level gets from working in the business.
And, the myth of a reduced “recurring” sales burden is largely offset by the fact that so many people quit the moment their commitments expire that there is a constant demand for “new money” in the funnel. It’s not easy to replace 40% of your clients every year.
Automated member billing, often hailed as the single most brilliant element of the health club model, has, in truth, become a massive crutch.
Those who care to look under the hood will realize this business strategy all too often undermines the innovation, differentation and impact, the very elements needed to keep members so delighted they’ll continue to pay and make the business model actually work.
But, nobody wants to own up to what’s really going on.
Because, facing up to the fact that automated monthly fees most often institutionalize complacency and lead to a downward innovation spiral would mean one very, VERY scary thing…
Clubs would have to start earning their fees again. I mean really earning their fees.
Getting innovative, relevant, impactful on a level most walked away from years, if not decades ago.
And, the sad fact is, not just in the fitness industry…
Most individuals and businesses see the opportunity to innovate as a burden, not as a gift.
THAT is truly tragic!
Because spending your time and energy relentlessly dreaming up solutions and experiences that blow peoples’ minds is an opportunity that not only fuels massive loyalty and record sales, it makes the journey about a billion times more fun.
In part 2 of this series, we’re going to zoom in on a renegade player in the fitness industry who’s bucked the trend, shunned monthly membership fees, innovated relentlessly…and continually crushed the competition.
Then, in Part 3, we’ll take a closer look at that brick and mortar business’ online presence and see how they’ve built two powerful sales drivers—social proof and scarcity—into their business and marketing models through their websites in a very innovative way and leveraged them to propel sales. And, we’ll look at how their model is so much more powerful from a PR and word of mouth standpoint…and how you can leverage these same strategies.
Finally, in Part 4, we’ll take all this knowledge, translate it to the world of online business strategies, membership sites and automated billing and explore some pretty fascinating options.
So, be sure to keep a lookout out for the next part in this series (make sure you’re subscribed, so you don’t miss it).
Curious what you’re thoughts are so far…
——————–Awakened Shout Outs——————-
- My friend and career innovator, Penelope Trunk of Brazen Careerist, is leading a cool video chat called SELF-EMPLOYMENT: How to get the guts to take the leap on Tuesday, February 16, 9PM EST. You’ll learn how to: Know when the timing is right, decide when your idea for a business is good and make self-employment feel less risky. Check it out at http://bit.ly/aJcwLR
- Another friend, Brian Clark, who you guys may know as the Copyblogger dude, just launched something pretty neat called SEOScribe, which is a plug-in for WordPress bloggers that helps make sure your posts kick some serious SEO ass, get more google juice and organic search traffic. And, he’s got a giant discount offer running this week. You can check it out at SEOScribe (that’s an affiliate link btw, if you sign up, I’ll make enough money to move to Bali and drive a trendy scooter)
- Check out yet another friend (trust me, they’re my only 3 friends, lol), Sarah Robinson’s Gamechanger’s Roundtable conversations. I was on one with Pam Slim, Reese Spykerman and Chris Guillebeau yesterday afternoon, the conversation was a blast and we shared some solid brand-building strategy (well, at least they did, I was busy walking around my home office in my catsuit and stilettos).
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