The Perfect Business

A few years ago you might remember seeing a lot of photos of me meeting with (then) UFC Heavyweight Champion, Randy Couture. The back story on that was that I taking a serious look at opening up a Xtreme Couture gym here in Lincoln, Nebraska.

After getting initial pricing and all the franchising info I also started doing some due diligence talking to everyone from personal trainers to management at gym’s finding out some information. I quickly figured out that it wasn’t for me but not before getting some amazing (to me) information about the business.

It turns out most gyms, especially nationwide chains, have target numbers to oversell by a minimum of 1,000% and one of the gyms I talked to said they thought they were current oversold at about 2800%.

That means that even though that gym only can have room for 100 people at any given time, they have sold memberships to 2800 people. Talking to a few friends in the industry across the country they said its not unheard of for a gym to sell 50x more memberships then they could accommodate people. wow…

Now some of this makes sense because different people can only go at certain times. Some people work out before work… some during the day… some after work etc…

But the sad fact is a gym makes money by counting on you to be lazy and not go.

I pay $90 a month for my gym membership (full use + locker rental) and I think I have gone 2 times in the last year. Thats $540 per work out…. great deal….

But is the gym a rip off? Did I get scammed? No, I am just being lazy – and doing exactly what they expected me to do…. eventually…

One gym manager told me they estimate the average new member works out for 68 days before quitting…. He said the number is probably closer to 20 but the few who go years make it look a lot better then it is.

He also told me that the LTV (life time value) on a new member is about $1,500.

My gym also has implemented items like giving a 10% discount if you pay by direct deposit with your checking account monthly. While people change credit cards and they expire they rarely change checking accounts.

Looking at the model:

  • Sell the user on a dream.
  • Deliver a quality product.
  • Know only 10% of users will actually do the work required to get the results.

A gym membership is a perfect business and if people don’t do the work they are “lazy” and they are out the money.

But with other business models that are designed to count on humans failing – pay day loans, mortgages, credit cards, selling drugs, online gambling, info products, web hosting, etc etc

Its interesting to me which services knowingly hurt consumers are illegal or sketchy and which one appears to be the perfect business.