Clevenger, Troy; Ribley, Douglas A.
Preventing and treating disease, illness, and injury, along with improving the quality of life, is the primary goal of every medically supervised health and fitness center. Many also have heard the saying, "no margin, no mission." The meaning of this message points to the reality that the key to ensuring the longevity of your community impact efforts is to adopt a business model that is self-sustaining, or put more directly, does not require any level of subsidization. The primary source of income among medical fitness centers is membership enrollment fees and dues, however, a well-executed approach to generating ancillary revenues is vital. This effort allows an organization to offer a comprehensive and meaningful scope of service while maximizing profitability. The fact is that successful medical fitness centers cannot and do not rely on enrollment fees and dues alone to be successful. This becomes even more important in today's challenging business climate. Operating expenses continue to "creep," whereas membership sales and dues revenue growth may slow down or level off in some cases. At the same time, membership organizations maintain a captive audience who are willing to pay for programs and services that are of interest and provide value. This demand creates a unique opportunity to engage members in structured activities/programs while maximizing revenue growth opportunities that are independent of membership enrollment fees and dues. Organizations that do not strategically and systematically optimize this important component of their business will often find themselves in a situation where the ongoing and gradual increase in operating expenses outpaces the growth in revenue, creating an unfavorable business equation. The following information focuses on the keys to identifying and successfully implementing the ancillary revenue component of a medical fitness center.
ANCILLARY REVENUE DEFINED
Dictionary.com defines ancillary revenue as "revenue generated from goods or services that differ from or enhance the main services or product lines of a company" (1). Ancillary revenue in medical fitness centers is generated from programs and services other than membership dues and enrollment fees. The Medical Fitness Association Benchmarks for Success lists the following as non-membership fee services (2):
* personal training
* pro shop
* health education
* child care
* kids programming
* food service
* spa services
* aquatics (lessons, classes, rentals, other)
* revenue from leases
* other (Pilates, contract services, other)
IDENTIFICATION OF ANCILLARY REVENUE OPPORTUNITIES
It is important to note that not all programs and services are appropriate for all medical fitness centers. There is no "cookie-cutter" approach, and decisions related to programs and services must be individualized and aligned with the market that has been identified to support center success. Facilities should assess their members' needs before providing programs and services. Some ways to assess members' needs are to use surveys, provide a suggestion box, have a member advisory group (MAG), and even talk to physicians about their patients' needs.
There are different ways to conduct member surveys. One of the most effective is by mailing a survey to your members' homes at least twice each year. By receiving a survey by mail, members are more likely to provide open and honest feedback. The survey should ask key questions related to a variety of success and member satisfaction topics, one of which should be programming. There also should be an area on the survey that allows members to identify what type of programs they are most interested in. Another way to survey members' programming needs is to have staff members gather ideas and feedback by directly approaching members throughout the center. This also opens up the opportunity for those staff members to create a relationship that is appreciated by members.
A suggestion box should be located in an area (or areas) that experience high member traffic (i.e., front desk). There should be a strategically formatted suggestion form, not just a blank piece of paper. The form should allow members to include the date/time, their name, member number (if applicable), phone number, suggestion, and a box to check if they would like a follow-up call. The suggestions should be removed from the box at least weekly, and appropriate follow-up should be determined on a case-by-case basis. Not all suggestions will be directed toward programming, but the ones that are can be valuable.
Member Advisory Group
A MAG is one of the most effective initiatives to gain member loyalty and gain constructive feedback at the same time. A MAG is typically made up of a cross section of active center members invited to serve for 12 months. During this 12-month commitment, the group meets on a monthly basis to openly discuss identified topics. Staff members whose responsibilities are most aligned with the discussion topic are asked to attend the meeting. These staff members come prepared to tell the group a little bit about themselves and their area of responsibility. Before the meeting, the staff also are responsible for preparing three questions related to their area of responsibility with at least one being directed toward services/programs. These questions are emailed out to the group in advance of the meeting so that they have time to formulate additional questions and suggestions.
A medical advisory board/group can review programming plans to ensure that they will be safe and effective. In addition, engaged physicians are able to provide valuable insight into what types of programs and services will be most helpful to the general membership. Physician involvement in programming is very important for medical fitness centers. Physicians can help guide what type of programming may be important for their patients and provide necessary feedback related to the program development and implementation.
MEASURING ANCILLARY REVENUE SUCCESS
In addition to evaluating programming through member and physician communication, there should be systems in place to evaluate the monetary success of each individual program as well as the center's overall ancillary revenue performance. Industry benchmarks should be used to evaluate the center's overall programming success, whereas an internal evaluation tool should be used for each individual program.
Common industry benchmarks for mature facilities include the percent of ancillary revenue to total revenue, ancillary revenue per square foot, and the ancillary revenue per member. It is important to exclude membership dues and enrollment fees from these calculations. Ancillary revenue that represents approximately 20% or more of total center revenue is ideal and indicates that the effort in this regard is effective and successful (3).
In new centers, where the net membership growth is significant during the early stages of operation, the improvement in the ancillary revenue percentage of total revenue may seem to be very slight because of the rapid growth in enrollment fees and dues revenue. This growth generally outpaces the ancillary revenue growth in the early stages. As a result, it is more beneficial to initially focus on the actual increase in ancillary program/service sales totals. A reasonable rate of annual improvement is 5% to 10% growth each year until the center reaches its mature phase and the membership base levels off.
Each program should be individually evaluated for its success as well. One system that is commonly used is the plan, do, check, and act (PDCA) (Appendix A). This system encompasses the whole process of program development.
The planning process should encourage staff involvement. An environment that encourages and supports a culture of creativity (and not one where staff fear failure) is necessary to achieve the desired outcome. Structured planning meetings provide an ideal opportunity to brainstorm, with an emphasis being placed on new and unique programs/services and implementation strategies. It is important to keep an open mind and let everyone share his or her thoughts. Once a new programming idea has been established, there should be one or two staff members assigned to develop and coordinate the program. At this time, a well-thought-out proposal (Appendix B) that is aligned with the center's goals needs to be completed. The proposal should consist of a description of the program, along with assumed revenue and expenses. Common expense line items include, but are not limited to, marketing/promotion, cost of staff, supplies, and any miscellaneous costs. Revenue projections should include the predicted number of participants and revenue per participant. Once complete, an estimate of the expected contribution margin will be available.
The do stage includes the marketing, promotion, and implementation of the program. When marketing/promoting programs, several different methods should be used with the goal of reaching as many members as possible. It is critical that all marketing materials present a professional look and provide essential information in a clear and concise manner. Some common promotional methods include:
* word of mouth (staff)
* targeted postcards
* digital media
Once the program promotion phase is completed, the implementation of the program becomes the next step in the process. The staff member(s) running the program needs to ensure that every detail of the program is being successfully performed. He or she needs to ensure that registration is accurate, all the details of the program are clear to members, and the necessary data are being properly recorded.
It is important to check the success of a program throughout the entire event. From the marketing and promotion to the very end. The check stage should be used to answer several different questions and find solutions to those that had undesirable answers. Some questions that need to be asked during the check stage include:
* Was the marketing/promotion effective?
* Was the targeted number of participants reached?
* Were the details of the program understood by all participants?
* Was the desired outcome achieved?
* Should this program be implemented again?
This is the stage where action is taken to correct or improve aspects of the program/service that fall short of expectation. In addition, if all went as expected, the identified action may be to continue offering the program just as it is. Whether you are making enhancements to the marketing and promotion or changing the way data are being collected and recorded, it is important to recognize what action is required to achieve optimal success and implement an action plan in an appropriate and timely fashion.
Achieving profit potential through ancillary revenue should be a top priority of every medically supervised health and fitness center. Centers that have achieved a high level of success have come to the realization that they cannot rely on membership enrollment fees and dues alone. Introducing revenue-generating programs and services is a process that requires a significant organizational focus. When correctly approached, an ancillary revenue strategy will enhance the programs and services offered, enhance member satisfaction, enhance member retention, and contribute to the financial success and independence of your organization. Ultimately, this allows for the longevity of efforts directed toward positively impacting the health and lives of the community each center serves.
CONDENSED VERSION AND BOTTOM LINE
Achieving profit potential through ancillary revenue should be a top priority of every medically supervised health and fitness center. Centers that have achieved a high level of success have come to the realization that they cannot rely on membership enrollment fees and dues alone. Revenue-generating programs and services enable an organization to offer a comprehensive and meaningful scope of service while maximizing profitability. The resulting financial success and independence allow for the longevity of efforts directed toward positively impacting the health and lives of the community each center serves.