Raise Prices To Keep Up With Inflation

Hey everyone, uh, good to see ya. I just got back from a family trip. Notice I didn't use the word vacation. Um, and I just got off the phone with Emily Beers, um, being interviewed about raising prices. So I thought I'd share with you some of my thoughts and some of the things that we discussed. Hopefully my stuff makes her article. Um, look, we are going into a very interesting time in our economy. We had this pandemic, which was what they call a black swan event. meaning it couldn't have been predicted regardless of what some people may say they predicted or not. And I think with the amount of money they're pumping, the government is pumping into the US economy and potentially economies around the world. I don't know what other countries are doing. There is the risk of inflation. And guess what? If inflation happens and you don't raise your prices, That means you are now even less profitable because guaranteed the vendors that you use are going to raise their prices. And if you like your coaches, other gyms may increase what they're willing to pay coaches because of inflation to get them. So you're probably going to have to do a price increase on them as well. Um, again, inflation has not officially happened. At least the government says it's not— they're worried about it, they're not worried about it, they're kind of worried about it. I don't know, they're a little indecisive, which kind of tells me this could be a problem. I don't think they— they're probably not telling us all the truth because the media doesn't tell the truth. But with that in mind, you're going to want to pay attention to the upcoming months, probably the next 12 months, to see what is happening with inflation. So that you are going to raise— so that if you need to, you raise your prices just at a minimum to stay in line with whatever happens with inflation. And look, regardless of what side of the aisle you fall on, this isn't a political statement. I'm just sharing with you facts. When you raise the minimum wage and you make it a mandatory raise, that is inflationary, because what happens is businesses need to make a profit to stay in business. It's, it's a utopian idea, which means it's not really a possible scenario where a business can just raise their people's wages without also increasing what they charge their customers. So you increase the wage expense of a business by increasing the minimum wage. Therefore, that means businesses need to increase what they charge, which means you as a consumer need to pay more, which then means if you have a business, you have to raise your prices. And ultimately, that $15 pay raise, or the pay raise to $15, usually has the same purchasing power, if not less purchasing power, than it was before the minimum wage hike happened. Again, regardless of where you stand, I'm not saying I'm against it or for it. I'm just letting you know That's been pushed and it is happening in certain states. So that by default is an inflationary aspect of what we have going on, which we need to be aware of as gym owners. Because if that happens again, we got to raise our prices just to keep the same profitability. The other thing that I wanted to share with you regarding raising your prices, um, well, I guess side note, the I interviewed with her 3 years ago for an article that she put out. And after we were talking about the numbers, she came back to me to clarify because her editor didn't believe that I said gyms are making 20% or more in net income. And they are. And in fact, the financially fit gyms that we looked at for Profit First for Microgyms and other really financially fit gyms out there, they're actually— they can accomplish 30%, if not higher, net income. So just because it may not be industry norm doesn't mean it's not possible. I thought that was an interesting side note I wanted to share with you, like, because she reminded me of it when I said, yeah, you know, if your net income is less than 20%, you may want to consider a price increase. For sure, if your net income is 10% or less, you probably need to consider a price increase. Another thing to look at when it comes to raising your prices is the cost of your rent. It's one of the big 2— rent and coaches. Those are your 2 big expenses. If your rent expense is less than 25% of your total gross revenue, the total amount you collect every month, you're probably okay. If you're above 25%, especially if you're in the 40% or higher, meaning your rent takes up 40% of your monthly revenue or more, you definitely need to look at raising your prices. Um, so here's how we coach clients through it. If you're looking for the actual process of how do you raise your prices, like once you've determined what the price should be, um, that's not our expertise. Look to the mentors, the Two Brains of the World. The— those types of gym mentors, they have processes that work. Chris Thorndyke, these guys have been through it with other coaches, so they have a model that works. But when it comes to determining what the price should be, this is where we help our clients. So I just want to give you some thoughts on that. You first have to look at what do you need to take home. That's the first thing you look at. Don't do that. Don't say that. The first thing, okay, we're not looking at anything else first. You got to start with what you need to take home. Then we add in the expenses underneath. What's your monthly rent? What's your monthly coaching expense? What are your other— what's your other overhead? That's going to give you a monthly number. Because you've built in what you need to take home, that monthly number What you do is you take that monthly number, you divide it by the number of clients that you want, the number of members that you want to deal with. That effectively is what your price needs to be. Now, for safety, I actually like adding in because you're gonna have tax and you're gonna— and we want to have profit distributions. So you probably want to mark up that number a little bit. We walk our clients through how to do that. But ultimately, that's how you do it. You basically spend paper first. All the cash outflow, you write it down, and that gives— is going to give you an idea of what you need to make. Divide that by the number of members, that becomes your average monthly price that you need to be— your average monthly revenue, I should say, that you should be looking at per member, or ARM, if you follow that acronym, average revenue per member. I mean, there's There's a couple different ways to get to that number. That's just a simple tip I'm going to share with you here. And then again, once you decide that you are going to do this, I get that it's scary. And that's why you're kind of taking that number and dividing it by the number of members that you want to have, because sometimes maybe you have too many members. Or you realize, you know what, you're just like every other gym in the area, which may be why you're not getting leads. That was our problem at GSL. At the end of the day, when I looked at all the other gyms, we looked exactly the same. The only thing that separated us was that we had a better looking website, we were a little bit more prompt, and if we— like, once we got them in the door, they loved it. But getting people in the door interested, that was hard. If you've set yourself up by being a premium service because you're charging more, then that's a message you can share. With everybody who's in your area. Now, not all areas maybe fit that. Again, that's not my expertise. I just look at the numbers. I'm really good with the numbers. So anyways, I wanted to share those thoughts with you when it comes to raising prices. Check out your expenses, and when you're doing that, hey, it never hurts to analyze— is there a way to reduce some of those expenses? Are all of them completely productive? I'm always going to push that. Be vigilant with when it comes to accepting the financial burdens that you take on and only take those that are really going to push your gym to be better. And then of course, you got to pay attention to inflation. If it does happen, you're going to need to raise your rates just due to that. And then of course, if you are looking to improve your profitability, raising your prices is one of the ways to do that. And the last thing I'll say is, if you're not confident that your members would accept a price increase, you either don't have the right members or you need to provide a better service. Because ultimately, if you believe in your product, you know what you're worth. Like, you really know deep down that you're worth a higher price increase, which you are. So remember, profitability is a choice. In this case, for sure, have the courage and wisdom to choose it.