Take Control of Your Health Club’s Cash Flow

You’re losing money in preventable errors and returns if you don’t have the right billing system in place. Here’s where the money falls through the cracks.

  • November 08, 2019

If you’re like most health clubs, you have a recurring billing process set up to automatically charge a bank account or credit card on a regular basis. This has been an industry standard for decades. The IHRSA Health Club Business Handbook says that up to 90% of health clubs use this business model.

While health clubs have been processing automatic recurring payments for years, many industries in the internet era have only recently adopted a similar model in the form of subscription services. A survey by McKinsey & Company found that 46% of American consumers are signed up for at least one streaming service and that 15% of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis, frequently through monthly boxes. Traditional retail behemoths like Walmart and P&G offer subscription boxes and more are following suit every day.

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Today’s consumers are accustomed to this model—sometimes to their detriment. The ease of online transactions often leads to consumers not knowing they’ve signed up for automatic rebilling. A survey by CreditCards.com found that millions sign up for recurring billing without realizing it. Surprisingly, however, the survey also found that “approximately nine million consumers kept subscriptions for which they were unwittingly enrolled rather than canceling them.” Most of these consumers were in the Millennial demographic.

With the capabilities of today’s club management software, clubs have expanded recurring billing options for a number of services beyond membership dues. Paying for personal training packages and group X classes as bundled charges or itemized expenses is now common practice. Unlike the payment processing systems of the past, today’s digital processing is automatic and efficient, saving on administrative and labor costs. And it works…until it doesn’t.

With automation and convenience come hidden dangers to your overall cash flow. Credit card fees, returns, and processing mistakes made on the backend can all contribute to a reduced income stream. With little room for error in today’s hypercompetitive marketplace, you can’t leave any money on the table, or more accurately, lost in the digital cloud.

This is a painful lesson many businesses are discovering.

Reducing “Involuntary Churn”

If you’re a club owner, ask yourself if you know the exact percentage of your billing income. Do you capture 100% of what you bill? Probably not. Do you get 90%? Or is it lower than that? You’re at a disadvantage if you don’t know the exact percentage. Because it adds up. Monthly billing is the lifeblood of your business. You need to know what you’re bringing in down to the penny.

Other industries deal with the same issues. You may have noticed that software you used to buy on a disc or downloaded are now available only as SaaS (Software as a Service), which is billed monthly. Design programs like Adobe’s InDesign and accounting software such as QuickBooks use this model now.

Estimates are that the “churn rate” (when customers drop their subscriptions) for SaaS services is 5-7%. That’s considered an acceptable standard for the software industry. For other businesses, McKinsey found that e-commerce subscription services suffer a 40% average churn rate, with meal-kit subscription services showing the highest losses of 60-70%.

This is where it gets interesting: Anywhere from 20-40% of this overall churn rate is “involuntary” churn. What is involuntary churn? It’s caused by consumers failing to update payment information, exceeding credit card or bank account limits, or it’s the result of server errors. Involuntary churn can be costly, not just in lost revenue but in customer trust. It’s a silent killer to your bottom line.

“With little room for error in today’s hypercompetitive marketplace, you can’t leave any money on the table, or more accurately, lost in the digital cloud.”

Automated accounting systems try to address involuntary churn through “dunning” or “pre-dunning” emails. Dun is a term from debt collection, and pre-dunning emails alert consumers about payment issues, such as the need to update expiring credit cards (you’ve probably received these emails in the past).

Ask yourself how your club management software handles these issues. When your income drops one month from reduced income, do your reports tell you why? Did you lose members, sell fewer training sessions, or was it involuntary churn from payment failures or server errors?

If you don’t know, it’s time to ask your club software supplier these questions. Because if they don’t know the answers, you have a problem.

Knowledge Is Power—and Protects Your Bottom Line

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With today’s thin profit margins, you need club management and accounting software that gives you the training and knowledge you need to maximize every billing opportunity. This is a specialty of Twin Oaks Software. Twin Oaks was founded by health club owners nearly three decades ago. They understand the complexities of the financial operations of today’s health club industry. They bring precision and expertise to billing and income reports that won’t leave you guessing where the money’s going.

Twin Oaks provides superior support and training to help you understand your financial status. They provide no cost returns management, credit card account updaters, and reliable EFT reports to make sure involuntary churn doesn’t erode your revenue stream. And their email services, member portals, online sign-ins, and built-in CRM help you stay on top of member services.

Twin Oaks Software is especially valuable to club owners who come from the fitness world and need guidance in understanding financial reports and the minutia of today’s automated billing processes. If money falls through the cracks, Twin Oaks will find it and alert you before it threatens your business.

For more information on how Twin Oaks can help you build and protect your revenue stream, visit their website or call them at 866-278-6750.

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