“I want my staff to make a great living, so I let them sell personal training in my space during off-hours.”
Craig owns a gym. His primary revenue stream is group training. He makes a little bit on supplement sales, but not much.
Craig has built a nice community of clients, and has two coaches who are passionate experts. He’d like to keep them on his staff for a long time, but can’t pay them enough because there simply aren’t enough group classes to coach. So he tells them to find some personal training clients, and to pay him a small percentage of their fees. He refers to himself as “the house”.
He’s also not making any money. Or any real money, anyway: on months when he doesn’t buy new equipment or t-shirt inventory, he takes home a thousand dollars or so.
Here are Craig’s problems:
- He’s not actually creating the best possible opportunity for his coaches.
They don’t know how to get clients. They don’t know how to set their rates. They don’t know how to keep clients long-term. He’s already solved those problems. He has context and business knowledge they don’t. But he can’t afford to do these things for them in exchange for his “house” rate of 30%. So he lets them stub their toe on the “business side”. And they usually can’t figure it all out without him.
- He’s actually losing money on the deal.
Out of his 30% share comes bank fees; insurance; rent; and his other fixed costs, which should be spread evenly across every hour the box is open.
- Clients aren’t receiving the best possible service.
Instead of following his playbook and operating at his standard for excellence, his coaches are left to establish their own systems and delivery. Unfortunately, the client sees their sessions as part of Craig’s brand, so the trainers’ little glitches are blamed on Craig’s leadership.
- Coaches can’t be held accountable for–well, anything. Despite the client’s brand confusion, Craig can’t tell the coaches not to discount their rates, or even to show up on time, because it’s “their business” under his roof. He can’t tell them not to have affairs with their clients–and if he tries to fire them, they’ll take “their” book of business with them. In effect, he’s held hostage to their performance.
- Craig is missing opportunities to use his space for programs that will actually grow his business.
- Finally, the largest problem is Craig’s mindset: he doesn’t sell group fitness. He sells fitness. Some people want to exercise in a group, and some don’t. His internal filters are stopping him from helping people.
All in all, Craig’s coaches are encouraged to act like privateers: to scavenge in waters owned by Craig, and to pillage anything they can while flying his flag.
It’s a lot like allowing a hot dog vendor to push his cart into your restaurant and start selling foot-longs.
When Craig began working through the Incubator, he had a moment of epiphany. He realized that, in his attempts to create great opportunities for his coaches, he was actually sabotaging himself and them. So he wanted to build a personal training program as part of his service offering.
Unfortunately, he’d promised his coaches a 70-30 split. He regretted this beginners’ error now, but worried that he couldn’t correct it. Here’s how we did:
- First, we had Craig sit with each coach and ask about their Perfect Day. As we suspected, each coach said they loved coaching, and wanted to coach more.
- Then Craig asked them what they needed to have a meaningful career. This included “How much will you need to earn?” but also “How often would you like to take courses and seminars?” and some more personal questions.
- Next, Craig used our Career Roadmap tool to show the coach how many group classes, how many Personal Training clients, and how many specialty groups they had to coach to reach that goal. In his calculation, Craig used the 4/9 model for pay, but showed his coaches the dollar amount instead of the ratio.
- Finally, he told them he working with a professional mentor, and paying for help that would benefit the coaches.
The coaches, of course, were excited! Here it was: a clear path to a career doing what they loved!
Both coaches immediately thanked Craig and said, “What do you need from me?”
Craig then explained that the 70/30 split on personal training revenue was actually doing them a disservice; that he could afford to send them more clients at the new rate; and that he would raise the Personal Training hourly rate as part of the solution. He also changed from selling packages to selling monthly PT sessions, so each coach had a more predictable income.
[Sidebar: here’s the math Craig used.
Since the trainers were left to establish their own rates for PT, both were undercharging, and one was significantly worse than the other.
Trainer 1 – $50 per hour, 70% split = $35 net.
Trainer 2 – $65 per hour, 70% split = $45.50 net.
When Craig moved the PT service back under his gym’s umbrella, he set the rate at $75 for all clients.
Trainer 1 – $75 per hour, 4/9 of gross =
Trainer 1 now made $33.33 per PT hour, but immediately saw net growth, because she got more clients. She also had the new opportunity to run a Kids’ program on the 4/9 model, and with 8 in the program, she’d earn $58.66 per hour for those sessions. Those were the numbers on her Career Roadmap, so she was thrilled to make the change.]
Trainer 2 had more clients than Trainer 1, and saw the move as a step backward. “Why would I keep doing the same work for less pay? Those are MY clients!”
Craig could have argued to make his case, but instead conceded that the first agreement was really his mistake. He referred to the Career Roadmap again, but agreed to allow Trainer 2 to keep 70% of personal training revenue from his current clients as long as they kept paying. If they didn’t sign up for the recurring PT membership, or took a break after their package ended, they were no longer part of the 70% agreement. Craig knew that, over time, every client would eventually be trained under the 4/9 model. Trainer 2 accepted this as reasonable.
The final change Craig had to make involved payment. Trainers were used to accepting large payments from their clients up-front. Craig switched to payment-upon-delivery: the client would still pay up front monthly, but the Trainer would be paid after each session was delivered. Craig explained the taxation benefits to the Trainers, as well as the intent: Trainers would no longer have to chase clients for payment, or to use up their packages. They would no longer have to feel guilty about cancelling sessions when sick or when they wanted to take a vacation, either.
Change is hard. But Craig did a great job of showing his Trainers that he cared about them; had their long-term goals in mind; and that he would actively work to help them, instead of leaving them to fend for themselves. And then he proved it: he went out and immediately got them clients. Now all three are happier than they were before.
Further reading for gym owners: Channel Conflict: Who “Owns” A Client?