Everyone deals with the retention issue differently. Some club owners choose to have a retention person on staff to stay in touch with members, invite them to functions and keep them using the club. Others choose to make retention a part of the salesperson's responsibility.
How do you decide which option works best for you? It's not an easy task, but it starts with looking at compensation.
Compensation for a dedicated retention staff position varies. The most typical way to compensate is an hourly wage or a salary. For example, you could pay this person$12 per hour, roughly $25,000 per year, plus whatever benefits you offer. To decide if this model is the best option, you must then calculate how many members this person must save in order to get a return on your investment. If your membership rate is $50 per month, or $600 per year, then this person needs to prevent 41 members from canceling just to pay for his or her position. This is an option for a lot of clubs.
However, incorporating retention into the job responsibilities of your sales staff might be a better option for some club owners. Let's say that your membership sales department is staffed with three people and they are just hitting sales goals. Chances are that the staff is unable to get anything else done and is not doing consistent, systematic retention or prospecting work. Therefore, the club is losing on the front end and the back end because the department is not structured to fully get and keep members. This is a common mode of operation.
However, if you instead staff your sales department with four people and each of them produces 28 new membership sales per month, the club would be ahead on new sales by 12 more each month. Because you have an additional membership person, the selling schedule would have better coverage, and sales staff could put in time on retention work and prospecting. With this model, the club would increase membership from a new sales perspective and also improve retention because the sales staff could focus on maintaining relationships with all of the members they signed up.
Some club operators hesitate on this option because it means adding more payroll, and sales staff may hesitate because it means decreasing the size of the pie when it comes to prospects. But this is false thinking. When you have four membership sales reps rather than three, their focus expands from simply getting members to getting and keeping members.
Of course, this means compensation also needs to change to add incentives for keeping members. Let's say that every month you give each sales rep 75 cents for each membership they sold if that member is retained. This will continue to build month after month. As a club operator, you will have the ability to keep good sales staff longer because they have a pool of income that continues for as long as their members stay.
By structuring this arrangement well, you can alleviate concerns about promoting lazy salespeople. Simply tie the retention payment to new sales goals. In other words, reps that hit 100 percent of their new sales goal receive 100 percent of their retention commissions. If they do not hit 100 percent of their sales goal, they get a smaller percentage of the retention commissions. The focus always has to be on getting and keeping members. Bookkeeping for this system may seem like a headache, but it's a simple payroll procedure.
This model does not have to be expensive. You would still pay a base salary, commission and bonuses, but the amounts you pay for each could decrease because you are adding another compensation element — the retention commission. However you choose to arrange it, make sure that the sales staff is not going to lose compensation. Ideally, they make the same, if not more, and the club also increases revenue. Membership sales payroll can increase with this plan, but it does not have to. If it does increase, what you have to consider is the increase as a percentage of revenue or how much the revenue has increased. (See the sidebar below for a comparison of three versus four sales representatives and a sample of retention commissions for a membership sales rep.)
The retention effort is a team effort. I typically find that staff members in most clubs are not aware of that fact and do not understand the bigger picture. Instead, they see themselves as responsible for one job or task in the club. All staff members need to know how they affect retention and how to act daily to improve retention.
Next Page: Sidebar: Comparison of Three Reps to Four Reps
Let’s compare the cost of three membership sales representatives who focus on getting memberships versus four reps who focus on getting and retaining members.
(Assuming $50 per month membership dues, a $100 joining fee and each rep selling 33 memberships per month.)
Base salary of $1,500 per month x 3 representatives x 12 months = $54,000 in annual salaries
100 sales per month x $50 commission x 12 months = $60,000 in annual commissions
$250 monthly bonus x 3 x 12 = $9,000 in annual commissions
Total membership sales payroll expense (not including benefits, taxes, etc.) = $123,000 annually
Total Membership Dues: 1,200 members x $600 dues for the year = $720,000
Total Joining Fees: 1,200 x $100 = $120,000
Total New Membership Revenue: $720,000 in dues + $120,000 in joining fees = $840,000
Because the focus of this scenario is more on getting than keeping members, let’s say the club has an attrition rate of 25 percent. With that assumption, 100 memberships sold per month would equal 1,200 for the year. A 25 percent attrition rate would equal 300 memberships. (That is just the attrition on what has been sold during that year and does not take into consideration the current membership base.) If 300 members left, the future revenue lost would be 300 x $50 (monthly dues) x 12 = $180,000. That does not consider other ancillary sources of revenue that those members would have purchased if they had remained members. Thus, the loss probably is much larger than $180,000.
(Using the same assumptions on membership pricing, but the membership sales reps sell 28 memberships per month instead of 33 and they get 75 cents for each membership they sold and retained.)
Base salary of $1,300 per month x 4 representatives x 12 months = $62,400 in salaries annually
112 sales per month x $50 commission x 12 months = $67,200 in commissions annually
$250 monthly bonus x 4 x 12 = $12,000 in bonuses annually
$3,024 annual retention bonus x 4 = $12,096 in annual retention bonuses
Total retention commissions paid during the first year equal $1,386. (See the Sample of Retention Commissions chart below to see how I arrived at this number by adding up the commission for each month.) However, the total commissions from all the memberships sold after each membership has run 12 months would equal $3,024 assuming no cancellations, so that is how the $3,024 in annual retention bonus is figured in the equation above.
This example only accounts for the new memberships sold in one year but does not account for potential growth in successive years and does not take into account any other current members that may be assigned to the representatives.
Sample of Retention Commissions for Membership Sales Staff
(Assuming an average of 28 memberships are sold per month from January through December and no cancellations occur)
J commission paid in Feb
F $21 Jan commission
M $42 Jan and Feb commission
A $63 Jan, Feb, March commission
M $84 Jan, Feb, Mar, Apr commission
J $105 Jan, Feb, Mar, Apr, May commission
J $126 Jan, Feb, Mar, Apr, May, Jun commission
A $147 Jan, Feb, Mar, Apr, May, Jun, Jul commission
S $168 Jan, Feb, Mar, Apr, May, Jun, Jul, Aug commission
O $189 Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep commission
N $210 Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct Commission
D $231 Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct, Nov commission
December commission is paid in January when the commission model starts the new year with members who have stayed. In year two, the commissions start to grow further and it becomes more attractive for membership sales staff to stay. Direct correlations can be made to longevity of staff and members.
Based on the equations above, you can figure the following:
Total membership sales payroll expense (not including benefits, taxes, etc.) = $153,696
Total Membership Dues: 1,344 memberships sold for the year x $600 = $806,400
Total Joining Fees: 1,344 x $100 = $134,400
Total New Membership Revenue = $940,800
How the Two Scenarios Compare
The first scenario in which you have three sales reps focused on getting members, the total annual new membership revenue equals $840,000, with membership payroll expense equaling approximately $123,000. That would leave the club with a net of $717,000.
In the second scenario in which the focus is more on getting and keeping members, total annual new membership revenue equals $940,800 with membership payroll expense equaling approximately $153,696. That would leave the club with a net of $787,104. This scenario puts the club ahead by $70,104. Not a huge amount, but nevertheless, farther ahead.
Here is where this model jumps even further in revenue. Let’s assume that the club had a 25 percent attrition rate, and through this model and structure of operation, the club decreases attrition annually by 3 percent in the first year to 22 percent. Using the same model as above for attrition, the club would lose 264 members as opposed to 300 members and add an additional $21,600 to the bottom line. If you consider those rough numbers, this model puts the club ahead by $91,704 in the first year. The better news is that that revenue number will keep growing assuming consistency in membership sales and member satisfaction.
Karen Woodard-Chavez is president of Premium Performance Training in Boulder, CO, and Ixtapa, Mexico. She has owned and operated clubs since 1985 and now consults with and trains club staff members throughout the world.