Sweaty January and how gyms make money

Dan Davies
Jan 12, 2015 · 5 min read

SWEATY BETTY

Having seen the books of a gym chain or two, we can tell you that the ‘Sweaty January’ phenomenon is not an urban myth or a joke — it’s absolutely fundamental to the economics of the industry and it’s basically impossible to run an economically viable gym without taking it into account. Usually about 75 per cent of all gym memberships are taken out in the month of January. Not only this, but the economics of the industry absolutely depend on the fact that a very great proportion of January joiners will not visit more than three or four times in total before their membership comes to a floundering flop of weight not lost at the end of the year. The founder of Colman’s Mustard used to claim that his fortune was based on the bit of mustard that everyone left behind on their plate, but gym memberships have really pushed things to the limit when it comes to this model of making people pay for a lot more of the product than they have any likelihood of using.

LIFE FOR RENT

And that commercial pressure is, basically, rent. A gymnasium is a high-fixed-cost business and the driver of those high fixed costs is the fact that a gym customer needs quite a bit more space compared to the retail customers in the rest of the high street, has significantly more exacting needs on the specification of that space and tends to occupy it for longer. Think about it this way: Make a mental picture of your local supermarket, or a smallish department store or clothes shop, at a reasonably busy period. Now make another mental picture of your local gym at an equally busy period and let’s start comparing them. We can note that:

  1. Now consider that the gym customers, unlike the customers of cafes or supermarkets, expect to be able to store their clothes while they’re on the premises and to take a shower afterwards. So, for every square foot of space occupied in your mental picture of the gym, you need to allocate some changing-room space for every customer too. This probably needs to be gender-segregated too (most attempts to break this taboo have failed pretty disastrously), further increasing the amount of space you need.
  2. Now here comes the real killer — the people in the gym are likely to be staying for at least an hour per visit, while the majority of the people in the shop will wander in, buy something and leave over a period of no more than twenty minutes. The footfall has to be measured on a per hour basis, and, on this basis, gymnasia are amazingly inefficient in terms of the usage of space.

WHEN FIXED COSTS MEET FIXED BUDGET

In terms of the fundamental equation of retailing (revenue = footfall x purchases per visit x average ticket size), gyms have pretty lousy footfall built into the business model, but excellent conversion percentage; more or less by definition, everyone occupying the space is paying to do so and thereby making a purchase. But they are so inefficient in terms of generating the customer turnover that it’s really difficult to make the fixed cost economics work, because the amount you’d need to charge per ‘sale’ would end up being beyond the means of most of the users. Unless … unless you could push the purchases per visit much higher than 100 per cent, by having people paying for the gymnasium services while not actually using them. Hence, Sweaty January. Here you have customers paying upfront, but turning up only once, twice, perhaps four times in total during the year. They then either, realistically, conclude that they have given enough free money to the gym, that gym membership is not for them, and don’t renew. Or the gym owner’s dream, they repeat to fade every year — joining each January with good intentions, and never turning up beyond each mid- March, until expanding waistlines and increasing guilt hold sway each coming Christmas time and they renew.

Bull Market

A collection of finance and business writing by @alexisgoldstein, @delong, @dsquareddigest, @DuncanWeldon, @felixsalmon, @jamesykwak, @Mark__Buchanan, @WhelanKarl

    Dan Davies

    Written by

    Senior Research Advisor, Frontline Analysts

    Bull Market

    A collection of finance and business writing by @alexisgoldstein, @delong, @dsquareddigest, @DuncanWeldon, @felixsalmon, @jamesykwak, @Mark__Buchanan, @WhelanKarl