Personal Training and Economic Incentives.
November 26, 2008 – 1:13 pmThere have been a few questions on my mind as I continue to work on establishing our personal training and coaching business. The questions result from two philosophies that influence our industry:
1. Economic Cost correlated to Personal Reward
2. Behavioral Choices correlated to Economic Cost
As you can imagine, the current economic climate is starting to make some trainers wonder if their clients will begin to cut back on the amount of sessions per week they exercise in the studio. I do not believe that we have seen that occur yet (at least not for Nikki and I), but the fear is still there.
Here in Lexington, Kentucky, I wonder if the same can be said for all the trainers that are joining the profession on a full-time basis. The personal training climate has definitely been changing over the last 3 years. When we made the decision to move back to Lexington (July ‘05), we knew that we wanted to start our own training business. At the time there were a limited number of private training studios, a large population in need of exercise, fitness and health services and a robust demographic that could afford regular training sessions. The only change that we have seen in that equation over the three years has been an implosion of trainers and training facilities. In late 2006 through 2007, we saw a new studio start up about every-other-month, not including the influx of 24hour low-cost facilities that has happened. I wonder if those new-to-market facilities and professionals are thriving?
Let me address the delimma I’ve see in Personal Training in regards to a clients economic decision:
In most personal training businesses there are two models of selling your service:
a. You sell “packages” of training sessions to clients. This could be a package of 6,8 or 20 sessions; often the package is discounted to some degree based on the number of sessions bought.
b. You bill the client for their training session once they have completed the session. This can be set up like a massage session where you collect immediately after the service, or you can bill a client on a monthly basis.
We personally use a model where we bill our current clients at the end of each month based upon the number of workouts they completed. This model has worked out well for us. It took me a little time to buy into the concept of this model when we began using it, but after working in this manner for almost three years and having used the other models in past situations, I believe that it is the best methodology for both the client and the trainer.
Despite our success with this model, there are some behavioral choice and economic disincintives by using either of these models. Why?
1. The client is often seeking a trainer for one of several reasons: education, expertise, support, accountability and motivation. At first the cost of a session may be worth the education and expertise, but there comes a time when the client has to decide if they have more to learn - or have they learned all they can from the trainer and want to find other ways to motivate and hold themselves accountable?
This is where I believe we have made our business a success. We offer value to the lives of our clients because of the quality of service we can offer them. Ultimately, we’ve found a group of people that believe in us as their “guides along their health and wellness journey”.
2. Even for those that have chosen us as their “guides” it still presents an economic delimma prior to each workout. Is this workout worth the effort and $50 or can I skip tomorrow’s session and live with Gary’s speeches and diatribes (we do require 24 hour notice when possible).
As you can see our economic incentives are turned around, we are punishing our clients (economically) by charging them for the behavior that we are trying to implement into their lifestyle (exercise). If you have ever read the book, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything
So here’s the delimma that we are faced with:
1. The client needs to exercise in order to improve health, body composition, emotional well-being, strength, functional strength, rehabilitation, etc.
2. The client would like to use a trainer with experience and expertise on the subject (and preferrably with a good personality too)
3. The client often does not have the intrinsic motivation to perform the workouts on their own over a long period of time, in a consistent manner.
4. Personal Trainers make a living by charging a person (client) for a workout that the client may not be highly motivated to take on in the first place.
Can this situation be reversed?
Not to long ago I read a post by Brad Feld that talked about anti-charities. The idea behind an anti-charity is that you set a goal and set a dollar amount to contribute to a charity. If you DO NOT meet your goal, the money goes to that charity. Great - you may be thinking, I like to contribute to charities so I win both ways. Wrong! The idea is that you choose a charity that you are opposed to. So, I could choose something like the University of Colorado Athletic Booster Fund. As a born and bred Nebraskan that graduated from the University of Nebraska - Lincoln and lives for college football season, it would destroy me to write a check out to the University of Colorado.
So my incentive is now on two different levels:
1. I want to make my goal (whatever that may be) so that I can improve my life and situation.
2. I want to make my goal so that I don’t have to face the negative consequence of helping out the Buffalo’s.
Can this be applied to a personal training model?
I believe it can, but we have to remember all parties involved and the motivation that each one has. Here are my initial thoughts:
a. Set a goal with a client. For this example, let’s say that this goal is to strength train in the studio 2x a week with the trainer. That would be 8 sessions for the month @ $50 a session = $400.
b. Because this amount of financial cost is normal for that amount of service, decide on an appropriate amount of money that would cause some level of economic “hardship”. For this example I’ll use a 50% premium:
$400 x 50% = $200 (penalty) + $400 (cost of service) = $600 total amount for contract
c. Determine an agreed upon amount of money to “refund” for each behavior you want to reward (strength train at the studio in this scenario). For this example I’ll use $28 per workout:
$28 x 8 = $224 (potential reward)
So if the client accomplishes the goal of working out 8x during that month, they will have paid $376 for those 8 sessions. That would have saved them $24 based upon normal rates, but would have saved them the $224 based upon the initial contract.
“But wait,” you are saying. The trainer now has motivation to not encourage the client to come in and workout. On paper that may appear to be the case, but in reality it doesn’t work that way.
For instance, in normal times I have a cancellation rate of approximately 20%. (This week is Thanksgiving and I’m looking at 50% of my normal schedule). So given a normal situation 0f 20%, I could expect at least 1 cancellation out of those 8 sessions.
7 x $50 = $350. $350 is less than the $376 that the trainer would make if the client earned back all of their “incentives”
Final thoughts on Economic Incentives, Personal Training and Behavior:
These are just my initial thoughts on the subject, but they have been mulling around in my head quite a bit lately. It seems strange that as trainers, our business model exists by charging people money to do something that they initially (or ultimately) don’t want to do unless they have some type of outside motivation: doctor’s orders, social pressure, spouse’s pressure, etc.
For some clients, the appointment alone is enough motivation to initate and adopt the behavior of exercise. But for some it is not. This is at least one way that I have thought of to try and use basic economic principles of behavior to try and motivate both the client and the trainer. It appears that both can come out ahead, because keep in mind - the behavior of exercise does have some value to the client or they would not be seeking a trainer in the first place!
Why not just ask for the money in a package deal up front?
This is one model that I mentioned above that may appear to address the issue. The client pays for the package; therefore the economic cost is already felt and the trainer and client can just begin their work without worrying about the cost per session.
That may appear to be the case, but from a purely economic perspective once the check has been written the economic incentive to determine behavior is gone. As a client the economic hardship has been felt at the onset therefore there is no incentive to attend the workouts 3 weeks down-the-line; as the trainer when you get the money upfront, why would you be economically motivated to have the client show up - you’ve been paid?
The Last Word:
These are economic principles we are talking about - because as I mentioned, there are other motivators that are present for both the client and trainer that are not purely economic:
client: health, wellness, social
trainer: profession, character, reputation
But with everyone thinking in economic terms these days, I thought it might be time for personal trainers and coaches to begin looking at their business models and asking, “Does this make economic sense?”
