Value vs. ROI – Or, Why Do Some #IndoorCycling Studios Charge $30+ per class?

Background

We’ve often heard that some national indoor cycling studio chains charge upwards of $34 per class, in addition to shoe rental fees, expensive water bottles and very strict cancelation policies. The markets that bear such prices are typically those located in the East Coast, namely New York City, Washington DC and Boston, and in the West Coast, namely Los Angeles, San Francisco and Seattle. There are a variety of reasons why such fees may be “reasonable” for these markets, not only because “they can” but due to: high cost of rent, high cost of living, higher instructor costs, higher insurance and higher advertising/marketing costs. The population in these markets (in the millions of people) includes a segment that not only can afford such prices but sustains the business model and perpetuates the brand. Unlike other markets in other areas or states, what makes these so called high prices acceptable is a combination of two critical factors: Value & ROI (return on investment: studio ROI & student ROI).

Perceived Value vs. Actual Value

During my work within the wine industry, I met wine makers and winery managers who would charge for a wine tasting. On the other hand, several similar sized wineries would offer a free tasting. During the busiest time on weekends, busloads of visitors would descend down on the wineries. For those that offered free tastings, out of 100 visitors, only about 5 would actually buy the wine they tasted. In the meantime, that winery has incurred the cost of all the tastings and the associated back office costs such as washing hundreds of glasses daily. For the wineries that charged for tasting, although a fewer number of visitors would stop by, more than half of those who paid for the tasting ended up buying the wine. The same visitors also felt less rushed, took more time to learn about the wine, understood the value of what makes this wine higher in price, learned about the wine maker’s story, were treated individually (not as a group) and there was an overall sense of exclusivity, a one to one connection.

The lesson of this story hinges on “value”. Is your product valuable? Value – Able. Is it able to generate value for you or is that value WDGL-1diminished (or even lost) such as during a free wine tasting? While I understand the advantages of offering “free” or low priced services/products, there is the hidden loss to its value that is often unaccounted for.

So if an indoor cycling studio charges $34 per class, $5 to rent shoes and $3 for a water bottle and there are people who pay that much, then they (the riders) have defined the actual value of the experience. The perceived value is what the studio owner (or winery owner) believes to be the fair price for the work they have put in to create the product/brand/studio/winery. An affirmation of this perception is the realization of actual value when people hand over their credit cards or cash to pay for class/product.

An indoor cycling studio is in business to provide a service and….to make money

For studio owners and riders alike, there has to be a balance between the services provided and the fees charged for them. More importantly, the actual costs are directly related to a proven business model in the service industry: what is the value placed on the service and how much is the perceived ROI (return on investment). To help you better understand this, I have developed the Value vs. ROI quadrants seen below (click image to enlarge):

ROI

 

In the quadrants above, I mention the “personal ROI” which directly correlates to the student’s perceived notion of benefits achieved from indoor cycling classes. For those studios with name brand recognition, a higher price is almost always associated with a matching high personal ROI due to the sense of exclusivity and belonging to a workout environment where like-minded individuals participate.

For example:

1. In NYC, Boston, Washington DC and Los Angeles, a $30+ per class is the norm. With that comes a higher ROI for the student (personal ROI) and a higher ROI% for the studio owners.

2. In other markets, a $15-$25 per class is the norm. With that comes a higher ROI for the student, albeit at a somewhat lower ROI% for the studio owners. However, the lower cost of living, insurance rents and back office costs make up for the shortfall in the studio ROI %.

Summary

The value you perceive or place on your services as an indoor cycling studio is what defines your ROI%. The student ROI (or personal ROI) is what converts perceived value into actual value. Remember that there is the non-tangible ROI which is generated through word of mouth and social media interaction (from students on Facebook, Instagram, Twitter, etc.). That is also “value-able” and is extremely important in furthering you mission and ensuring continued success.

#RideOn

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