Paid in Full: The Risks of Cashout Memberships

Membership pricing structures are a necessity for membership-based businesses such as martial arts schools. Various pricing strategies can be employed, in order to help spur new memberships: drop-in, monthly, semi-annual and annual memberships are commonly found and each type has its own pros and cons.

Cashout memberships are when members pre-pay for a long-term membership, usually for the reason of getting a better deal, for putting up all of the money upfront. One of the advantages of cashout memberships is the guarantee that a member will stay that length of time; however, pre-paying can also decrease long-term motivation and could mean potential cash flow issues. Here are some of the risks and benefits of cashout memberships at your martial arts school.


Pricing and Promotion Structures

Different types of schools may have similar pricing structures, with some nuances. More casual or fitness-focused martial arts schools may have a variety of drop-in options, whereas a more traditional martial arts school may not even allow drop-ins. Promotions can bring on changes to your regular pricing schedule as well. Most schools provide the best value on long-term memberships, with per-day cost being lower, the longer the membership. Drop-in options are going to be the least value-driven and annual memberships tend to be the best in value.

Taking a closer look at long-term – or cashout – memberships, we see an advantage for the consumer for saving money, with the disadvantage of having to pay the lump sum upfront. For the martial arts school, the advantages are the guarantee of their membership throughout the duration of the contract and a relatively big sum of money being injected into the revenue stream. The disadvantage is that, without good cash flow management, having too many payments come in at unexpected times can strain your capital in the long term. Additionally, it can have other side effects on your students’ motivation levels.


Find your Flow

Cash flow is a difficult point for most first-time business owners or managers. People frequently underestimate the need for an adequate amount of capital or credit that is required for running a business, especially for membership-based businesses. Due to natural patterns, most businesses will experience busy seasons where they’ll have a large amount of revenue, interspersed with slow seasons. For schools that have a strong emphasis on children’s programs, these seasonal patterns are often more intense.

Business owners, especially new ones, may make the mistake of being too optimistic in their projections, due to a good season or year. Keep in mind that, if a student pays for a year, it prevents you from being able to receive any more membership revenue from that student for a year. Keeping organized and on track of your cash flow will prevent you from running out of funds at any point, keeping your business stable. This article on cash flow management from Inc gives a good overview.


Managing Motivations

Some students who pay a large amount —for example, $1,800 — in one lump sum might start to lose motivation, as the memory and feelings of that payment fade and time passes. According to the Harvard Business Review, someone who pays monthly is more likely to stay motivated. While this doesn’t account for students who are intrinsically motivated by their martial arts journey, it’s a good reminder as to the importance of this type of motivation.

If you find that too many students are losing motivation halfway through their cashout memberships, it might be a good idea to only make that available to your lifelong students, as a loyalty discount for those that show up year after year. You can also make a note of cashout students in your martial arts management software, notifying you when these students check-in, so your instructors can check in once in a while and make a note that can help build their intrinsic motivation over time.

What are your experiences with long-term cashout memberships? Let us know on our Facebook and follow us on Twitter and Google+, to stay up to date with all of your ChampionsWay news.