While the topic of contracts may not be the sexiest topic regarding increasing member retention, it is the one I get asked the most questions about.
The real question should not be if you should have contracts or not but, what do you mean when you say contracts and what type of contracts you should have?
So lets tackle first things first. If you say contract do you mean a contract, a binding legal agreement that you will enforce in order to recover your lost income should the member fail to pay. Or do you mean agreement where you hope, would like or encourage them to make twelve payments over a year and if they don’t you will have some interaction with them, try to recover some of the money they agreed to pay, but didn’t, and eventually let them go, because you are uncomfortable with the possible negative publicity if this end up in court or in the local papers.
The recent White Report of 342,759 members has once again illustrated that members who take out contracts stay longer than members who buy memberships on a month-by-month basis.
What is noticeable is that in the 2002 and 2008 studies there was a much wider range of contract lengths. We had 1 month 3 month 6 month 12 month, 12 month plus extra month/s 18 month and 24 month contracts. In the table below we can see that almost half of memberships sold are now on a month-by-month with no fixed length of agreement and a third as 12-month contracts/agreements.
What we do know is that private operators are appear to be much more confident at selling longer contracts than the public sector. They also appear more willing to enforce contracts, where as the public sector are more likely to treat them as agreements.
I not suggesting one is right and the other wrong I just think the public and private sectors have different approaches to selling members and that does impact on how long members stay.
So why do members who buy into contracted periods stay for longer. From a psychological point of view it is to do with the area of consistency. Once we publicly make a decision to do something our brain looks for ways to make that consistent. So if we make a comment about a behaviour, “I always think like that” then our brain looks for ways to make that the truth. When members commit to contracted period then the brain seeks ways to commit to that. Because the member has to do little to change behaviour for that to stay true, just keep paying , it has a big enough effect on the payment process, that members will continue to pay even if they don’t attend. This may also be supported by the individual’s belief that they will at some point become a committed exerciser.
Much in the same way you would commit to a mobile phone contract, unless the phone stops working you commit to pay for an agreed length of time and only look to change phones if, your phone doesn’t work or you are at the end of the contracted period.
When you choose to introduce a contracted period make sure that if you discount it, that you do not end up receiving less money than you would if they had no contract. This can be calculated by identifying the median length of stay for non-contracted members, identifying the revenue total is from them and calculating how much you need to charge to at least make the same amount.