Planet Fitness, Inc., the fastest-growing fitness club in the world, is making wellness Affordable and Accessible. Every entrepreneur can expand their market by applying the Planet Fitness formula to their own wellness product or service.

 

In just a few short years, Planet Fitness has grown to 350 franchised locations, $500 million annual sales, and 2.3 million active members—with 2,000 locations and 10 million members just around the corner. Here’s how they are doing it! 

The Wellness Revolution has come a long way since I first began following wellness in the 1990s. Industry sales have risen from $200 billion in 2002 to approximately $700 billion today, and are on target to reach my 2002 projection of a $1 trillion wellness industry in 2012.

 

However, one of the trends that I projected in 2002 is not happening at the pace I would have hoped. Wellness is not rapidly becoming more affordable and accessible to the mass market.

 

Wellness products and services have not become more affordable because most wellness providers haven’t seen the need to lower their prices. Why fix something that isn’t broken? The demand for wellness has soared, mostly from existing customers. Aging, upscale baby boomers keep buying more new wellness products and services. Billion-dollar wellness brands like SILK! soymilk and Nutralite vitamins have thrived right through the toughest economic times in recent history.

 

Equally sad, wellness has not become more accessible to the mass market. Not only is wellness still expensive, healthier foods and better exercise options are generally only available in middle-to-upscale neighborhoods and/or with a chic lifestyle. Many ordinary consumers feel intimidated by the wellness movement. This is causing the U.S. to continue to bifurcate into a “have” and “have not” wellness society.

 

In 1845, Benjamin Disraeli, the future prime minister of England, warned of the danger of his country disintegrating into “two nations divided by great want as though they were dwellers in different zones or inhabitants of different planets.”

 

While Disraeli was speaking about economics, this bifurcation is now true in the United States based on wellness. Today, in the United States we have largely replaced race, gender and country of origin discrimination with a new type of discrimination based on your health, and particularly your waistline.

 

The total numbers are staggering. Although obesity has risen to the number one issue in the media and is even the subject of popular television shows, the percentage of overweight Americans has continued to rise. The percentage of Americans currently overweight or obese has risen from 61% in 2002 to 68% in 2008—that’s 21 million (7%) more Americans not living their lives to their fullest potential due to a lack of wellness.

 

Fortunately, there are bright spots in the wellness industry dedicated to making wellness more affordable, and more accessible, to the 206 million (68%) overweight Americans who so desperately need wellness. One of these bright spots is Planet Fitness, Inc., the fastest growing fitness club chain in the world.

 

Planet Fitness – Making Wellness Affordable at $10/month

 

The first thing you notice about Planet Fitness is the price: $10 a month. While other fitness clubs typically charge $30 to $80 a month for membership, anyone can join Planet Fitness for $10 a month. At that’s a true $10—no contracts (cancel anytime without charge), no gimmicks, and not a loss-leader to get you in the door to sell you something else. The price is $10/month with no contract at all locations—including downtown Manhattan and Los Angeles.

 

I was skeptical when I first heard about Planet Fitness. They had invited me to speak at their annual convention of franchisees. How could they run a profitable business at $10/month when their competitors charged 3 to 8 times as much?

 

I quickly learned that Planet Fitness had re-engineered hundreds of processes and costs related to managing a fitness club franchise location, and in doing so has probably re-engineered the future of the retail franchise industry itself.

 

For example, one re-engineered item is how each Planet Fitness store franchisee collects and processes revenue. Customers are required to have a checking account, debit card, or credit card—revenues are collected via EFT (Electronic Funds Transfer) daily by the home office and instantly credited to the franchisees sub-accounts on a website. This not only saves millions in bank fees and shrinkage, it frees the franchisees from hiring expensive bookkeepers and accountants. Planet Fitness told me that its average monthly overhead per location is $15,000 below the industry average, partly due to its innovative financial controls.

 

With headquarters managing the cash and applying sophisticated marketing and management tools to each franchisee’s business, franchisees end up concentrating on their customers versus their back office. When’s the last time you asked to see the manager of your gym and found him out on the selling floor or working with members, versus back in his office looking at numbers?

 

Since becoming familiar with Planet Fitness, each time I enter a Subway restaurant or any other franchised business, I keep thinking of how much work they probably have to do in bookkeeping and re-stocking after each transaction—and how much they could save if each franchisee had its complete financials and parts of its operations managed by corporate headquarters via technology.

 

Franchising began in the middle ages as a way to expand your business to far away locations. It was greatly improved upon by franchise pioneers like Albert Singer (Singer Sewing Machines, 1851), Colonel Harland Sanders (Kentucky Fried Chicken, 1930), and Ray Kroc (McDonald’s, 1954). But, little has changed the past few decades in retail franchising, especially in the traditional fitness club franchise business which began in the 1950s with Jack LaLanne and Vic Tanny.

 

Since 2001, a web-based revolution in real-time communication and online marketing techniques has made overnight billionaires of the founders of Facebook, MySpace, and Google. Few of these innovations and techniques, however, have migrated to the traditional franchise business model that dominates the American retail landscape. Great fortunes today await those retail entrepreneurs, like the owners of Planet Fitness franchises, who get there first. According to the company’s  website, the average Planet Fitness franchisee earns $546,000/year in profit versus an industry average of about $110,000/year.  

 

Planet Fitness – Making Wellness Accessible by Making First-Time Wellness Customers Comfortable

 

In a 2008 cover story in Club Business International magazine, I explained,

 

“Health clubs have done a good job of building out distribution—but they’ve done a terrible job of turning those who need their services the most into customers. They’re preaching to the choir—sitting back and waiting for prospects to walk through the door. Operators need to reach out to individuals who never in their life have stepped foot inside a club and make them feel welcome. Just look at the outreach that some of the mega-churches are doing—offering prime parking and seating to first-time visitors; they make them feel very welcome. Clubs need to create new demand—particularly given the current obesity crisis.

Paul Zane Pilzer, Club Business International, May 2008

 

Planet Fitness has done an outstanding  job creating new wellness customers by:

1.   Creating a Judgment Free Zone

2.   Driving away undesirable customers

3.   Best Business Practices 

 

1.   The Judgment Free Zone – The second thing you notice about Planet Fitness (after the price) are the large signs in each location proclaiming “Judgment Free Zone” or JFZ. This is what separates Planet Fitness from other gyms. Everything from the training of personnel to the equipment itself is tailored to make the first-time gym user feel extremely comfortable. They have to—since members sign no contracts and are free to quit anytime. Managers conduct free classes every morning showing members how to use the equipment, and instructional videos pervade the gym.

2.   Driving away undesirable customers - In order to make first-time gym members feel most comfortable, Planet Fitness makes a special attempt to drive away bodybuilders, power lifters and other extreme fitness enthusiasts—the traditional customers of most gyms. Planet Fitness does this by limiting the available weight amounts and having a “Lunk Alarm” siren with a spinning light that sounds when a customer drops a weight, does unapproved lifts, or judges someone else. The company has had lawsuits from former customers whose memberships were terminated after continually setting off the Lunk Alarm. Funny videos abound on YouTube of the Lunk Alarm going off. A lunk is someone who is “slamming his weights, wearing a body building tank top, and drinking out of a gallon water jug."

3.   Best Business Practices - Most American consumers have had a bad experience with the business practices of a fitness club. It’s obvious why—the algorithm for success at some gyms is to sign up as many members as possible under long-term contracts, and then hope they never show up at the gym. The Planet Fitness model is exactly the opposite: Customers pay $10/month with no contract and can cancel anytime. This makes the goal of each Planet Fitness manager to make sure that: (a) customers continually use the gym; (b) members always have a comfortable experience; and (c) concerns are always resolved to the customer’s satisfaction.

Ever since Ponce De Leon discovered Florida while searching for the Fountain of Youth, the efficacy of wellness products and services has been in doubt by most consumers. Now that technology has finally yielded real efficacious wellness solutions like diet supplementation and exercise, it’s important that all wellness suppliers adopt fair, honest best business practices. It’s hard enough to teach consumers the true benefits of wellness without having dubious business practices such as asking customers for a financial commitment that is not tied to their results.

Although the economy is recovering and salaries for top-earners are rising, long-term unemployment is soaring. This bifurcation in the labor market is also happening in the “first job market” for newly-minted college graduates.

 

Please share this with your friends who are in college.

 

It’s college graduation season again. Last year, at the height of the recession, I was hoping to hire some top new college graduates at a bargain price. As explained in my blog entry on The Class of 2009, I was surprised to find that salaries for the very top college graduates actually rose at the height of the worst recession since The Great Depression.

 

While most students couldn’t find any first job, the demand for the very top students—those with both great writing skills and great technical (e.g., HTML, Web design) skills—soared as companies sought to cut costs and increase productivity.

 

Prior to 2009, a Fortune 500 company might have needed 1,000 newly-minted college graduates each year to fill entry-level positions in sales and customer service. Today, thanks to the Internet, SMS texting, and automated call centers, this same company might only need 105 newly-minted college graduates for such positions: 100 "normal" graduates for traditional positions, plus 5 superstar top graduates to design the systems and to write text for the websites, the SMS texting programs, and scripts for the call centers.

 

In today’s technological world, top college graduates are not worth twice the price of an average student—they are worth ten times the price.

 

Top new college graduates are now getting multiple job offers at starting salaries of $60,000-$120,000, while most students with average skills are being left out in the cold.

 

Last week I received an email from a college president asking: “When you hire a newly-minted college graduate, what do you most look for?

 

I answered: “Writing ability.” Most newly-minted college graduates lack good writing skills. Good writing requires clear, logical thinking a knowledge of grammar, and the ability to spell.

 

Sometimes, in the middle of a job interview with a student prospect, I ask the student to sit down at a computer (not connected to the Web) in the next room and write 300-600 words about our interview. Far too often, I am both shocked and dismayed to discover that  few of them can write a clear paragraph.

 

Good writing skills used to be what distinguished Ivy League graduates from the rest—because most Ivy League students came from prep schools that taught writing. This is no longer so.

 

Just last week a graduating senior from an Ivy League college blew an interview that I had set up for her because her email mixed homophones like “their” and “there” and contained misspelled words (which, apparently, were not corrected by her spell checker). 

 

Earlier this year I spent weeks helping a college senior get interviews with a top private equity firm. In the e-mail that the student sent to the firm’s senior partner confirming the initial interview he wrote “higher” instead of “hire.”After canceling the scheduled day of interviews, the partner sent me a note saying “this guy would get laughed out of here for writing like this.”

 

The real blame here is with the teachers. Students in cases like this have no idea why they are failing in the job market. They simply do not know what they don’t know about their own shortcomings.

 

Our nation needs to develop a post-bachelor’s, standardized writing test, to be administered to all U.S. graduating seniors and all job applicants. Such a test would enable employers to discern the qualified applicants, would enable students to discern their own shortcomings, and would help educators teach what they should be teaching to most help their students.

 

Future articles will continue to examine the opportunity for entrepreneurs, and explain what employers and employees should do now. Visit me on Facebook

On Thursday, March 25, the U.S. House of Representatives passed the H.R. 4872 (the "Reconciliation Bill"). This bill modified the Health Care Reform bill signed by President Obama on March 23 as noted in my previous blog posts. Regardless of my or your political opinion on Health Care Reform, it is now the law of the land.

The U.S. federal government effectively now:

 (1) Mandates that everyone get health insurance; and

 (2) Defines what is health insurance--what specific procedures, drugs, and treatments must be included in every health insurance policy.

If you are a medical provider today, or are considering becoming a medical or wellness provider, this could be the greatest entrepreneurial opportunity of your lifetime.  

Here's just one example. Beginning September 23, 2010, health insurance policies must cover with No Deductibles and No Copays (i.e. 100% free to the patient) preventative and wellness care. Just think what this one provision could mean to a manufacturer of breast cancer screening devices, or to a chain of medically-supervised weight loss clinics. You now have 300 million potential customers, at hundreds or thousands of dollars each, and each customer has 100% of their services paid for by their private or federal health insurance carrier.

The final details of what is, and is not, included in the list of mandatory free preventative services will be issued by the U.S. Department of Health and Human Services (HHS). But, just to whet your appetite, here is a list of thousands of preventative treatments ranging from obesity screening to smoking cessation programs that HHS could include on what must be covered.

I'll be writing more on this in the coming weeks. My next blog posting on Health Care Reform will be what employers and employees should do now regarding employer-sponsored health benefits.

"While I personally did not support President Obama on U.S. Health Care Reform, such reform is already proving very good for my business (Zane Benefits) and for many entrepreneurs in health care and wellness. I feel today like an arms manufacturer on December 7, 1941."
                                                                                         Paul Zane Pilzer, March 23, 2010

Note: Zane Benefits has posted a technical article summarizing the impact of health care reform on insurance agents, employers, and employees, including which changes take place in 2010, 2011, and 2014.

On March 23, 2010 President Obama signed into law H.R. 3590 - the Patient Protection and Affordable Care Act (the "Senate Bill") which mandates sweeping changes in U.S. health care and health insurance. The U.S. Senate is currently debating the Health Care and Education Reconciliation Act H.R. 4872 (the "Reconciliation Bill") which makes modifications to the Senate Bill as described herein.

Here's how this already-passed legislation will impact small (2-50), medium (51-200), and large (>200) size employers and their employees.

Changes in the Individual / Family ("Personal") Health Insurance Market
First and foremost, new insurance regulations prevent health insurers from denying coverage to individuals or charging more based on their health status or gender. These regulations also mandate that health plans provide a very generous list of services (i.e. a federal government formulary), cap annual out-of-pocket spending for participants, impose no annual or lifetime limits on coverage, and, beginning September 23, 2010, offer preventive (wellness) services with no copays or deductibles.

These new mandates, while laudable in their intent for consumers, will significantly increase the cost of health insurance (before federal subsidies) for the majority of U.S. taxpayers. If you are among the 25% of U.S. households earning more than $88,250 a year, your current cost for health care will potentially double. Below $88,250 a year in income, the new legislation caps your health care cost at 2% - 9.5% of your income for premiums and $0 - $5,950/person/year for out-of-pocket expenses.

The net effect of these federal subsidies for employers is that when you switch from group to personal policies the federal government is insuring that each of your employees can afford health insurance at widely varying cost based on their income.

Small Employers (2-50 employees)
Small employers in the U.S. employ more than 50% of American workers and are responsible for the overwhelming majority of new jobs. More than 55% of small employers today do not offer health insurance-because of cost. Both the Senate Bill and the Reconciliation Bill impose no penalties or mandates on small employers to offer health insurance. Congress seemed to recognize that any increase in employer mandates would cause small employers to hire less workers and/or substitute more technology for labor in the workplace.

Most importantly for this sector, health care reform is dramatically accelerating the switch of small employers from group to personal (individual or family) health insurance. While personal health insurance has grown from covering 12 million people in 2002 to 35 million people in 2009, the reason 45% of small employers still offer group plans is because, in 45 states, employees with pre-existing medical conditions were unable to obtain personal insurance.

This is no longer the case. Beginning 2014, insurance carriers must accept all applicants at the same price regardless of health status, and beginning 2010, there is a new federal "risk pool" to guarantee coverage to people who do not have health insurance and cannot medically qualify or are charged more for traditional medically-underwritten personal policies.

Moreover, recent federal legislation allows employers to pay for personal policies with pre-tax dollars, and new Treasury regulations allow employees to use pre-tax salary to reimburse themselves tax-free for personal policy premiums. These two changes have the practical effect of reducing by 20%-50% the after-tax cost of personal policies for employees and employers.

Thanks to health care reform, small employers with group plans in all states can now cancel their group plans and switch to giving each employee a pre-tax allowance to purchase their own personal policy-while being assured that all their employees can get and afford personal health insurance.

A company I founded, Zane Benefits, is the leading supplier of software administration platforms that allow employees to pay for their own personal health insurance with pre-tax employer and/or payroll-deducted funds. Thanks to health care reform, we have experienced a significant increase in business from employers (and their agents) seeking to switch employees from their group plan to personal policies, or at least offer employees the opportunity to save 20%-40% on health insurance by paying for their personal policies through pre-tax salary reductions.

Medium Employers (51-200 employees)
Medium-size employers were not as lucky as small employers when it comes to health care reform. For employers with 51-200 employees, the health care reform bill signed into law on March 23, 2010 mandates a $750 per employee annual penalty for employers that do not offer (and substantially pay for) health insurance. The Reconciliation Bill would raise this $750 per employee penalty to $2,000 per employee (less an exemption for the first 30 employees).

Most medium-size employers who currently do not offer health insurance will simply pay this penalty rather than increase their operating costs by approximately $10,000 per employee for health insurance. Medium-size employers who do currently offer health insurance face an expected doubling of their health insurance costs, from $5,000 to $10,000 per person per year, due to the new federal mandates on coverage.

This creates a choice for all medium-size employers of either paying the penalty or paying a much greater cost for health insurance. The penalty along with new health insurance mandates could have a devastating effect on new U.S. job creation and employment at a time our economy can least afford it. A $750-$2,000 per employee penalty, and/or a doubling of employer health insurance costs, will force many medium-size employers to move jobs overseas, create less new U.S. jobs, and/or substitute more technology for labor in the workplace.

Additionally, think about employers with 49-50 employees seeking to expand. The addition of a single employee could cause their company to incur a penalty of up to $100,000.

Large Employers (>200 employees)
Large employers fared the worst in health care reform. Those large employers who cannot  afford to offer health insurance face the same ($750-$2,000) per employee penalty as medium size employers. And those large employers who currently offer health insurance will face an expected doubling of their health care costs due to the new federal mandates on what must be covered and no lifetime limits on coverage.

Moreover, large employers are required to automatically enroll employees in their lowest cost health plan if the employee does not choose coverage or does not specifically opt out of coverage. For each employee who chooses to opt out of employer coverage, employers are charged a $3,000 annual fee up to a maximum penalty of $750 ($2,000 with the Reconciliation Bill) times their total number of employees.

Among the new federal mandates for coverage, I am troubled by the potential cost of the mandate requiring no lifetime limit on coverage. Prior to health care reform, most states already mandated a per-person minimum lifetime maximum on health insurance benefits ranging from $3 million in Texas to $6 million in California. States typically required insurers operating in their state to re-insure their catastrophic risks, and Wall Street practically required large employers to purchase re-insurance on their catastrophic risks. Re-insurers, such as Lloyds of London, were only able to re-insure carriers and large employers because there was a defined maximum amount of lifetime benefits. 

From a practical standpoint, very few people could ever come close today to utilizing $3 or $6 million of medical costs. The new federal mandate for no lifetime limit may cost Americans hundreds of billions for very little benefit, and may even be unobtainable in the re-insurance marketplace. The federal government should move now to either change lifetime maximum benefits to a practical $3-$6 million amount, or offer carriers and large employers the re-insurance they need to comply from the U.S. Treasury at minimal cost.

Summary
Health insurance reform is here to stay. I do not expect this legislation to be repealed, or successfully challenged in the courts.

Like most government programs of the past, health care reform will create enormous opportunities for entrepreneurs. I plan on exploring these opportunities in future articles and perhaps an entire book. As always with change, those entrepreneurs who get there first will reap the greatest rewards.

While I personally did not support President Obama on U.S. Health Care Reform, such reform is already proving very good for my business (Zane Benefits) and for many entrepreneurs in health care and wellness.

As a businessperson, I feel today like an arms manufacturer on December 7, 1941. Only time will tell us as a nation whether health care reform was worth the financial cost. To quote Tiny Tim (Charles Dickens), "God bless us, every one!" 

Entrepreneurs must be on the "cutting edge" (black ink) versus the "bleeding edge" (red ink) of new products, ideas, and trends.

In October 1985 I was introduced in the United States Congress by then-Vice President George H. Bush. I testified about the coming S&L Crisis, saying that if the scandal was left unchecked it would cost the U.S. taxpayers billions of dollars and cause millions of U.S. citizens to lose their life savings.  My written prepared remarks were titled: "Taking Uncle Sam for a $200 Billion Ride." I was ridiculed for using such a enormous figure, $200 billion, to describe the magnitude of the situation--no government scandal prior to then had cost more than a few billion dollars.

The same week in 1985 I met with an editor at Simon & Schuster (S&S) about writing a book, called Other People's Money,  to expose the scandal.  S&S stalled me for three years (1986-1988) while I kept writing articles and op-ed pieces about the S&L Crisis. I became a media darling on the subject on CNN, NPR and national news and talk shows.

In December 1988, when the S&L Crisis was already a household word, I appeared on The Larry King Live! Television Show. The next morning I got a call from the same editor at S&S saying they wanted to publish Other People's Money right away. I was furious!  I exclaimed to the editor: "You could have published this book three years ago when it was new information, now everyone knows all about it."

The editor calmed me down and explained. "Paul," he said, "three years ago when you came to me with this story I presented it to my colleagues and they thought you were a nut. If we had published your book back then, it would have sat on the shelf. Now that we have five different book proposals from prominent people on this same subject, we can see that this story is finally ready for a popular book. We are a business, not a charity. We want to hear about new things when they are on the bleeding edge (red ink), but we don't want to publish a major book on new things until they are on the cutting edge (black ink), and the public is ready for the information."

The editor added that if I would stop screaming at him he would outline the business terms of their offer to publish my book. S&S published Other People's Money in 1989 and it was an instant success--being featured on the cover of The New York Times Book Review and paving the way for my future life as an author.

P.S. Readers following the current U.S. Banking Crisis should note that the main cause—100% insurance of consumer bank deposits—has never been fixed. As first pointed out by FDR in 1932, and highlighted in Other People’s Money, only a system that puts the depositor at some manageable level of risk (say 10% of their money) can keep risk-taking financial institutions from having unlimited access to capital before it’s too late.  For more info see the New York Times Book Review.