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Health, Fitness Organizations: Profit Center Programs

The paper explains briefly the evolution of health and fitness centers as profit centers. Based on some common definitions of profit centers, it also attempts to explain why such strategic business units need to be introduced in the health and fitness industry. It states the common perception that the industry faces declining revenues, increasing overheads, and intense competition and that it needs to evolve new strategies to survive and grow. The paper advocates the pursuit of profits in a health and fitness center and sees many advantages to the combining of profit motives and provision of qualitative health and fitness services. It highlights some key aspects in support of and also against the adoption of such profit centers in the industry. Some profitability figures are also quoted from a report on trends in the industry and there are also brief details on the way to plan, organize and maintain such profit centers. The paper concludes that, although there are many adverse aspects to treating health and fitness as profit drivers, the introduction of more and more profit centers in an organization carrying on the work of providing health and fitness services is in keeping with sound business and financial management principles, and ethical motives need not be subservient to the overall, profit motives of going concerns,

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Historically, health and fitness centers have evolved as service organizations with the basic objective of helping persons lacking in physical fitness or personal care improve their health or appearance. In course of time, however, health and fitness centers grew into a profitable industry in all corners of the world, particularly in the United States of America. Owing to increased competition, more innovative and packaged offers by health clubs in the market, and higher consumer consciousness regarding health and wellness, health and fitness companies and clubs started feeling the strain on their revenues. The need was felt to adopt more profitable and innovative strategies to grow or even to survive the financial pressures. Management of such fitness or health centers increasingly started making use of the concepts of business management. Health and fitness enterprises thus became profit centers or profit-making endeavors which were run more and more along with sound business and financial management principles.

What are Profit Centers?

Grote (2009) defines Profit Centers as Service or Inventory Categories that can be tracked by using income and expense statements. Kaplan, (2006, p. 1) defines a Profit Center as a unit, in which “the manager has almost complete operational decision-making responsibility and is evaluated by a straightforward profit measure”. Common examples of profit centers include Vaccine services, Radiology services, Flea products, Nutrition and Diet, Dental Care, Child, and Adult Care, Health and Fitness, Pro-shops, Food & Beverages, Wellness, Cafes, Spas, etc. The health and fitness industry itself now provides various new-age physical fitness regimes like Yoga, Pilates, Aerobics, Dance, Tai Chi, etc. For instance, US industry leader Caro has implemented innovative new ideas like children’s, weight-loss, and packaged food programs as well as arranging classes for teaching behavioral change, staging events or providing facility rentals, holding lectures, and church services, and space letting to chiropractors, dieticians, acupuncturists or medical professionals. All these services can be rendered as stand-alone businesses or as part of a collection of similar or related profit centers of a single, large, business enterprise. The Profit Centers act as special groups whose financial performances can be evaluated, problem areas identified, suitable remedial measures planned and adopted, and overall firm profitability and growth ensured. While health and fitness clubs, societies, or associations provide humanitarian and health care services, many private ones, especially the large and exclusive ones are driven by the profit motive albeit through providing state of the art, often automated, health and fitness services and products.

Why Profit Centers in Health And Fitness Organizations?

The well-known International Health, Racquet and Sports-club Association or IHRSA has noted in a health and fitness industry trend report (2002) that around 25 percent of revenues earned by the fitness industry came that year by way of ancillary revenues. The figures were an approximation, given the heterogeneity of data available and due to the generally closely-held data by most segments of the industry. The term ancillary revenues were taken to mean those revenues earned from sources other than membership dues. It is common knowledge that, while most private fitness clubs and associations tried to face increasing competition, growing consumer preferences for quality of care and products, higher employee overheads as well as declining revenue streams by going for an increase in membership numbers or raising the pricing of subscriptions, such an attempt to increase fast depleting revenues was limited in scope in as much many modern facilities were capital intensive and the pricing of member subscription to the clubs and societies were exclusive rather than economical. Insufficiency of growth in revenues by way of member dues and an economic recession also required that alternative or ancillary revenue streams be tapped and innovative strategies are adopted by the health and fitness organizations so that they could thereby generate profits on an ongoing basis as well as survive the economic downturn.

Profit Centers which are most profitable

The IHRSA also reported in its survey of fitness profit centers that the most profitable profit center programs on offer by the surveyed organizations were personal training facilities (50.5 percent), massage therapy (28.2 percent), pro shop (26.2 percent), aquatics (24.3 percent), tennis (20.5 percent), and food and beverage (11.7 percent) programs, in order of decreasing profitability. While most profit centers try and build their ancillary revenues, those organizations that are service-intensive and hence have greater member participation in the programs, also have sufficient space to introduce new programs and are located in a suburban area and can hence also target different members at different times of the day, are the ones best able to generate such ancillary revenues (Caro, 2004). But marketing such profit center programs to the members is most important for generating profits. Generally, members seek programs that add value, interest them and help them achieve their personal or unique goals. Sense of identity, perceived lower pricing, packaged offers, etc., all add to the value of a program in the eyes of new and old members (Rhodes, 2007).

Developing and organizing the Profit Center programs

Profit Centers are actually strategic business units. They need to be planned for on the basis of a comprehensive market study. In an industry where profitability is sought to be achieved through the selling of social and health care services or products as in the health and fitness industry, a right balance between social goals and profit motives needs to be achieved. In addition to the ethical issues that need to be addressed, one must also take into account the fact that governmental and public organizations already provide similar services at reduced or no costs. Quality and money’s worth of services and products appear the major objectives that can bring in more profits. Keeping a focus on the required goals of the organization, a market study needs to be conducted, a financial feasibility analysis performed, and a suitable plan developed for launching a profit center within the health care industry, and such process is similar to processes in other industries. Rhodes (2007) also observes that profit center programs need to accommodate a broader clientele, fix up the costs and charge reasonable fees from members for such programs. Provision of better amenities and bringing in exciting new packaged programs can well improve member participation levels, ensure enhanced member satisfaction, as well as improve the profitability of the organization

For and against Profit Centers in health and fitness organizations

Profit Centers are effective in planning and implementing profit-enhancing strategies for the organization. Such profit-oriented strategies need not necessarily treat the human users of health and fitness services as sources of revenues; rather the right-minded approach can succeed in creating healthy and happy individuals benefiting both the caregivers and the service users. However, many researchers view non-profit centers as health and fitness agencies to be far better than such profit centers. For instance, in one study of Canadian non-profit and for-profit child care centers by two Canadian economists Cleveland and Krashinsky (1999), it was observed that the non-profit centers outscored the for-profit ones in aspects like personal care, language, and thought development through the use of materials and activities, staff-children interactions, parent-staff interactions, etc. The problem here is not with the profit centers as such, but rather with human greed, fallibility, and even lack of ethical considerations.

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Conclusion

The various programs like nutrition, Pilates, spas, food and beverage counters, and other profit centers address the unique needs of members and also serve to bring in profits. In order to provide such enhanced or qualitative services, the organization can well raise the membership fees. Users of fitness and health services and products are increasingly more knowledgeable and the population at large is also more conscious of the need to maintain health and fitness levels on a regular basis. But profit motives must necessarily be subservient to nobler goals of achieving human health and welfare. The need of the day is the evolution and marketing of customized profit centers that can cater to the varied requirements of the cash-rich, health-conscious consumer. A right mix of individual and group fitness regimes can successfully address individual exclusive customers requirements as also bring in increased member participation in group activities. In fact, many health and fitness centers are already catching the trend and going in for-profit center programs like nutrition counseling, educational, adult sports, and children programs & individual sports for the aged. Stern (2008, p. 26) observes succinctly and rightly when he says that “to the extent that fitness centers focus on health and respond to individuals attempting to create a better sense of them, they serve a positive and vital need. To the extent that they focus on profits before people and prey on insecurities and the need to chase commercially constructed images of beauty masquerading as fitness in a hypercompetitive, zero-sum, winner-take-all environment where security is an increasingly evanescent mirage, they contribute to a decline in human happiness and self-esteem”.

References

  1. Caro, R., 2004, The Fitness Industry: Outside Looking In. Management Vision, New York
  2. Cleveland, G. and Krashinsky, M., 1999, The Quality Gap: A study of non-profit and commercial child care centers in Canada, National Union of Public and General Employees (NUPGE);
  3. Grote, J.F., 2009, Profit Centers, JFG Enterprises
  4. Recreation Management Magazine,  2007, State of the Industry Report on Health and Fitness Industry
  5. Rhodes, R.N.,  2007, Standing Room Only, Editor’s Note, Fitness Management 2007; Web.
  6. Stern, M., 2008, The Fitness Movement and the Fitness Center Industry, 1960-2000, Business and Economic History Online, Vol. 6, 2008, pp. 1-26, Business History Conference, 2008;

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