Pros and cons of the 4/9ths compensation model: From the economics to client retention
Most of us who have been in the fitness industry for a while can agree that there’s not much in it for the coach long-term if he’s getting paid by the hour—usually $15 to $35 an hour—to coach a group class.
There’s no incentive for him to work any harder, to bring in new clients, or to go above and beyond when it comes to servicing the gym’s clients. And there’s certainly little to no opportunity for him to ever make a professional wage…
Gyms all around the world have figured this out and some have moved to a 4/9th ‘top up’ type of compensation model.
This model is by no means new. Paying coaches by the hour and adding a percentage to “upsell” members has been around in globo gyms since before Arnold was winning Mr Olympia titles. The 4/9th is just a new way to market and sell a very old concept.
In this model, group class coaches continue to get paid by the hour to coach classes, but also have the opportunity to upsell existing clients and earn 4/9th of the revenue the upsell generates.
• Easy to understand, set up and implement
• Good situation for part-time coaches, hobby gyms and inexperienced gyms
• Does not require a ton of sales training, leadership training, account management skills or complex client or coach development processes
The model sounds like a good idea on paper, as if it’ll be just what the coach needs to be incentivized to do a little more to earn more money for himself (and for the business). A win, win, right?
A deeper look, however, shows that the 4/9th system, while easy to implement, has significant long-term limitations.
Let’s take a look at the holes in the 4/9th model and compare them to the data driven coach compensation system that Madlab developed and has refined over the past 15 years. Check out this recent blog that breaks down exactly what the life of a Madlab coach who is earning six-figures.
The 5 shortcomings of 4/9ths:
1. The Economics:
In short, the 4/9ths system has coaches working twice as much for considerably less pay…
4/9ths compensation model:
Let’s say the 4/9th coach coaches 20 classes per week at $25 an hour and has 20 clients he upsells on additional an personal training session per week, where he earns $35.20 (4/9ths of $80 an hour).
This has the coach coaching 40 on-floor hours a week. If you have been coaching long, you kind of know 40 hours is a ton and isn’t sustainable for very long.
Working any more on-floor hours than this just isn’t feasible, so the following is essentially a cap on what this coach can make (assuming we’re considering 40 hours on the floor a week is the limit):
Thus, in one month, this coach will coach:
- 87 group classes (20 per week x 4.35 weeks in a month) at $25 an hour
- 87 personal training hours (20 per week x 4.35 weeks in a month) at $35.50 an hour
His monthly pay: $5,263.50
Hours worked on the floor per week: 40
Madlab compensation model:
You can read more details here in this blog about the compensation model, but in short Madlab coaches are paid purely on a percentage of revenue basis (between 40 and 60 percent of their clients’ revenue depending on how the client came into the gym and the service provided) and all clients do a hybrid gym membership, meaning a combination of group classes plus periodic one-one-one personal training sessions or lifestyle consults with their coach.
From an economic perspective, here’s what it looks like for a coach with 50 of his own clients (which usually takes two to three years to build).
- 50 clients paying an average of $260 per month for their hybrid membership: $13,000 in gross revenue
- Coach earns an average of 45 percent of this revenue: $5,850
To earn this, the coach coaches approximately 6 group classes per week, plus meets every six weeks for a one-on-one with each client.
- 26 classes per month (6 per week x 4.35 weeks in a month)
- 33 personal training sessions per month (50 clients do 8 personal training sessions per year (400 hours per year for the coach, or 33 hours per month or 7.5 per week)
- Let’s also assume the coach also has 2 new clients in the fundamentals phase each month, meaning an additional approximately 6 hours per week at $36 per session (45% of $80 an hour for personal training ($936 a month).
- Finally, let’s assume the coach also has a specialty program he runs that takes up another 2 hours per week and generates $1,500 in revenue of which he earns 60% (coaches get a higher percentage on specialty programs they build from the ground up). This means an additional $900 a month.
Hours works per week: 21.5 (6 for classes + 7.5 for hybrid membership sessions + 6 for fundamentals pts + 2 for specialty program)
Monthly pay: $7,686 ($5,850 for hybrid members + $936 for fundamentals +$900 for specialty program)
Again, let’s go back to 4/9ths:
4/9th: 40 on floor hours
Madlab: 21.5 on floor hours
2. Client retention
A few years ago, we teamed up with Zen Planner and studied 1,600 gyms that were predominantly group class facilities, where coaches were paid by the hour to coach the classes and clients were essentially owned by the gym, as opposed to by one particular coach (such as the 4/9th system).
The business owners take the lion’s share of the gross revenue generated by the group class in this model, but that share comes at a steep price: High churn rates, for both clients and coaches.
Their average client churn rate was approximately 75 percent, meaning only 25 percent of the clients who came in lasted one full year. 75 percent of them quit before the year was up. For coaches, this is a disaster. Coaching and having 75% of your clients fail year after year is not much fun. So not only are they getting 50% pay, the job satisfaction is sucks, as well. Most coaches in this model are gone in a year or two.
In the MadLab model, our client retention rate at most gyms falls anywhere between 80 and 90 percent retention, as clients have their own personal coach in their corner to service their individual needs.
We believe a second big key to this is also our hybrid gym model. Every gym that has switched over to the hybrid gym model has seen their client retention rates sore. Check out this story for more about this.
3. Competing coaches versus coach co-op
In the 4/9ths system, coaches essentially have the ability to go after any existing client and upsell them, which essentially pits coaches against each other to sell an upgraded membership to anyone willing.
In the Madlab model, coaches work together in a co-op. While they all own their own clients, they also coach each other’s clients during their 5 to 7 group classes a week. In this way, they all take care of each other’s clients because they know the other coaches are doing the same for them.
4. Pay scales and mentorship
If you have ever developed a coach, you know that properly mentoring someone takes time and energy on your part. Unless you’re the owner, why would you do this for free?
In the 4/9ths system, there’s no opportunity for compensation for any kind of mentor. In fact, there is no coach development or mentor at all because all coaches, despite their experience level, make the same amount for an upsell: 4/9ths.
In the Madlab model, mentor coaches develop apprentice coaches from the ground up and earn a percentage of the apprentice’s revenue (while the apprentice earns a lower percentage until they graduate to become an associate coach).
In this way, true mentorship happens as the mentor is properly compensated for their time and energy to develop a new coach. And on the apprentice end, he is forced to humble down and earn his way slowly through the ranks as he gains the appropriate experience and skills necessary to become a professional coach.
5. How did the client come in? When are they training?
On a similar note to the latter, clients, too, should come with different pay scales.
Meaning, if a coach generates his own business by going out into the world and bringing in new clients, or is given a referral from an existing client, he earns a higher percentage than off a walk-in or someone who comes in off the website.
This additional percentage to generate their own business incentivizes coaches to act as entrepreneurs in the system.
The same is true of creating a new specialty program that offers an additional service to the client, all the while generating more revenue for the coach and the business (as I mentioned already, coaches earn 60 percent from specialty programs).
The other thing that should be considered is primetime hours versus off-hours. Part of the reason specialty programs are paid a higher percentage is because they’re run during less busy times when the gym would otherwise be quiet. There’s also a higher payout (10 percent more) for personal training done during off hours. This creates a system that maximizes the times when the business is generating additional income.
None of the above—how the client came in, specialty programs, off hours etc—are considered in the 4/9th system.
If you want to take your business to the next level, you will need a more sophisticated model, where you can:
1) Sell a high value service
2) Retain 80% + of your clients
2) Develop and keep professional coaches
3) Develop a stable, profitable, sellable business
That’s what we will help you with.