Wednesday, November 08, 2006

The Importance of the Autorenewal

I have been working with a couple of clients who are trying to get their client base set up on autorenewal contractual agreements. This is one of the most important decisions that they have ever made regarding the Lifetime Customer Value. There are a couple of very simple reasons that this is a must: 1) Security. I’ve only addressed this in at least half of my blog posts. Having a projectable receivables base will let you forecast for income and expenses. 2) Longevity. Directly related to Lifetime Customer Value. Obviously, the longer a client remains a client, the more opportunity they have to spend money.

There are essentially two types of agreements in our business – Term and Open Ended. Term agreements are for a specific length of time, and when that term is expired, the agreement is null. In order to remain a client/member, the individual must resign another agreement. Open-ended agreements are agreements that typically have an initial term, but after that term ends you are able to extend the agreement by renewing terms or a month to month basis. In these instances, there is no action required in order to remain a current client/member. I do love simplicity.

Through our experiences with both types of agreements, we have found that in a true ‘service’ business, you are better served by opting for the autorenewal agreements.

**Be forewarned: Certain states do not allow for autorenewal agreements, you can write term agreements only. You can find out what your state allows by checking with the Attorney General’s Office.

First, the autorenewal agreement can be identical to the term agreement during the initial term. When designing your packages, you can decide if you are better served with a 12 month initial term, like we do with Fitsystems, or maybe something shorter, say 4 months. That decision should be based upon the variable specific to your business, ie your niche, sports seasons, specific client goals, etc.

Where the autorenewal agreement benefits you is at the end of the term, and why it does is very simple. Which is easier, for someone to take the time to resign, fill out another agreement, write another check, and go through the entire process again – or is it easier to do nothing except keep scheduling your next session and working out? Simple answer to that one.

Let’s not lie to ourselves here – people want what’s easiest and most convenient. It’s hard enough getting them to make every session and follow the program you have designed for them. Not to mention, when they are up for renewal, they are going to have to be sold again to some degree on the idea of a long term commitment, and spending more money. Then they remember last year when they signed up and their husband wasn’t exactly excited about it. Or now Christmas is around the corner, maybe they should wait until January and get started again (fabulous idea there!!). You do not want to have to go through the process of re-selling them if you don’t have to. If they are on an autorenewing agreement, all you have to do is KEEP PROVIDING GREAT SERVICE.

Best example I can give you:
Here’s a client, a late 30’s gentleman, absolutely made of money, so there’s no issue there. He signs a 12 month agreement with us in December, and it expires after November of the following year. He is die hard faithful. Active and following his program for 10 straight months – getting great results. Then he has an issue with his job, nothing major, just taking a little bit extra of his time – and adds a second child to his family. Now at the end of November, it’s been two months since he’s been in, and it’s going to be like starting over for him. Plus the new baby, and Christmas, and he’s wondering how he ever had time in the first place!

Look at this – the guy loves to work out, he’s fit, money is no issue, he’s been successful with the program before – he’s an ideal candidate for a renewal.

But will he? Maybe, maybe not, but he’s going to have to be sold on the idea if it’s going to happen. So now you or one of your trainers is going to have to put some time into re-motivating him to get back in here. I’m not saying this is bad but which would sound better if you were him,

“Nick, you need to get your butt back in here and pick back up on your program.”

Or,

“Nick, you need to get your butt back in here and pick back up on your program, but we need to re-sign your agreement first (which in their mind means spend money).”??

It’s a potential barrier to RE-entry, that we can avoid by using autorenewing agreements.

I’ll touch on this more in the next month or so, as we are working on something that will simplify and automate most of this process for you.

If you are thinking that might alleviate some of your headaches – you’re right.

Nick Berry

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