I read somewhere that gyms are designed to maximize members and minimize users. This makes sense when one thinks about it. Members pay money, whether they use the gym services or not. Users require equipment and employees to manage the equipment. Users also want classes with instructors and showers with hot water. Members are very non demanding people. Gym users are demanding. Gyms therefore are a very interesting model to look at for how they are set up and priced. A gym that is packed to the gills has minimized the equipment and space needed per gym user (lowering that pesky cost in the denominator of their margin). But they are not going to attract new members (those quiet paying folk) with a line 3 people deep for a bench press. They also run into another issue. Potential members do not come to them expecting to be suckers that pay every month for services they do not collect. They plan on being users. So to play to their idea that these potential members can get their money’s worth from their membership dues, the gym must present to them a gym where they think they can get said worth. So we are back to the mantra of a profitable gym: maximize members, minimize users. Their pricing model is even set up to encourage this. Often, gyms will have day use fees, where someone can use the gym for the day for a fee. Those fees tend to be exorbitant to encourage fewer users and more members. Someone paying a day fee is a guaranteed user with a chance of breaking expensive fitness equipment or getting hurt and suing the gym. And so, often the membership fees are nearly the same or barely more than a day use fee. All the gym wants is a credit card or bank account on file with the authorization to ever so gently sip from it every month. 

This then leads into how they charge monthly. Typically, a gym charges a one time fee at the start of every month. This is a classic example of a sunk cost, but where our brains can actually pierce the fallacy, if even just subconsciously. That monthly fee, say $30 a month for a nice round number going forward, is a sunk cost to you after they have charged it. You are not getting it back whether you go to the gym or not that month. Now, they have gotten their $30 for the month and you are faced with the exercise dilemma every day. “Go to the gym, or sleep in? Go to the gym, or go home to recover from a tough day at work by eating cheesy potato chips?” And our brains can pierce the sunk cost fallacy to recognize that the only downside to not going to the gym is the far off health benefits. (This is why trying to keep to a workout routine with a buddy can be very effective for some people. It ups the cost of skipping leg day to an immediate social cost instead of just far off health benefits. I have not been in a gym in over a year *coughCovidcough* but it makes me wonder about the setup of the gym I did attend. Was it set up to encourage a workout partner, or was it set up to discourage such user generating tactics.) Faced with such a dilemma and sunk costs, our lizard brain’s natural tendency to avoid work and energy expenditure plays right into the gym’s pricing model. It is not uncommon to hear advertisements for things like life insurance as a $/day kind of cost because such companies do not want you to think of how expensive their service really will be. Ask for $1/day and people go, “eh, maybe”. Ask for nearly $400 in a year and people start to wonder what racket you are pulling. Gyms do not advertise their dues in $/day because the last thing they want is for you to attach a cost to skipping your cardio every day. Their monthly fee of $30 could easily be expressed as “For as little as a dollar a day, YOU could be getting ripped and healthier than ever!” But they do not do that because they do not want the sunk cost fallacy to raise its ugly head and encourage more labor-hour and equipment demanding users. Missing out on going to the gym would no longer be a subconsciously noticed sunk cost and lost chance at a potentially healthier body sometime far off in the future; it would be a whole dollar lost. Over the course of a week, that is like a cheap sandwich for lunch. While the numbers expressed in per day amounts are small (duh, it is why life insurance companies express it that way), they do up the calculus that our brains run through when fumbling with the snooze button at 5 am. 

A way to think about gym memberships in financial terms is it is like the gym is selling you a call on exercise. You pay a monthly fee for the option to use their facilities, equipment, and perhaps even classes for exercise. If the expected value of exercise in any given time interval when you could workout is greater than the expected value of whatever else you could be doing in that same time period, then you will exercise (ha!) your call option and go to the gym. If not, then you do not go to the gym. The beauty of this model is that there are a myriad of things I could be doing with the hour a workout would take that would have a greater expected value to me. I could predict the next GME or Bitcoin. I could finally convince my fiancée we should move to somewhere cheaper. I could beat my father in a game of chess which has not happened since I was captain of the chess team ( I did not peak in high school, I swear). I could discover the answer to life, the universe, and everything. All of those would give me more value than spending an hour to go plod on the treadmill for a while. And thus, we see the gyms’ calculations. Gyms must maintain enough hedge against those who value an hour on the treadmill more than anything else they could be doing. Past this point, the finance analogy starts to break down, but I think we get the point that gyms are trying to sell you on repeatedly buying a call option called a monthly membership that they know is a sucker’s bet for a large swath of people.

That then brings me to how a gym might price if they were interested in fitness more than money. I know, I know, obviously this cannot be the case, for any gym that optimized for fitness of its members would lose to those that optimized for money and all that. (Damn you, Goodhart!) But one could imagine a hypothetical fitness optimized gym that still offered memberships but priced it in such a way that they only charge you for the days you miss coming to the gym. That would really encourage people to make it to the gym. But alas, such a gym would more than likely go bankrupt, as this model would turn many couch sloths to gym rats and the gym rats would swamp such a gym while mainstream models used by gyms aim to turn gym rats into couch sloths. (Lot of rats, sloths, and swamps here, don’t know why) Despite the obvious futility of this hypothetical gym, it is worth looking at for perhaps pointers one could take on how to commit to a workout regime. If the goal is to get more exercise, then we have to up the cost of not exercising. There are now apps out there that allow you to bet on your own fitness. Such an app might be effective in breaking you out of sunk costs. Also, not new information, but social costs can be effective. Our fitness optimized gym might set up their facility with a mind towards encouraging workout pairs and perhaps coordinating people looking for such a workout buddy. This means for ourselves, we should have a workout buddy. And with Covid in mind, it need not be someone you meet up with to workout, but someone who keeps track of days you workout and you keep track of days they workout. I have a system with that fiancée I mentioned earlier where if I do not workout some number of days a week, agreed to at the start of every week, I pay her $10 every day I miss. That $10 goes into her spending budget to go splurge on whatever trips her fancy and I lose all claim to that money. (Her nails sure looked fine when I missed 5 days once.) 

And with that, I have pulled the far off costs of not exercising like potentially poor health and a shorter lifespan into present and definable costs I personally can grasp. I have a financial cost in that I will fund my fiancée’s spending habits if I do not workout, and I also have the social cost of my fiancée wondering if I will fit into my tux when we finally do get married. This is the opposite of what gyms want. And thus comes the answer to beating the pricing models of gyms. They are set up to maximize the number of people willing to pay them money every month and minimize the number of people actually using their facilities every day. I am not saying do not get a gym membership. A gym can offer fantastic benefits. But if fitness is your goal, do not forget that your fitness is not your gym’s goal.

From this, I got to wondering why the far off health costs that we know can occur from not exercising are not enough to kick our butts into gear. I think part of it is the far off aspect of it. We hear from our doctors all the time. “Eat more salad. Exercise more.” We know these are good for us and we know that these activities can increase our lifespan, but that is still not enough to motivate many to do it. The potential rewards from exercising are far off in the future, but the costs to exercising are today. And there will always be tomorrow to start that exercise malarkey. And furthermore, the rewards are uncertain. As my late grandmother would say about quitting smoking, “Why? I could get hit by a Mack truck tomorrow.” If you could quantify and guarantee how much benefit you would get from visiting the gym 4 days a week, it might be easier to motivate yourself to go. Knowing it could add on 10 years to your life would certainly feel like a good reason to work up a sweat regularly. Or maybe it will save you from a debilitating and painful last few years of life. Or perhaps not. You might only add a few days to your life. Or maybe, going for your morning run sees you flattened by a Mack truck and if only you had stayed home to fry up a pound of bacon, you would still be alive. (Bacon saves lives, y’all). Essentially, on deciding whether to go to the gym or not, you are navigating a complicated maze with uncertain pitfalls and no clear destination in sight with clear and present opportunity costs forming the hedges. Thus, it can be very hard to decide to make the healthier decisions like exercising.

If you had a perfect magic 8 ball that could tell you what the future held, it would make navigating this maze much easier. “Oh Magic 8 Ball, does visiting the gym thrice a week extend my lifespan?” “No. Ganked by meathead for taking the 45 lb dumbbell.” In this case, maybe spin class would be more appropriate. But none of us have that perfect magic 8 ball to guide us through our maze and so we stumble blind in the dark. 

Or maybe not. We are not completely blind in this case. We cannot see our own individual mazes, but we can look at the large array of previous mazes that people have tread before us and tease out some general rules. It is why the doctors can be pretty confident in telling us to exercise more. From this aggregated data, we can perhaps quantify some of the costs and rewards of our lifestyle choices. This is where health and life insurance come back in.

Health and life insurance providers have fantastic aggregated data that they can broadly apply to us maze runners. One could imagine a world where they manage to do what they are set up for, namely pricing risk, and apply costs to the maze runners in such a way as to help people navigate their maze. “Oh Mr. Couch Sloth, you have two donuts, two eggs and half a slab of bacon every morning and have not exercised in 15 years? We can insure you, but it is going to be costly.” “Oh Ms. Running Nut, you like to run in traffic in dark clothes at 5 am? We can insure you, but you will need to pay a little more than your friend Mrs. Gym Rat who only exercises in the relative safety of her local gym.” In this example, the insurance company is applying costs to its users that are based on their lifestyle choices, not unlike our hypothetical fitness optimized gym. 

On a tangent to this, it interests me that many life insurance and health insurance companies are separate entities. I get they have different risk models that they need to deal with, but one could figure that with health insurance companies optimized to keep people from going to the hospital and life insurance companies trying to keep people from dying, their procedures could come into conflict if they were applying costs to people’s lifestyle choices. A health insurer would probably be perfectly happy to insure a Russian Roulette player, but a life insurer would probably flat reject such a person. Our goal, as the maze runners in this case, is to stay out of the hospital and live as long as possible. The health insurer shares our goal for staying out of the hospital. The life insurer shares our goal for living a long life. Taken in this light, is it any wonder that the US health care model based on health insurance has resulted in very high costs for many people? Maximize members (people paying into health insurance), minimize users (people using health insurance). Pay for health insurance, but make health care so ungodly expensive, no one wants to use it. It is unfortunate. Health or life insurance could hypothetically bring us a clearer picture of the maze we are all trapped in, but I am not sure we have created that. In theory, there is no difference between theory and practice I guess. Not sure where this tangent was going, but I did say from gym membership models to the world, didn’t I.

Perhaps the lesson to take away from all this is that if you are navigating a difficult maze about health decisions, applying costs to the unhealthy choice can be an effective way to fence off the dead ends and diversions in the mazes we traverse.

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What about the gyms that offer a number of “tickets” usable for a year? 

Where does the “ticket” model fit into your theory of gym pricing?

Not going to lie, I have little experience with such gyms so please correct me if I am wrong, but they are not too dissimilar from gift certificates. So it’s still a call option contract, just not on a monthly expiration but an annual basis. And the beauty of this is they can expect that there is a chance you will forget about a ticket or two or you just give up on going to the gym in general. Tickets are often used as a try before you buy method for a gym, but many traditional gyms offer a day free to convince people to get the membership. The idea is still that they are trying to attract subscribers, but not people who will overwhelm or wear out their gym.

I thought some more on this and I thought i could add a bit more in that many smaller gyms do seem like they really want their members to become fit, because gym rats don’t cancel memberships, usually. But those smaller gyms often charge more than large gyms because they have fewer non users subsidizing their gym rats. Essentially, this is a question of how tightly coupled the profit motive and the fit consumers variables are for a gym. Gyms are relatively tightly coupled on this, and the difference between these two competing optimizing goals only really shows up occasionally on larger gyms. Sorry if I rambled. Hope I made sense.

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