Adam Smith and Human Capital in the Fitness Arena

An Industry on the Brink of Substantive Change

By Phil Kaplan


PART I – Who in the World is Adam Smith?

As personal trainers we like to address the concept of change.  We change our clothes every day (I hope everyone reading this agrees), we find change in the bottom of our gym bags (only because those post-workout drinks always cost $2.49 or $3.29 or some other “9” that means we get handed change when we’re low on pockets), and if we travel to clients’ homes or exercise facilities, we know the feeling of trying to will red lights to change to green. 

Everyone in the work force can relate to the word “change” at some level, but we are more powerful than most, at least potentially.  We have the power to initiate change, maybe not to change the color of traffic lights at will, but better yet, we can actually alter the course of someone’s life in a very positive way.  When you really stop and think about the massive impact we’ve collectively had upon the mindsets, the health, and the appearance of our clients, the potential of our power becomes staggering. 

We also recognize that a little at a time the industry’s changing . . . for the better.  Why then, does the field of trainers fail to take a consistent and unified stand, to declare, at some level, its independence?  Why is it taking so long for “Personal Fitness Training” to emerge, not as an afterthought component of the health club field, but as a respectable profession built on noble ideals with awe-inspiring power. 

Oh no.  Here goes Kaplan getting up on his soapbox again, spewing forth his anti-health club conspiracy theory nonsense. 


Hold on there.  I’m not suggesting trainers abandon health clubs any more than I’d suggest doctors leave hospitals, or lawyers leave the courtrooms, but our population respects doctors for their knowledge and their scope of practice, regardless of whether or not they practice in hospitals, on the sidelines of NFL games, on missions in third world countries, or out of private offices with snooty receptionists and a sliding glass pane in the reception window.  Trainers should be respected every bit as much as those doctors, every bit as much as attorneys, regardless of where they practice, and every bit as much as dedicated health club owners who recognize the inherent value of a force of unified fitness professionals (ummm . . . let’s not forget, besides being a personal trainer . . . I sit on the other side of the fence as well . . . I understand the viewpoint of the health club owner . . . intimately). 

So, I’m not suggesting rebellion, but I am suggesting it’s time for a global change within our industry, and I’m promising to be instrumental in bringing that change to fruition. 

For the past several years I’ve spoken at the IHRSA and Club Industry conferences about “the New Paradigm,” about pulling the rug out from under those stuck in old school health club operations.  I’ve attempted, with some level of success, to force the adventurous, the ambitious, and the morally sound health club owners and operators to ethically capitalize upon the virtues of accomplished and competent fitness professionals for the proverbial win-win.  Throw the members into the mix and you create a 3-Way-Win, the ultimate scenario for everyone involved. 

Now I’m going the next step.  I want to personally play a role in raising the bar so high that the concept of mediocrity and the existence of a “personal fitness professional” cannot co-exist.  It’s time to redefine “what we do,” and to shake things up so we can have the impact upon our obese overfat population that we’re truly capable of.


Change Requires A Strengthened Foundation

Throughout history there have been many distinctive periods of global change, beginning with man’s discovery of the ability to control fire up through and running right past the space age into a world where Tony Little sold 72,000 ab rollers on QVC, and then it continued into an unusual place where people “chat” by sitting at their computers typing little keys.   

As Americans there are many dates that are drummed into our heads throughout our history lessons, and I would venture to guess that few years rival the attention we’ve placed upon 1776.  It’s the year man discovered the medicine ball.  C’mon, you know better than that . . . it’s the year America declared its independence, but it’s also the year economist Adam Smith began to identify the intricacies of capitalism.  All hail Adam Smith!!! 

Who in the world is Adam Smith?  It’s not really that important.  Let’s just say he was a very smart man, and he proved himself back in the days when Thomas Jefferson, Ben Franklin, and a bunch of other guys in funny clothes with odd hairdos were trying to initiate change.

Yes, it was a time when the word independence took on an entirely new meaning, and not only were Americans going to band together as a union, but they were also going to lunge forward into a society where anybody can own a business, where commerce was controlled by the common man, and where a government was established to allow for independent prosperity.  Adam Smith was clearly way ahead of his time, as anyone who comes up with theories that stand true for over two centuries must have extreme foresight.   

Adam Smith recognized that there were three elements of production, three factors that contributed to successful commerce: 

  1. The Right Nutrition
  2. Moderate Aerobic Exercise
  3. A Concern for Muscle

Oops.  I’m sorry.  It’s habit.  Adam Smith identified the synergistic relationship between three other elements: 

  1. Land or property
  2. Goods or Services
  3. Human Capital

Could Adam Smith perform a side lateral raise balanced on his knees atop a stability ball?  Probably not.  Could he run a marathon or hit 365 on the bench?  Not likely.  So if he spent his time studying economics and commerce, why would you have any interest in this man who was buried over 200 years ago?  I’ll tell you why.  Because if you aspire to succeed in the business of Personal Training, you really should understand business. 

I’m not asking you to become a historian, nor am I asking you to pursue an MBA, but in other fields of economic pursuit people study their craft, hone their skills, and pursue business knowledge.  Personal trainers tend to study their craft, hone their skills, and follow the flawed path laid out by an industry that failed to recognize the value of its skilled practitioners.


A Self-Evaluation May Be in Order

Allow me to raise a few questions with the simple agenda of getting you to ponder a few issues you might never have taken the time to question or consider objectively.

1. What was your “net profit” last month? 

Most trainers would have difficulty answering the question.  They may know how many sessions they conducted.  They may even know how many dollars they collected, but “net” is the determining factor as to the financial success of your business.  Have you accounted for gas costs?  Clothing?  Continuing Education costs?  Study materials, books, licenses, certifications, advertising, marketing, printing, etc, so on, ad continuum?  If the answer is yes, if you absolutely know your “net,” I assure you you’re among the rare few.

(Ask a retailer, a health club owner, a franchisee, or the owner of an employment agency whether they know their net.  I assure you, they’ll know.  Instantly.)

 2. Do you accommodate clients with freebies?   

Perhaps you conduct free consultations, as most trainers do, or if you work in the health club arena you may perform as many as “three free sessions.”  I believe it’s an economic mistake.  Perhaps you spend an extra 15-minutes after the session is up reviewing exercises or discussing scheduling.  There’s a cost attached.  Maybe you feel obliged to spend hours writing up programs, or finding exercise illustrations for your clients who travel.  Maybe you do free fitness assessments.  If you don’t do any of these things, and you have a thriving business, you’re to be commended, but again, those who consistently charge for their time do not comprise a majority by any means.

(Would you even consider asking a doctor to perform a free exam, a free blood test, or a free hormonal assay?  If you answered “no,” why should you perform those services you are typically paid to perform for anything less than the fee you deserve?  Would you ask a lawyer to take some time, for free, to write out the steps you’d need to take to resolve a legal issue by yourself?  If so, I give you points for courage, but you would also have to prepare to hear the words, “no way.”) 

3. Do you discount your rates in exchange for commitment?

Most trainers sell packages.  One session is $60, but you can get four for $200, or perhaps ten for only $400.  The mistake lies in believing that training sessions are a commodity that can be packaged for increased profit.  The truth is, packaging your time for reduced fees ensures you’ll earn less money by year’s end.

4. Do you allow your clients to dictate your schedule?
When I ask trainers this question, the knee-jerk response is, “of course not,” but then a new perspective on scheduling begins to unfold.  If you ever ask a client, “when do you want to train next?” you’re allowing your clients too much control.  I defy you to try to get a haircut appointment at a time that is not “on the schedule.”  Try to get a dentist to hang around after posted hours to examine your teeth.  Unless your dentist is unusually accommodating, or in love with you, you’re probably going to have to make some shifts in your own schedule if you want those chompers professionally looked at.  Trainers admirably bend over backwards and fail to recognize, they’re contributing to their own subtly impending burnout, and burnout always always always leads to reduction in revenues.  Always. 
5. Are you subject to no-pays, no-shows, or last minute cancellations? 
The calendar says, “session,” the phone call says, “can’t make it,” the bank account takes a hit.  It’s the burden of our profession, as clients see our relationships as casual and somewhat social, and if I hadn’t learned to overcome this burden, I’d believe, as you might at this moment, that it’s a necessary evil.  It isn’t.  I ask every client to submit a retainer, equal to one session’s fee.  In the event that the client cancels or doesn’t show, the retainer is forfeited, the professional is paid.  The idea is not necessarily to collect money for no-shows, but when you employ a policy requiring commitment and money’s on the line, something funny happens.  Clients show up. 
6. Do you spend any money at all on advertising?
Advertising is flawed in three primary ways.  One, consumers are subjected to information overwhelm on a daily basis, so even the most creative ads can fall flat due to nothing more than mass desensitization. Second, consumers are savvy enough to know that you paid for the ad, thus the information disseminated is biased and the red flag of apprehension is raised along with a belief barrier.  Third, it immediately puts you in a cash flow deficit.  In other words, the ad has to deliver not only interest, but actual revenues just to recoup the dollars you forked out.  Trainers never have to advertise, but they do have to learn to market, and if you believe the two words are synonymous, it further reinforces my point, that trainers need foundational business skills. 

If you feel I’ve been unfair or taken a myopic view of a massive industry where over 400,000 people call themselves trainers, where over 20.000 health clubs employ trainers and fitness directors, and where the information available to help trainers master core stabilization, posture assessment, pre-hab and post-rehab training methodologies, and strength and agility training abounds, I understand your sentiments, but I stand firm.  I meet the great trainers, I visit the rare health clubs who do prosper with a commitment to excellence, but I see the other side as well, and for every trainer who commands respect and achieves prosperity, I’d conservatively guess there are 250 floundering.  I don’t want to point fingers or indict anyone or anything as the cause, I simply want industry-wide recognition that as our population gets further into deconditioned land, we have an obligation to excel, and we deserve to be compensated and respected as professionals.  In the fitness arena today, Fitness Directors are pushed beyond their level of competence as they’re asked to lead and manage without any actual training in those disciplines.  Trainers are asked to generate clients, but nobody ever teaches them to comfortably sell.  When personal trainers take the leap into operating their own facilities, they are typically naďve related to bookkeeping issues, payroll issues, and they’re surprised by the number of “I didn’t expect this” thoughts that roll through their heads on a daily basis.  Perhaps worst of all, when they try to hire, they find that the words “fitness professional” have never been clearly defined and aspiring trainers, although they may be well-intentioned, believe that any certification “counts.” 

We begin to escalate the perception of an industry by displaying consistent performance at the highest levels again and again and again, even if that display is initiated only by a select few willing to self-regulate, to challenge the prevalence of mediocrity, to break the chains of the old paradigm, and to pursue excellence at all costs.  Those courageous industry leaders become the epitome of human capital, as they become frontrunners in illustrating the potential return generated by investment of energy, brainpower, and continuous forward motion over and around obstacles that could not have been predicted. 

In order to maximize our human capital (to be discussed at length shortly), and find emotional, financial, and personal reward, we absolutely must recognize that we are in business, and in that we must apply some foundational Business Skills.  (Part II - The Foundational Rules below)

PART II - The Foundational Rules

Here are a few simple and foundational governing rules I share in my seminars, rules that help to create a firm pedestal upon which a personal training business can be built. 

If You Are Going to Succeed, Make Certain Your Financial Pumps Exceed Your Financial Drains. 

This seems so simplistic it borders on common sense . . . but in practice, this rule is ignored far too often.  It ties in with the “what did you net” question.  Trainers usually measure their finances by the number of sessions they did multiplied by the number of dollars they collect per session, or in some cases the number of packages they sold multiplied by the per-package price.  They may go as far as to keep track of “expenses” related to equipment purchases, advertising, and printing must be subtracted from revenues in order to determine “net,” but if they fail to recognize that meals on the road, gas, marketing time, free sessions, cell phone bills, cost of supplements, programming time, cancellations, no-shows, drive time, and educational materials are all “drains,” it’s easy to allow money to pour out faster than it’s driven in. 

Position Yourself to Prosper in Exchange for Thrilling 

If you believe your “job” is to “take people through workouts,” you’re completely missing out on recognizing your own power.  When you come to understand that people fail in fitness programs because they’re confused, because they’re misled, because they lack clarity as to the always necessary “next step,” you can best serve them by acting as a workout leader when appropriate, but ore importantly, as a resource for basic understandable truth.  Since 1986 I’ve been operating with a money back guarantee, and by 1994 that guarantee became “unconditional.”  It’s allowed me to put myself on the line, to put myself in a position where I can only prosper by delivering more value than people expect, and to this day this approach has served me well.  Thrilled clients bring more clients, and as you continue to touch greater numbers of people with the intention of delivering extreme value, your daily operations and your marketing become so wonderfully intertwined you never feel as if you’re “at work.”  You’re simply thrilling people and being rewarded as deserved. 

Recognize and Utilize Your Marketing Resources . . . no, go beyond utilization into the realm of exploitation 

Marketing is anything, and I mean anything, that puts you, your name, your image, your materials, your likeness, or your point of view in front of people.  When you’re training people, if you’re visible in front of others, you’re marketing.  When you stand at the deli counter to order lunch, if you have a shirt on identifying you as a fitness professional, you’re marketing.  If you’re talking to someone, you’re interacting with someone who knows people, who is capable of spreading the word of the value of your services, who may work in or participate in an environment with lots and lots of people who need you but don’t know you exist.  If a client expresses gratitude for the results you were instrumental in delivering, the marketing opportunities abound. 

My hope is that the questions and rules I provided help you rethink things just a bit, help you examine whether you are operating at maximum capacity.  Now, back to Adam Smith and his theories on economics.  More importantly, let’s examine how the three factors impact our livelihoods: 

Land or Property translates to Rent or Mortgage 

If you own a facility, if you pay a facility a monthly “rent,” or if you rent some space from a landlord, the value of the property, in terms of demographic, traffic, visibility, and image, have a massive impact on your potential to succeed.  If you pay more than the landscape dictates in terms of value, you may be fighting a losing battle.  I’ve met trainers who pay $1200 per month to train in a virtual free-for-all facility.  The market bears no more than $35 per training session. That means, all other expenses aside, a trainer would have to do 35 sessions at the top market price to even cover the “land” cost.  Imagine training for 35 hours before you earn a nickel.  If you’re relying solely on revenue generated by your training sessions, you’d be seriously handicapped.  The gym owner justifies it as follows: 

"If a trainer trains 35 sessions per week, in four weeks he can make about 5K a month.  That leaves $3800.  The trainers just aren’t motivated."

Is it any wonder there’s a huge turnover in training staff?  It’s also interesting to note that the “top” trainer averages 26 sessions “on the book” each week and is typically subject to 4-5 cancellations.  His clients pay between $25 and $35 per session.  His best month ever generated a total of $2520.  Oh, wait, there’s a footnote to be added.  Because he’s “been there so long,” he doesn’t pay rent.

You can see how the gym owner has a flawed perspective on “land” value, and trainers mistakenly buy into a struggle.  Adam Smith would certainly consider a change of venue, or perhaps a change of the valuation of the terrain. 

Goods or Services translates to “Personal Training Sessions” and other Profit Centers

There is a vital link between perceived value and cost when it comes to goods or services.  If a training session is valued at $60, but the trainer sells packages of 10 sessions at $400, guess what happens to perceived value.  Nobody perceives a training session as being worth $60, it’s worth $40 at best, and that’s assuming the trainers deliver on their promises.  If you’re going to be successful, you have to maximize the potential return on the goods or services you sell or provide.  Free sessions, discounted rates, and complimentary assessments become value handicaps, even if their packaged initially as “incentives.”  In addition, many personal training entities buy products such as supplements, heart rate monitors, and exercise aids and they sell them at cost, wind up with dead inventory, and habitually “borrow” from their own inventory making the “Profit Center” the equivalent of money chasing gravity on a one way trip into the Black Hole of Calcutta.


Human Capital equates to Time Investment and Return on Labor Costs
This may be the greatest challenge both for club owners and for personal trainers.  Club owners fail to recognize the value of investing in their potential rainmakers, and it’s rare that fitness directors or personal training leaders get any of the structured training middle managers would get in conventional business settings.  Trainers fail to recognize their own value, they neglect pursuing an investment in business education, and as a result they negatively impact the return on their goods and services. 

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