The Hidden Cost of Sponsoring Cheer Customers
In the race to stay competitive in the all star cheer industry, many Cheer Gyms resort to offering sponsorships (i.e. “cheer on our team for free”) in order to lure athletes into joining their all star cheer teams. Couple this with the fact that most Cheer Gym owners have no background in business, meaning the only marketing strategy they understand is “lowering price to attract customers”, and you have a recipe for financial disaster.
From my experience working with the many cheer gyms in the industry, I would say with a fair degree of certainty that most cheer gym owners across the country do not know what their “gross profit margin” is for their all-star cheer team program. “Gross profit” is the total revenue an all-star cheerleader brings into the Gym (registration, tuition, non-tuition items, uniform, etc.) MINUS the total expense the Gym pays out for that all-star cheerleader to be on the team (coach pay, comp fees, choreography, music, uniform, etc.). “Gross profit margin” is simply the percentage of total revenue that gross profit comprises. For example, $25 in gross profit from $100 in revenue is a 25% “gross profit margin”.
*Note: a program’s “gross profit margin” does not factor in “fixed expenses” such as rent, insurance, utilities, etc.
I would estimate that most cheer gyms average a 25% “gross profit margin” on their all star team program. Meaning, for every $100 in revenue $75 goes towards expenses and $25 remains as profit. Cheer gyms with a strong brand name, who are not competing for customers primarily based on price, can maintain a higher gross profit margin (sometimes as high as 50%). However, most of the industry averages around 25% (before giving away that profit margin via common financial mistakes such as “excessive use of sponsorships”).
Let’s assume a hypothetical cheer gym with a 25% gross profit margin charges $3,000 for their all star teams. A 25% gross profit margin on their $3,000 season means $750 (25% of $3,000) is “profit” and the other $2,250 (75% of $3,000) is “expense”. In other words, it costs the Gym $2,250 in expenses to be able to provide the product (i.e. “the cheer season”) for which they collect $3,000 in revenue. A “paying” cheerleader earns this gym $750 in profit ($3,000 in revenue – $2,250 in expenses). However, a “sponsored” cheerleader costs this gym $2,250 ($0 in revenue – $2,250 in expenses).
ONE (1) “SPONSORED” NEGATES THREE (3) “PAYING”
In the above hypothetical 25% gross profit margin scenario, it takes ALL of the profits from 3 “paying” cheerleaders (3 x $750 = $2,250) to cover the $2,250 expense of one “sponsored” cheerleader. Do not miss this point! It takes three paying cheerleaders to cover the expense of one sponsored cheerleader. Said another way, “each sponsored cheerleader completely erases 100% of the profit from three paying cheerleaders”.
Imagine the above hypothetical Cheer Gym had an all star cheer program comprised of 100 cheerleaders. This 100 cheerleader program would be viewed by the industry as “successful”. But, what if 25 of those 100 cheerleaders were “sponsored” (non-paying)? The expense of those 25 “sponsored” cheerleaders would completely erase ALL the profit from the other 75 “paying” cheerleaders. Remember, in a 25% gross profit margin business, “one sponsored negates three paying”. This [perceived] “successful” 100 cheerleader all star program would earn ZERO profit! (see math below.)
The above hypothetical is an example of what I would consider as an “excessive” use of sponsorships to attract customers. Having 25% of the program’s cheerleaders “sponsored” means teams are being forms for no valid reason except “ego” or the common fantasy that “doing it for just this season will pay off next season”. The problem is… it never does.
The use of sponsorships to “shore up” an all star program should be used sparingly (i.e. less than 5% of the program’s cheerleaders). Sponsoring cheerleaders to shore up a program should be thought of much the same way as “using antibiotics to treat an illness”. Antibiotics are useful to treat illnesses, but only when used sparingly. The overuse of antibiotics only serves to make those antibiotics less and less effective in the future.
Just as with treating illness with antibiotics, there will always be occasional cases where sponsoring cheerleaders can be appropriate. The goal should be to have ZERO sponsored cheerleaders, but at minimum try to at least stay below the 5% level. If the product is good, customers should be willing to pay for it. If they’re not, that is a whole other topic for discussion.
I believe the use of sponsorships has risen to unsustainable high levels in the ultra-competitive all-star cheer industry due to the fact that most gym owners are unaware of the hidden cost these sponsored cheerleaders add to their gym. However, after reading this article……..you now know. The question now is, “what will you do with this knowledge and what balance will you choose?”
“It is not FREE to provide your service for FREE”.