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john warrillow

Ugi Fitness Inc. started out as a manufacturer of in-home fitness kits featuring a "Ugi" ball –similar to a partially deflated medicine ball – and a workout DVD designed for busy people who want a full-body workout in 30 minutes.

Ugi co-founders Sara Shears, Deb Karby and Mel Finkleman all agree that the future of their company is not as a manufacturer but more as a producer of content for a community of Ugi fans.

Their first foray into content production was the DVD and workout guide given to customers as part of the $189 Ugi at Home System.

Now Ugi wants to start to produce new workout guides, packaging them up on DVD or streaming video, and selling them to their community of Ugi ball users.

The Ugi team has plans to produce 12 new videos next year, but I'm worried they don't have the money to fulfill their ambitions to become a content company – at least not in the way they envision doing it.

The plan

Their plan is to create a video and sell it primarily to their current community, including about 2,000 customers who have bought a Ugi at Home System from their website, along with about 1,500 Facebook "fans" and 500 Twitter followers.

They envision charging $19.99 for a new DVD but estimate their production costs for a slick DVD could run as high as $20,000 each.

I see two problems with their plan.

First, they need to lay out all of the cash to produce the video upfront and will only stand to recoup that money over time as they sell their DVDs throughout 2012 and beyond.

Right now, Ugi is covering its costs and has only just started to be able to afford to pay its founders a stipend.

I don't see where they'll get the quarter of a million dollars to produce 12 videos next year.

The second problem is their projected conversion rate. Let's be generous and say there is no overlap among their Facebook fans, Twitter followers and past purchasers, and estimate their total market at roughly 4,000.

At $20,000 per video (the manufacturing cost of each DVD is around 78 cents), they have to sell roughly 1,000 DVDs to break even.

Ugi has a loyal fan base, but assuming a quarter of them would buy a $20 DVD just months after they were given a DVD and workout guide with more than 150 suggestions seems totally unrealistic to me.

When I challenged the Ugi team on their math, they were quick to point out that they are selling 700 to 1,000 new Ugi at Home Systems each month, so their target market of users is growing all the time.

While the Ugi community of users is indeed blossoming, it's likely that most users will be satisfied for the first six months or so with the set of 150 workouts included in the guide book that comes with the Ugi at Home System.

So, realistically, it will be the second half of 2012 before people who buy today will be receptive to an up-sell. By that time, according to Ugi's current plan, it would have six new DVDs it would need to hawk.

A better approach

I support their ambition to become a content company, but my concern is their approach. I would recommend the Ugi team think about developing a paid user community and charge for an annual subscription – upfront.

For example, for a $199-a-year subscription, a member could be offered three new DVDs throughout the year; access to a weekly online boot camp, led and streamed live by Ugi co-founder and celebrity trainer Sara Shears; access to a special area of the Ugi website just for members to share their success stories of getting in shape; and perhaps a monthly webinar on eating well, etc.

Because we're used to buying subscriptions upfront, the math starts to look better: Instead of trying to convince 1,000 of their 4,000-person community to buy a $20 DVD, all they have to do is sell 100 subscriptions at $200 each to come up with the $20,000 they need to fund their first video.

As long as they keep selling 100 subscriptions every four months, they'll have the money to fund their next video. After a year, they'll have a library of three DVDs that they could choose to repurpose and sell individually, and a loyal base of 300 subscribers – many of whom would likely re-up and subscribe for another year of access to the club.

My bet is that within the growing Ugi community of 4,000, there are 100 or so avid fans willing to pay $199 a year for greater access to the Ugi founders, special content and a deeper membership experience.

A subscription model would allow the Ugi team to build their DVD library without going broke in the process.

Special to The Globe and Mail

John Warrillow is a writer, speaker and angel investor in a number of start-up companies. You can download a free chapter of his new book, Built to Sell: Creating a Business That Can Thrive Without You.

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