Successful fitness professionals know the importance of keeping score. When your clients are trying to get into shape, you track things like body composition, workout results, and nutritional intake to help them meet their fitness goals. The numbers help you track performance and make sure the things you are doing are working.
If you aren’t keeping score, how do you know if you’re winning?
The same can be said for getting your gym business in shape. It’s not enough to hope and pray that if you work hard enough, results will follow. You have to know your numbers – the numbers that set a baseline for where you are now, that provide a goal for where you want to be, and that track your progress from here to there.
If you asked gym owners for the most important number in their business, I would guess that Revenue would be near the top of the list. This is a number that is pretty easy to calculate – and it holds a special place right at the top of the income statement. Obviously you can’t run a successful business without revenue, but how does it perform as a financial metric?
Using Revenue as a measure of success in business is like using Weight as a measure of success in fitness.
Just like revenue, a person’s weight is really easy to measure. You step on the scale, and it gives you a number. Some days the number goes up, and some days it goes down. But the scale doesn’t tell you why it goes up or down. Sometimes the number changes because of something you did (but what?). Sometimes it changes because of the time of year. And what is the ideal weight? It depends. Your weight might give you an idea of how healthy you are, but it sure doesn’t tell the whole story.
For any metric (financial or otherwise) to have value, it should be predictive and actionable. So your revenue went up last month – does that mean you should expect it to go up again next month? Maybe you had a lot of annual memberships come up for renewal. Or maybe is it January (and your revenue always goes up in January). And if it did go up – what should you do to make sure it keeps going up?
If revenue isn’t an ideal metric, what are some alternatives? What are some numbers that would help us see potential issues before they become major problems and which numbers would help us make decisions about where to spend our time and money?
3 Metrics to Track
(Sorry for all the math. If you want some examples of the calculations, scroll to the bottom)
Member Retention Rate
((# members at end of period – # new members added) / (# members at start of period))
Members are the lifeblood of your gym – and most gym owners spend a lot of time and money trying to increase membership. You could use your total membership as a metric, but that number is usually clouded by other noise. Suppose you have a goal of 5 new members each month – but last month your membership only increased by 2. If that increase is a result of signing up 3 new members and having 1 member leave the gym, that tells a different story than 22 new members and 20 non-renewals. In the second scenario, you seem to be attracting new members at a solid rate, you just have to figure out how to keep them around. In the first scenario, maybe you have a marketing problem.
Average Lifetime Value
(average membership price x average member lifetime)
Although related to member retention rate, this metric tells a slightly different story. How much should you spend to try to attract new members to your gym? If your last marketing campaign cost $10,000 and brought in 10 new members, wouldn’t it be nice to know how much those 10 new members were worth? If the average lifetime value of a customer is $800 – maybe you would think twice about running that next campaign. Maybe it’s time to look at a different type of marketing (or maybe it’s time to look at your pricing or retention rate). The metric won’t give you all the answers, but at least it can lead you in the right direction.
(cost of trainers / total revenue)
Your biggest expense in any given month (maybe behind rent) will be payments to your trainers. Your might have a private training model with one trainer for each customer or you may have group classes with 25 or more customers at a time – either way, you will want to calculate your trainer costs as a percentage of revenue. Like most metrics, there isn’t one “ideal” percentage, but it is important to set a goal and track changes in the number to make sure your costs aren’t getting out of hand. The business doesn’t make a profit unless there is money left over after paying the staff – and if you find your staff utilization percentage is growing, it might be time to revisit your staffing levels or your pricing.
They may not be as easy to calculate as revenue, but these metrics will help you measure your financial fitness. Start now by determining where you are. Then set a goal, and be disciplined about keeping score. Soon you will be well on your way to winning.
Member Retention Rate – If you start a month with 200 members and during the month you sign up 22 new members and lose 20 members, you would end the month with 202 members. Your Member Retention Rate is (200-22)/202 = 88%.
Average Lifetime Value – If your average membership price is $100/month and a typical member keeps their membership for 1 year, your Average Lifetime Value is ($100 x 12) = $1,200.
Staff Utilization – If your total trainer payroll and benefits is $20,000 per month and your average monthly revenue is $80,000, your Staff Utilization is 25%.