Greg: 00:00 – It’s Greg Strauch of Two-Brain Media and on this week’s episode we get to hear from John Franklin and Mateo Lopez. You guys have heard Mateo on here on Marketing Mondays, but this is talking about converting more clients. This was originally recorded at the Two-Brain Summit of 2019. They dive into topics of lifetime value of a client, true cost of getting a new client and the true secret to getting rich quick. Make sure to subscribe to Two-Brain Radio to hear the very best tips, ideas and topics to move you and your business closer to wealth. Two-Brain Radio is brought to you by Two-Brain Business. We make gyms profitable. We’re going to bring you the very best tips, tactics, interviews in the business world each week. To find out how we can help you create your Perfect Day, book a free call with a mentor at twobrainbusiness.com.
Chris: 00:55 – One of my favorite finds has been foreverfierce.com. I linked up with Matt several months ago at Forever Fierce and he had some fantastic ideas, and so he and I have put together a couple of packages that we think are really going to help CrossFit affiliates everywhere. Two-Brain mentoring clients use Matt almost exclusively. He’s got fantastic designs and he takes all the work out of it. All that time that you spend searching the internet and Pinterest and junk like that for great CrossFit T-shirts? You don’t have to do that anymore. Matt has designs for you. You can put your logo on one of his templates, which are fantastic, and your clients will never know the difference. It saves you so much time that you could be using on other things like real marketing. He’ll also go so far as to remind you when it’s time to reorder. He’ll give you suggested order sizes, he’ll help you set up pre-orders so you’re not even fronting the cash for the inventory. It’s all amazing stuff built to help affiliates and that’s why I love this guy and this company, foreverfierce.com; they do all the Catalyst shirts, all the Two-Brain shirts, all the Ignite gym shirts. They do everything for every business that I own.
Mateo: 02:02 – Today we’re gonna walk you through a few things. The first is how to take control of your growth through marketing. The next thing, a key component of that is you need to know your numbers, right? How to calculate a marketing budget, how much is it going to cost you to acquire a customer, we’re gonna walk you through how to actually do that today. So you can do that for yourselves and your business when you go home. And the last thing we’re going to talk about is, John, the one weird trick to making more money in the fitness business. But before we get into all of that, I wanted to just share with you this quote from Henry Ford. Part of me just wants to leave this up here for the next 45 minutes and just have everyone meditate on this for a second.
Mateo: 02:41 – But, “A man who stops advertising to save money is like a man who stops a clock to save time.” And the reason why I want to just leave it up here for 45 minutes and not say anything else is because, yeah, if you’re here, you’re looking for a way to grow your business. And we talk to gym owners every single day, we’ve talked to over 500 at this point. And when people want to learn from us and inquire about Two-Brain, it’s cause they’re in some trouble, they’ve hit a plateau, they’re looking to grow, they can’t figure out why or when finances are tight, right, they need additional revenue. And when finances are tight, usually the first thing to go when they’re cutting expenses is their advertising, is their marketing. I’ll talk to people that say, “Hey, I want to, you know, learn more about marketing. I wanna talk to you, learn more about ads, but I just lost five members. So like I gotta wait.” And it’s like, what? How are you going to get them? So, but I’ve been there, right? I understand the mindset. But hopefully today through the math and through some of the exercises, you’ll feel a lot more comfortable about all this. So what is good marketing, right? What is good marketing? Well for us, good marketing is anything that convinces your target client to make a purchase, to buy something from you. And the way the human brain works when you’re making a purchase is through this model, we call it the model, and we’re going to run through this very quickly and then I’ll share a personal story that’ll make this make more sense.
Mateo: 04:07 – First thing that has to happen before someone makes a purchase from you is awareness, right? So I can’t buy anything from you if I’m not aware that you or your business exists. So that’s the first thing is I got to know that you exist. The next step is interest, right? Once you’re aware of something or a gym or service, you have to develop some kind of interest in that service or that product. Something needs to happen to turn that interest and cultivate it into a burning desire or a need and eventually get to a point where you need it so badly that you buy it, right? You take action and you buy something.
John: 04:36 – Who was here last year? All right, cool. So the crux of our presentation last year was that you should spend your time and your effort developing a good service and delivering that service consistently, whether you’re delivering it or somebody else, and taking that service and turning it into a strong brand and taking that good service and turning it into a brand promise to your customers and not breaking that promise. And we think that’s the key to long-term business success. But the reality is figuring that out takes a really, really long time. Years. And is anybody here venture backed? No? Nobody. So we don’t have other people’s money, like years of other people’s money to figure this out. We need to make money now, and good sales and marketing buys you the runway and buys you the time to deliver effective service over and over again. Does that make sense? With me? All right, cool.
Mateo: 05:30 – So we’ll take you through what good marketing is now in more like a real-world example. This happened to me pretty recently, actually. I was talking with John and he said, “Teo, if money were no object, what would you be doing? What would you want to be doing with your free time and all the money in the world?” And I said, “John, you know what? I think we should buy some cool shirts and I think we should learn to become DJs. Let’s just travel the world playing fat beats for amazing parties and that’ll be that.” And he said, “That’s a great idea, Teo, let’s do it.”
John: 06:04 – We’re halfway there.
Mateo: 06:04 – Halfway there was the shirts. Later on, as fate would have it, I got served an ad on YouTube for this thing called MasterClass, and for those of you don’t know what it is, it’s an online course where you can learn things like crafts and cool art forms from celebrities, actors, chefs. I got served this ad on YouTube. It’s for Deadmau5, he has a class there on MasterClass, and for those of you who don’t know, he’s an electronic DJ. Said, oh this is pretty cool. And kind of timely. We were just thinking about becoming electronic DJs. So awareness; I got served the ad, I was aware that this thing called MasterClass actually exists. I opted in to learn more and I got served some emails. I was on their newsletter and my interest grew, right? Later on, I got this email, right? An automated email talking about a new course they had added from Timberland, who if you don’t know that is, all Jay Z songs, He’s amazing. I was like, I want to make hip-hop beats like him. And I bought the course. So that was a real-life example of my brain going through all of those phases.
John: 07:15 – And all this is to say that the three top parts of the funnel are necessary to get people to take action on the bottom of the funnel. So if any of you have ever gone up to a random person and asked them to sleep with you, chances are you know that sometimes the most direct way is not the most effective way. All right? There are other steps that need to be taken in order to get to the bottom of the funnel. And I’d argue if you took that approach and were successful, they probably had some interest or desire already. Somebody else did a good job of building that up.
Mateo: 07:48 – Someone was nurturing that lead.
John: 07:51 – Somebody did the groundwork for you. All right? Somebody automated that. All right. And so let’s go back to CrossFit before Chris fires us. Who affiliated before a 2012? Oh wow. How many of you were active on the forums like the CrossFit—do you guys remember Brian Strump? I remember being like, “Oh my God, that’s Brian Strump.” Two years ago at the Summit it was like, oh, that guy’s so smart. And then I found out he’s like the type of guy who has his assistant print out his email so he can like read them and write back. The mentality back then was kind of, if you build it, they will come, right? The forum was filled with these stories of people opening boxes and like they’d have a hundred members and they didn’t do any marketing. So you just kind of open up and then the members come, right? Do you guys remember that era? It was sweet. It cool. It was a good time.
Mateo: 08:56 – Affiliation was a sweet deal.
John: 08:58 – And the idea, again, the idea was if you build it they will come. But the reality, the mindset kind of like we talked about in the last slide is like if you build it and Greg Glassman does the marketing for you for 10 years and then he builds these pools of people who are interested in trying CrossFit and there’s no CrossFits in the city for them to try and then you open up a gym there, they will come, right? Like somebody did the legwork for you and present day, it’s a lot more saturated. Right? Like 10 years ago it was like try CrossFit. That was all you had to do. You had to get them to try CrossFit. And now it’s very much like try my CrossFit. In 2019, 2020 it’s even more competitive now, right? It’s no longer just like CrossFit, yoga, P90x or do nothing, right. In the U.S. alone, there’s 40,000 gyms. All right? And that doesn’t include boutique gyms, which like most of us classify as like a micro gym. And that doesn’t count single-member personal trainers. So these are guys running out of globo gyms. It doesn’t count Class Pass, it doesn’t count Peloton, it doesn’t count whatever the program Oscar uses to grow his calves on the internet. There’s just a lot more choices. And the reality is you need to speak to different people and deliver them compelling messaging if you’re going to stand out. And each part of the funnel. So each piece, the messaging is different than any other, right? So go back to the example of the action phase, asking somebody to sleep with you, again, like maybe asking them their name first is a little more appropriate.
Mateo: 10:33 – So what I want to do now is, you know, ask yourselves—I have a couple of questions I want you to ask yourselves while you’re sitting here, right? So do you plan out your marketing for the entire year? Do you have a plan mapped out or do you follow a more hit-and-miss strategy? Right? Try giving out some free trial classes here, maybe do a new year, New Year offer there. Maybe I’ll do some buy one get one, maybe I’ll do a Facebook ad over here or a Google ad over there. And then when you try all these methods, is your messaging consistent across all of them or are you speaking to your audience in a different way every single time? Are you communicating with your audience every single day? If you don’t have great answers to these questions, but you’re looking for a way forward, we want to do next is provide some context around that. Look at some other industries and how they market and maybe we’ll be able to find the way.
Mateo: 11:29 – So this is a study done, this is a CMO study done by Deloitte. And basically what they found was that across all these different industries, they will be spending anywhere between 4% to 25% of their total revenue on marketing. The lowest one is the energy system, energy industry.
John: 11:52 – You, sir. You sir. What’s your name?
Corey: 11:54 – My name is Corey.
John: 11:55 – Corey, where are you from?
Corey: 11:56 – Murfreesboro, Tennessee.
John: 11:58 – All right. Can you name for me the top five energy companies in Murfreesboro, Tennessee?
Corey: 12:03 – Yes. So starting at the bottom number—no, I have no idea.
John: 12:08 – All right, so Murfressboro, Tennessee. Can you name one? Yeah. Got it.
Mateo: 12:14 – Yeah. And so that’s the reason, right? Everyone needs power, so they don’t really need to say that message in a creative way. Everyone needs it. So there’s lots of people in the desire stage. There’s not a whole lot of options, right? There’s not a whole lot of competition.
John: 12:25 – Not a ton of options.
Mateo: 12:27 – For us in the fitness industry, we’re in the second highest spending category. Right? 15% consumer services.
John: 12:35 – You sir, what’s your name?
Andrew: 12:36 – Andrew.
John: 12:37 – And where are you from?
Andrew: 12:39 – Boston, Mass.
John: 12:40 – Boston. All right. Can you tell me four gyms in your area?
Andrew: 12:44 – Yeah. Mine.
John: 12:46 – Good start. Good start.
Andrew: 12:48 – And then three other CrossFit gyms in neighboring towns.
Mateo: 12:51 – Yeah. So there you go.
John: 12:51 – Way better than the electric.
Mateo: 12:53 – We need to spend a lot more to compete and to get our message out because, well, one, there’s just so many options and two, what we offer in a lot of cases is so undifferentiated. You got another question for them? I already said that. Expenditure on marketing and advertising is expected to rise, especially in social media. That same study found that social-media spending is expected rise over 75% over the next five years, right? The United States Small Business Administration, they recommend that for small businesses, you should be spending anywhere between 7%, 8% of your total revenue on marketing and advertising, right? And for them, a small business is any business that’s making less than $5 million in sales. So I think that’s probably most of us in this room. And if not, let’s talk some more, but I think that’s most of us in this room. So if you are making a $30,000 in revenue a month at your gym, Rob, that means that if it you should be spending somewhere around $2,400 on your ads according to just this, this metric. And why? Like that’s a lot of money. I know for a lot of us, you know, we’d rather you know, spend it on our members or maybe pay ourselves or you know, why spend all this money on ads, and if we are going to, what’s the best way to do that? Well, if you think about your business in a new way, that might help answer that question, right? If you think of your business as a subscription-based business, because that’s what it is, right? A gym membership is a subscription. If you think about it that way, then it’s going to be a little bit easier for us to walk through the numbers and explain how best use that marketing budget. So what we wanna do now is walk you through a couple examples of some of the fastest growing and some of the largest subscription-based companies in the world. And then if there’s anything we can learn and take from them.
john: 14:54 – It’s my turn, Rob. All right, so you ever hear of a company called Netflix? All right. How much does Netflix spend on marketing?
Rob: 15:04 – 98.9 per new subscriber.
John: 15:06 – Yeah, that’s a great job, Rob. So guys, Netflix does about 15 billion in revenue and of that 15 billion,
Mateo: 15:16 – It’s a B, it’s a capital B.
John: 15:16 – They do $2 billion in marketing spending. All right, so pretty substantial amount, much more than the average gym spends on marketing as a percentage of total revenue, and gross, too, for most, you know. And so we know because they’re a publicly traded company that it costs them about a hundred dollars to acquire a new customer. What does it cost for a month of Netflix? You can say it out loud. It’s fine.
Mateo: 15:46 – I think they just raised the price.
John: 15:48 – Let’s assume it’s 10 bucks, because that’s what the math I did. So you screw up the whole thing if they raise the prices, it’s not gonna work. All right, so let’s say it’s about 10 bucks. So why would Netflix spend $100 for a $10 subscription? What’s your name?
Sean: 16:12 – Sean.
John: 16:12 – Any idea? No?
Mateo: 16:17 – Seems like a silly strategy, John, why would they do that?
John: 16:18 – Chris?
Chris: 16:19 – Because their lifetime value is more than that.
John: 16:22 – Yes. All right. So Netflix in that first month, they actually lose $90 for every customer they acquire. But they know the value of a customer over the lifetime is many times that hundred dollar acquisition cost, right? So if they spend $100 and they wait a little bit and they track their metrics, they know that they’re going to get $450 back. So they’ve effectively created a cash machine, right? They put a dollar in marketing and they get $4 and 50 cents back. It’s a pretty good deal.
Mateo: 16:53 – Another great example, who has a Kindle? Anyone have a Kindle here? I don’t have one, but I think maybe they’re cool. Maybe they’re cool. I don’t know. So Amazon uses a similar strategy with their Kindle product, right? They’ll take a $500 million loss on their sales of their Kindle products, but the reason they do that is because they know they’re going to make that money back and much, much more on the back end because once you buy the Kindle, you’re going to use that an purchase ebooks. You’re going to buy movies and TV shows and you’re gonna stream music. You’re going to download some apps. Those apps will have advertisements, and so they’ll take a $500 million loss in order to make 2 billion dollars on the back end from those sales that come from the products associated with the Kindle.
Mateo: 17:37 – Other examples of this, Dollar Shave Club, they’ll take a loss on their handles and the kits, their blades, on the front end because they know that every month you’re needing to subscribe and purchase more new fresh blades. Cell phone companies. You see this all the time, right? You’ll see ads for a free iPhone or super discounted Galaxy new phone because they know they’re going to lock you into a long-term contract for years and years and years. Even milk and eggs, grocery stores—I didn’t know this, I didn’t know this until I researched this for this presentation. Milk and eggs are often sold at a loss at grocery stores, but they’re positioned at the back of a store, right? So you have to actually walk through the isles through more expensive packaged goods and literally adding things to your cart as you go to get the milk and eggs.
Mateo: 18:21 – So what these all are, are examples of what we call loss leaders, right? This is where a business is OK losing some money on the front end of the sale because they know they’re gonna make that money back and much, much more in profits on the back end. So much more. The lifetime value of my gyms is actually pretty high. You can ask Ashley and he’s in the room somewhere. Ryan and Jay and then Ashkan, they’re over here. So I’m perfectly comfortable breaking even on the front end of my introductory offers, like a six-week program or a 12-week program, I’m even okay losing money because I know those members are going to stay and stay and stay and we’ll make all that money back. But here’s the deal. We’re actually living in the golden age of digital advertising where you can actually acquire customers at a price that’s so low that more often than not, you can make a profit on the front end. And that’s amazing. Yeah, it’s amazing. And it’s a lesson that, you know, some of the clients we work with, it takes a little bit of time to learn, right? Who you got there, John?
John: 19:27 – What’s your name sir?
Jay: 19:27 – My name’s Jay.
John: 19:30 – Jay, you won an award yesterday. What’d you win?
Jay: 19:32 – I’m going to the CrossFit Games.
John: 19:35 – What’d you do?
Jay: 19:36 – Courtesy of HSN and Nicole back there, I made a sweet little testimonial video.
John: 19:40 – The presentation is sponsored by UpLaunch, so you’re not allowed—so for those of you that don’t know, Jay was one of the first clients through our program. And like I remember like it’d be like six, 7:00 PM and I would get like a call or like a text message, a panic thing from Jay being like, Oh shit man. The Facebook stuff’s not working. It’s not working. And I’d be like, Jay, Jay, how much did you spend?
Mateo: 20:12 – $400
John: 20:13 – And how much did you make?
Mateo: 20:15 – $3,000.
John: 20:17 – So why is it not working?
Mateo: 20:20 – I don’t know, it just doesn’t seem like it.
John: 20:22 – Just stick with it, Jay, a little bit, it’s gonna be OK.
Mateo: 20:27 – So we’ll talk about an example that’s a little bit closer to home, I think. John’ll walk you through. You guys heard of this company, Orange Theory Fitness? Anyone heard of it? Raise your hand if you—
John: 20:40 – Are they in like Europe in Australia and stuff now? No? All right. Well, they do like a boot-campy type class. And we know for a fact that they spent pretty close to $20 million last year getting people to take a free class. So $20 million giving something away for free. And again, we’re beating a dead horse here, but it’s an important concept to get in your head because a lot of people exhibit the same kind of panic and anxiety that my good friend Jay does, where like he will be having a very, very successful campaign. But because it’s not making him like $50,000 every month, like feel a little panicked. So let’s look at why Orange Theory would spend $20 million to give something away for free. So we know that they’re probably getting leads for about 10 bucks a pop. And from that we know that for every 10 leads they get, maybe one will come in and try a free trial class.
John: 21:34 – So it cost them 100 bucks to get somebody to just come in and take a free class. And once they take a free class, we’re guessing about one in every five sign up for a membership. With me so far? So it cost them about 500 bucks to get a new member. And Orange Theory pricing’s about a buck 50. Their retention isn’t as good as most like high-level CrossFit gyms because it’s like the same workout over and over and over and over and over and over and over again. And so their lifetime value is about 900 bucks. And so for them, they know they can spend $20 million giving away something for free because it costs them 500 bucks to get a new customer but they know over the long term their business is going to get $900 of revenue for that customer. So again, just a winning funnel, like a dollar in almost $2 out.
John: 22:19 – And I want to take a minute. How many of you guys know what a ClassPass is? Okay, so yeah, ClassPass is something where like, they’ll bring people into your gym, like you pay a third of what you would normally pay. How many people know what like Groupon is? Okay, cool. And so I want to take a minute because like technically Groupon and ClassPass, those are forms of marketing, right? They bring people into your gym and you probably hope to sell them into long term memberships. Right? But like Teo said earlier—I’m not there yet, you’re spoiling it.
Mateo: 22:55 – I was excited. Sorry.
John: 22:56 – It’s okay. We’re not used to doing presentations with air conditioning. That’s why. So he said good marketing is anything that persuades your target audience. So these are like your Pumpkin-Planned best customer type people to take a desire to action within your business. All right. And we’ve worked with, I don’t know, a lot more now, probably like 500-ish gyms through the marketing program. And we ask every single one of them like, Hey, who’s your target client? Like, who do you want to work with? 30 to 40 years old? Dual-income families. What about you?
Mateo: 23:39 – The whole family.
John: 23:41 – That’s why you guys are dressed so sharp, you’re smart. Okay. So nobody has ever said to us like, hey, the type of people I want in my gym are like gym hoppers, like really transient people that just love chasing novelty. Like something opens up, they got to try it. And not only that, like they want to pay 50% of the actual price. That would be amazing if I could just get those people in hordes to come to my gym. That would be awesome. Like they would ask for the moon, pay for sand and leave a one-star review if the towels aren’t right. Like that’s it. Those are my people. And so like we kind of developed and evolved this idea about marketing kind of playing off of a quote that Charlie Munger said, does anybody know who Charlie Munger is? Who’s Charlie Munger? Yeah, Warren Buffet’s investment partner. And so they created this idea, at the time, like Warren Buffet would buy like failing companies and at like a really cheap price. Right? And then they started investing in better stuff. And the quote is “A great business at a fair price is superior to a fair business at a great price,” and that kind of like echoes, like I have a similar sentiment about marketing. Like a great customer at a fair price is a lot better than a fair customer at a great price. And that’s kinda how I feel about Groupon and ClassPass, right? You’re getting bad people at a good price where I’d much rather pay a higher premium through honest advertising on Facebook or whatever method, you know, works for you guys, nd get the people that work for my gym, my target people. And so all of this to say like, I know we kind of beat a dead horse a little bit with this—.
Mateo: 25:20 – We beat the dead horse.
John: 25:24 – -Get rich by losing money. And it’s a counter-intuitive idea, right? You go back, when I say get rich by losing money, think of Netflix, right? Spend a hundred dollars to get that $10. As long as you know you’re getting the 450 on the back end, right? It takes discipline. But if you know your numbers, you can be resilient throughout this process and develop a huge competitive advantage because I’m here to tell you ads are only going to get more expensive and acquisition cost is only going to get more expensive, and if you’re sophisticated about the way you go about your advertising, like you are going to clean up. All right? But it takes two pieces of data to kind of do this well.
Chris: 26:04 Hello my friends. It is Chris Cooper here. Since 2009 I have been writing daily blog posts, producing podcasts, videos, all kinds of stuff on social media with one mission in mind: to make gyms profitable. I came to that mission because I was an unprofitable gym owner. It almost ruined my finances and almost ruined my career, my marriage, everything. And since that day, since I made my recovery, I have wanted to help other gym owners become profitable, too. It’s part of my mission to the world because if you’re profitable, you’ll be here changing lives of thousands of your clients for the next 30 years. I think together we can have a tremendous impact. When we started mentorship, I did every single call myself. I was doing up to a thousand free calls a year and I was doing 10 calls with people who signed up for our early mentorship program, but the Incubator has been updated and improved a dozen times since then. Now the Incubator is really the sum of all of our experiences with over 800 gyms worldwide. In the Two-Brain mentorship program, we can now learn from everybody. We can collate data, we can see what’s working where and when and what the new gold standards are as they emerge. When somebody has a great idea, we can test it objectively and say, “Will this work for everyone or will it work for people on the West Coast or on the East Coast?” We can do that with little things like Facebook ads. We can also do that with operations and opening times and playbooks. All the questions that you have about the gym, we can answer them with data and with proof now. That’s the Incubator. It’s more than what I wrote about. It’s more than my experience. It is the best standard in the fitness industry, period. And I hope to see you in there.
John: 27:46 – The first piece is just lifetime value. So what is a customer worth to you, and your target acquisition cost. So what can you pay to get a new customer? And every example we just went through like that was all we were talking about is like, cost them this much, they got that much back, right? Simple enough when I’m on here, like onstage saying it, much harder when you’re in your gym trying to actually like figure it out. So we’re going to go through some examples to show you how to do this for yourself.
Mateo: 28:13 – So you guys get a little notebook in your little baggy? Or something to take notes with? Pen and paper? Get those out right now we’re gonna do a little bit of math. So bring those out. We’re gonna do it together.
John: 28:25 – You may get called on.
Mateo: 28:25 – You may get called on, so have the pen and paper. So let’s say that you wanted to add 10 new members to your gym next month. Let’s find someone, John.
John: 28:38 – What table do you want?
Mateo: 28:38 – That table. Orange shirt. I like the orange shirt. I saw it. Yeah. Do you know how much money you would need to spend and allocate for your marketing budget in order to get 10 new members?
Orange shirt: 28:51 – No idea.
Mateo: 28:52 – Okay. That’s all right. Maybe mustache?
John: 28:55 – Wow. Those guys best dressed, best mustache over here. Two-Brain Marketing awards.
Mateo: 29:06 – 10 members next month. What’s your marketing budget?
Mustache: 29:08 – No idea.
Mateo: 29:08 – Okay, cool. We’ll try one more time. And don’t ask Jason. He probably knows by now. That table. That right there.
John: 29:19 – Let’s go the back here. Coming right at ya. 10 new members, what does it cost?
Guest: 29:25 – 1500 to 2000.
Mateo: 29:27 – How did you get that number?
Guest: 29:29 – It was fed to me by the gym owner.
John: 29:29 – Oh, Amal.
Mateo: 29:35 – So here’s what we’re gonna do. We’re actually gonna calculate it out right now. We’ll walk you through it. As John said, you’re gonna need a couple of numbers here. The thing that we really need to figure out is your target acquisition costs for your client, right? Once you have that number, how much it cost you to get just one new member, just multiply that number by the amount of members you want, and then you have your marketing budget for the month, right? Pretty simple math. So you’re gonna need these three numbers here. First one’s gonna be lifetime value of your clients. Once you have that number, you’re going to subtract it from the amount of profit you want to make. And the last thing you’ve got to subtract out is the expenses, right?
Mateo: 30:09 – So whatever’s left over, that’s your target acquisition costs for new members. So lifetime value was the first one we need to figure it out, right? So how do we do that? This man right here with the glasses.
Ashley: 30:22 – Hello, my name is Ashley.
John: 30:22 – And how do you figure out lifetime value of a customer?
Ashley: 30:31 – Figure out your lifetime value of the customer by getting your average length of engagement. And you multiply it by its average costs. In essence, you get that average lifetime value.
Mateo: 30:41 – Oh, it’s really close.
John: 30:42 – Very close. Very close.
Mateo: 30:44 – He said length of engagement. So we get the LEG. What’s the other thing we need? So you multiply your ARM by your LEG, right? So, let’s not ask Ashley because—actually Brian, what’s the LEG at Bowery CrossFit. Nine months. Okay. And then let’s ask that person right next to you. What’s your ARM? If you don’t want to say it’s fine, but.
Jess: 31:16 – Hi, my name is Jess.
Mateo: 31:17 – Hi Jess. What’s the ARM at your gym?
Jess: 31:21 – $163 and 57 cents.
Mateo: 31:24 – Perfect. That’s the exact math—
John: 31:29 – We actually used $166.
Mateo: 31:32 – Everyone right now write down $166. That’s the ARM. And then nine months is the leg. That was amazing. I’m so happy. All right, so the math on that, if you can’t do the multiplication, it’s going to be approximately, we’re going to round up. Should be, and someone can check me. It should be close to 1500 bucks, right? $1,500.
John: 31:53 – So this is nine months, 166 a month total lifetime value.
Mateo: 31:57 – Next thing we need is target profit, right? How do we figure that out at Two-Brain? What model do we use for that? John Briggs? What model do we use to figure out our profit margins? Oh, what’s his name?
John: 32:11 – I hear some spoilers.
Mateo: 32:12 – -I heard it. 4/9ths. The 4/9ths Model, right? So 4/9ths Model, working from that, that means we like to take home 33—we like to operate at 33% profitability, right? So again, want to make the numbers a little easier. We’re gonna round down 30% so to figure out your target profit, you’re going to take your lifetime value—.
John: 32:31 – Which is what?
Mateo: 32:32 – 1500 bucks, right? And then you’re going to multiply that by 0.3 right? That the math?
John: 32:41 – Yeah. That’s your target profit. So 30%.
Mateo: 32:44 – You should get close to something like—
John: 32:48 – Anybody got it?
Mateo: 32:51 – 450? Someone said it. 450, all right. The last one is expenses. This one’s going to be a little trickier. There’s a lot of different ways you can do this. This is really just to give you a rough estimation here. So for expenses, right? What it costs to fulfill this one client, not your total expenses, right? You’re just one client. So what you’re going to do is you take your overhead for their length of engagement. So what does it cost to operate your gym for those nine months? Right? So let’s say that’s your overhead and your CAM, your rent, your repairs, all that good stuff. Let’s just say to operate your gym for nine months, it’s going to cost you $72,000. You got to divide that by the amount of members you have. So let’s say you have a hundred members at your gym, Ashley, someone, some easy math, right? That means that you’re over—it’s going to be 720. So write that down on your little sheet there. And then you’re going to add in some additional staff expenses. Like if you pay out a fee for on-ramp, let’s say it’s 100 bucks, that means your expenses are 820.
John: 33:51 – When he says like the fee he means like if you do like one-on-one on-ramp, right. So that’s like an incremental cost for a new member. So whatever the 4/9ths of your on-ramp costs, like we just assumed it was a 100 bucks.
Mateo: 34:04 – So we have all our variables, right? We can figure our target acquisition costs, lifetime values, 1500, subtract the profit, subtract your expenses and you’re left with $230. That’s the amount that you can spend to acquire one new member. Let that sink in for a second. $230. That’s a lot. That’s a lot of money.
John: 34:26 – So if you needed 10 members, you have also a very good mustache. A very nice mustache. So if you needed 10 members, what would your marketing budget for that month B.
Guest: 34:38 – I didn’t do all the math yet.
Mateo: 34:40 – That’s okay. The target acquisition cost is 230, we need 10 of those people. What’s the budget?
John: 34:49 – It’s all right. It’s all right. Anybody, someone else. There we go.
Mateo: 34:54 – $2,300. That’s your marketing budget for the month. Amazing. So we got it.
John: 35:00 – And as you get better at acquiring customers and as you do more marketing, this creates a virtuous cycle. All right? So we’re going to do another example that shows by how keeping cost consistent, but having more members or charging more per member creates an even further moat in your marketing. Let’s go ahead. All right. Where are you from? North of Seattle. Okay, perfect. So let’s assume you and I both have a gym in Seattle and our costs are identical. All right? And we both charge the same amount of money, but maybe you’re like a better marketer, a better operator. You have 200 members. I only have a hundred members. All things consistent. Who’s making more money? Me? You. Okay? Yes, that is the correct answer. And as a result of that, who can spend more money to acquire new customers? Yeah, you’re a smart man, smart man. And same thing. Let’s assume that we have the exact same costs and the exact same amount of members, but I charge $100 and maybe your service is a little more refined. You charge $200 again, who’s making more money? Yeah, you’re the rich guy. And so this graph just shows target acquisition cost and over the x axis is your number of members or your cost per member. And we’re just assuming that costs remain constant. And it just shows that as you grow, you can spend more money to market. And again, if you’re able to outspend your competition, you have a huge competitive advantage as ad costs grow.
Mateo: 36:44 – So we’ve been talking a lot about marketing. We talked about how you don’t want to, you know, cripple your mechanism for growth. So maybe you’re—now you know how to calculate your marketing budget. Now you know how much you need to spend, but what’s the best way to deploy and use that budget, right? What’s the best marketing strategy moving forward? And a key component to our overall marketing campaign and our acquisition strategy is digital advertising. We really like digital advertising for a couple of reasons. One, it’s still really, really cost effective for small business owners like us, right? It’s still really, really, amazing how you can get a cheap lead costs through digital advertising no matter if it’s channels like Facebook or Google, Instagram. The other thing we really like about it is it’s easy to track your ROI. So before let’s say, all right, I know that I have a $2,300 set aside for marketing, before your only options really were print ads, maybe a newspaper ad or radio ad. And you’d have to wait a really long time to reap the benefits, if at all, from those marketing efforts. But with digital advertising, you can see the results in real time. You know how much it costs to get your message out, to get someone to come through your door and to sell them.
Mateo: 37:55 – And what’s better is you can also track and quantify how much you spend on leads. We just talked about how much you can spend to acquire a new customer. Now that you’re, let’s say you’re using digital ads, you have all these leads coming through. How much should we spending on leads? Right? Well, there’s a simple formula for that. If you want to figure out your maximum cost per lead, maximum allowable cost for your business, for your leads, you just take your target acquisition costs and you multiply it by your conversion rate. So for our gym Ashley Mak, we won’t put you on the spot. We’ll just talk about you. You don’t have to talk about yourself. At our gym from paid advertising strategies, leads that come in through those pipelines, our sales conversion rate’s about 20% so John, if we get a hundred leads, how many are we selling? 20. Great, awesome. Thank you John. And so you have your 20% conversion rate. We plug in our target acquisition cost that we just did from before with all that math that everyone here was doing, that was 230. So we multiply that by 20%. That means that maximum cost per lead is $46.
John: 38:57 – Anybody here get leads for less than $46?
Mateo: 39:01 – Yeah. It’s amazing. It’s amazing, especially when most of the, like I said before, most of these platforms will allow you to do that. And it’s amazing when you consider lead costs across other industries, right? You know, in the finance sector, in the tech and computer sector, leads are on average 45, $47, right? Marketing and media, $24. And what’s amazing is a lot of the Two-Brain clients that we work with, they’re generating leads for around 20 bucks, even in the most competitive markets like Florida and Colorado.
John: 39:32 – Now the good part. t wouldn’t be a sales and marketing presentation if I did not do at least one section on getting rich quick. Okay? So what we’re going to do is we’re going to teach you, it’s Teo’s, actually, one weird trick for making more money. Who here would like a raise today? Who here would like to make some more money? All right, this is perfect. Should we tell them?
Mateo: 39:54 – Banks hate this guy.
John: 39:55 – Oh they hate—if you ever want like a good time, Google the one weird trick meme. Not now. All right, so let’s get to it. It is pick up the phone. All right? And this is probably pretty upsetting for a lot of you.
Mateo: 40:11 – I’m sorry Rob. I’m sorry dude. I wanted to impress you, but this is—
John: 40:15 – This is the best thing we could come up with. No, guys, a lot of feedback that we get from people within the course is like, oh, lead quality is bad. Or how do I improve my leads? Or how do I change my pictures or my text in order to get my leads down $3. And if there’s one thing we want you guys to take away today is that excellent lead nurture matters so much more than excellent Facebook ads. And as the marketing people, it is tough for us to say that. But the last portion of this presentation, the last exercise, we’re going to prove to you that most people in this room are leaving between five to six figures of annual revenue on the table by doing improper lead nurture. All right. Let’s ask some people some questions. Let’s ask Rob. No, Rob knows the right answers. All right. Hi, what’s your name?
Mason: 41:13 – Mason.
John: 41:14 – Mason. How do you get leads? Do you do any paid advertising? No. Okay. So how do you get a lead? Okay, social media, word of mouth, and they’ll fill out like a form on your website and say, hey, I want to sign up? Okay. And then what do you do?
Mason: 41:34 – And then we talk to them.
John: 41:37 – Like you give them a call? So you don’t—you never call them. Okay.
Mateo: 41:43 – Moving right along.
John: 41:51 – Let’s see. I’m looking right at you. All right. Do you do any paid advertising? You do not. How do you get leads? Okay. And they fill out a form on your website or the—okay. They email you and then what do you do? It’s like you call him and have him schedule a No-Sweat Intro. No. Okay. Email. Got it. And what about you? Okay, so just all organic and then email them. Okay, cool. Cool. All right, we’re ready now.
Mateo: 42:31 – So yeah. I mean the point of this story is, you know, this is going to be important for you, right? Regardless if you do paid ads or not, right.
John: 42:41 – We should preface this, this is not just for paid advertising. Everybody gets leads. If you need to sell memberships to keep your gym open, you need to do lead nurture. You have leads.
Mateo: 42:51 – So this was a study done, Harvard business review. They surveyed over 2,000 businesses and they found that, well I guess before we do that, if someone does inquire right, raise your hand if you call them at least one time?
John: 43:08 – You gave them the answer.
Mateo: 43:09 – Oh, I did?
John: 43:10 – It’s okay.
Mateo: 43:12 – What about two times? Three times? Four times? Okay. Got It. Okay. So here’s the situation, right? A lot of businesses do the same things, like don’t feel bad. But they found that most sales reps give up way too soon, right? If you have a one-call or two-call system, the chances of you making contact with a lead is actually only 35 to 40%. 30 to 30 to 35%. Right? But by the sixth call attempt, by the sixth time you reach out to your prospect or your lead, the chances of you making contact with that person, they jump up to 90%. Right? So if you’re not reaching out to your leads multiple times, you’re leaving a lot of money on the table.
John: 44:01 – Just think about that. Like a hundred people fill out the form, and if you contact them six times, you’re going to talk to 90 of them. If you do it once, there’s 55 people you never got in contact with. Just gone.
Mateo: 44:16 – On top of that, right? It’s not just the amount of outreach attempts. The other thing that’s really critical is speed response, right? So in that same study, they found that over 74% of companies take more than five minutes to respond to a new lead. Now I know that’s tough for a lot of us, right? We’re one-man bands or two-man shops. You know, you’re coaching class, you’re meeting with members, but this is a huge deal, right? If you can crack this code, if you can respond to your leads in less than five minutes, you’re going to have an advantage over 75% of your competition.
John: 44:51 – You’ll feast. All right. So the odds of qualifying a lead become 21 times greater if you respond in less than five minutes. Versus if you respond 30 minutes, and that’s like a Netflix show, like that’s an inconsequential amount of time. And if you’re responding to leads with a phone call in less than 30 minutes, you’re doing a damn good job like you’re top 1% of the industry. But if you want to feast, if you want to be better than 99.9% of gym owners and you want to set yourself up for the highest likelihood of success, if you want to give yourself a raise, you call them in less than five minutes because think of that, Teo and I have a gym. He calls in 30 minutes. I call in five minutes. He has to spend $21 in ads just to keep up with every dollar I spend because I do a better job of nurturing the leads than he does. So he might have the best freaking pictures and the best freaking copy, but I’m going to be able to make it up on the back end because I have such an advantage in qualifying leads quickly. One hour versus two hours. So lead comes in. Lacey’s really busy. She has to go coach a class. Maybe she’ll come back, call them later, somebody else calls him right then, seven times more likely. You can go to the next one. Saturday I get a lead. I want to wait cause I’m tired. Somebody else, Teo is on the phone, hounding them down, trying to get them to come in for a No-Sweat Intro. He’s 60 times more likely to qualify that lead. So that’s a one to 60 spread. And I would guess most gym owners in the micro, like in the CrossFit space take more than a day to contact leads.
John: 46:21 – All right. And I can tell you that a lot of the big box franchises do not. They call their leads and they call their leads quickly. And a lot of affiliates, a lot of smaller gyms like to hate on that model. But the reason they do that, the reason they invest in front desk people, the reason they invest in call people is because it’s effective. All right? Say what you will about their programming. Say what you will about the results. Like those franchises, those models work because they are good at getting people to come in the door and sign up. And again, like we said last year, if you believe that what you are doing is important, it is your job to call people quickly to give yourself a 60 x advantage over the CrossFit down the street.
John: 47:00 – To further the points, 50% of sales just go to the person who responds first. So it doesn’t—like I’m looking to lose weight. I’m going to fill out a couple contact forums. Again, everybody around you. Raise your hand if you have a CrossFit less than five miles away? Keep them up if there’s more than two, keep them up more than three, more than four like, yeah. So it sounds like most are in the two to three range and chances are I’m a prospective member, I’m going to fill out all of those and if there’s CrossFitty-type things, or even if you’re a yoga studio, I’m going to do multiple, right? And you have a 50% chance of just getting that sale regardless of your business, regardless of your price, if you just get them on the phone and talk to them.
Mateo: 47:45 – What we want to do now is do a little exercise and see if we can try and improve ourselves and our businesses today.
Christophe: 47:56 – Christophe Kettleman
John: 47:56 – Where you from?
Christophe: 47:57 – Boise, Idaho.
John: 47:57 – All right. Solve everybody’s problems. All right, let’s hear what you got to say.
Christophe: 48:02 – So I use the service center of Idaho. They’re a digital call center. There’s a lot of different digital call centers out there. I just use one that’s local to me. But you train them. You can either do it like a Zoom meeting and teach them and that kind of stuff. Do it in person, whatever the case may be. The place I use charges me by the minute, so 70 cents a minute, if they spend three minutes on the phone and I get it a No-Sweat Intro, I call it a win. Additionally, I can talk to them if I have problems like say they’re scheduling and they’re just, the verbiage is not right or whatever the problem is, I can immediately address it and retrain the same way I would if it was my own staff. But because it defers to them, they’re 24, seven. So if at Sunday night at 3:00 AM I get somebody calling or somebody goes onto my Facebook ad ata 10 o’clock and says, you know what, I’m really interested in this, UpLaunch sends them an email, immediately sends them a text message, it defers to my service center who gets the notification and then they call them at 10 o’clock at night or 3:00 AM on a Sunday. So that person who’s interested doesn’t have to wait till the next morning til the next hour to the next minute.
John: 49:02 – Thank you Chris. So I know there are a lot of, yeah, round of applause. I know there are a lot of services that deal with inbound calls and that is a great solution. Use them for outbound too. I know outbound’s a little trickier and some states have like rules and regulations around outbound. I mean, the best solution is either you do it or somebody else does it within your gym. This sounds like, you know, we’ve never done that so we can’t advise. But maybe we’ll look into it. Any, any other questions? I hope that helped a little bit. But yeah, like, if you’re doing paid advertising, like, and it’s taking you a day to get, you said, Ryan, you said it takes you about an hour?10 to 30 minutes. Right. So if you can get somebody to coach your classes, and you know, most leads come through at pretty predictable times, right? It’s like pretty early in the morning, pretty late at night and on weekends. And so, again, if you’re running paid advertising, you should have a pretty decent idea. Like, if I spent $100 a day, my leads are 10 bucks, I know I’m gonna get 10 leads a day. Like, you know they’re coming, right. And some of the math we showed you, it was like you could 21 x your qualifying rate by doing better lead nurture. Like does it make sense for you to pay somebody 20, 30 bucks to coach a class so you can be available like to do phone nurture or somebody15 bucks an hour to be by the phone even if they don’t use it? My answer is yes.
John: 50:32 – Especially like no brainer, Saturday, Sunday nights like right. And not everybody, you know, everybody’s going to be at a different part of the journey. Everybody’s going to get a different amount of leads. And again, like if you’re not doing it in less than five minutes, that’s not optimal. Right? But again, like under 30 is great, right? Like most of the people aren’t calling at all. Like most of the people in this room don’t call. So they get a call from you in under 30, give yourself a pat on the back for that. Like that’s a huge advantage, right? But you’re leaving a lot of money on the table. And so that should be your goal. Like your goal should be to get in a position where you’re down to five minutes. But like, you know, don’t cry about 30; 30 is pretty good. Any other questions? Any other questions? If your target acquisition cost is negative, do you recommend doing paid advertising? And the answer was no. I do not recommend doing paid advertising if you can only afford negative dollars to get a new member. There’s differing opinions about this. I would defer to my good friend Teo.
Mateo: 51:35 – There’s different schools of thought. I mean, for us personally it’s a double dial and then a text and then we repeat that process throughout the day.
John: 51:48 – Like a three by two is pretty good. So like two, one of the morning, one immediately, one at night, one in the morning, one at night after and then a text after.
Mateo: 51:55 – And then our automated like email stuff through whatever, you know, whether it’s UpLaunch or whatever automated system you have that on top of all that.
John: 52:04 – Video text is amazing.
Mateo: 52:05 – The caveat with video text is like, you got to be charismatic on camera. If you are not, it will do the opposite effect.
John: 52:14 – Yeah. So if you’re like a total weirdo, don’t do video text, like.
Mateo: 52:17 – But you don’t know until you sent out a couple couple of video texts.
John: 52:22 – Test the waters. Yes. In the back. What was your name? Miles.
Mateo: 52:29 – Yes. Always confirm appointments. Oh, his question was, let’s say someone’s just super gung ho and they go all the way through all of your roadblocks and opts-in and finds a scheduling page and then actually books the intro all on their lonesome. Do you still call them? And I just said, yes, I highly encourage you to confirm your appointments. And it’s also great—like all of that’s part of the client journey, right? That your opportunity to now nurture that. Like your nurture doesn’t stop, right? They still have to make the sale. And even when they are clients, like every month when that renewal comes up, that’s a sales opportunity, right? So you’re never not nurturing. And so to call and confirm, you can use that opportunity to start building those relationships and talking to those people. And you can do that with a video text. Say, hey, like, you know, I saw you booked. I’m super excited. This is my face of the person that you’re going to see when you come in. This is the door of the gym, you know, it’s by the hot pot restaurant underneath in the basement, if you can’t find it, that’s why. And then I’m excited to see you. You know, that those are just some things that you can do to make that experience a little bit more unique and make you stand out.
John: 53:34 – If you’ve ever been to like a super nice restaurant, like they’re going to call you ahead of time and be like, we’re really excited for your appointment to serve you. And like, do you have any dietary restrictions? And like that’s to like reinforce the appointment. You get really excited and you get that extra level of touch point and service. And like, unless your show rate is like 100% and your close rate is pretty close to a hundred percent, in which case you should raise your prices, yeah. Like that’s still bad cause you should raise your prices, you don’t need to do it. I said that wrong. You absolutely need to do it.
Mateo: 54:07 – Unless you’re that person, you need to do it.
Mateo: 54:08 – Thank you Teo.
Mateo: 54:09 – You’re welcome. All right.
John: 54:13 – Any other questions? All right. Thank you.
Greg: 54:24 – Thank you for listening to Two-Brain Radio. Make sure to subscribe to receive the most up-to-date episodes wherever you get your podcasts from. To find out how we can help create your Perfect Day, book a free call with a mentor at twobrainbusiness.com.