Churn: The Biggest Threat To Your Affiliate

On my first day as a CrossFit gym, I had zero clients. No one walked through the door.

Ditto the second day.

On the third day, a father and son signed up for personal training (my 1:1 business was 3 years old) and open gym access. I remember printing their client cards.

Since I opened my affiliate in 2008, thousands of people would come through the doors of Catalyst. Most who came in to “try CrossFit” are gone–my weekend OnRamps, my “try a free class” or “stay for a week free” clients. But many of the clients who came in through a consultative process are still here, even ten years later.

In fact, if I walk through a list of clients who have been with Catalyst for more than 5 years (there are more than 40 of them), I see that all but TWO started with a no-sweat intro and 1:1 training. And those two are the parents of a client who started with an NSI.

But what of the others? Where did they go; and why? Will they be back?

Think about the last time you tried something new. For adults, this happens very rarely–maybe one or two new activities per year, according to behavioral scientists. You formed your opinion on the activity right away, and then did one of two things:
1 – disliked the activity, and never went back. You checked it off your list, said “been there, done that” and moved on to something different. Or,
2 – you liked the activity, and told everyone you knew about it.

We’re extreme social creatures. We want to tell others our experiences, positive or negative, because adding value to our group makes us more socially safe.

Yesterday I wrote about cultural synchronicity. I shot a quick video for TwoBrain members explaining which activities will reinforce your culture, and which will fragment your culture. In the video, I said that “We are not a long-tail business.” Some businesses, like scuba diving and trampoline gyms, live on the long tail: the one-and-done, bucket-list crowd. They charge a large premium because they’re probably never going to see their clients again. The same goes for guides on Mount Everest: no one makes a weekly appointment. These businesses have a high “churn rate”: clients come once, or for a very short period. Then they leave, and must be replaced by NEW clients. Scuba operations, mountaineering and bouncy houses are set up for a high churn rate. We’re not.

Our business relies on recurring clients. The longer a client stays, the better. Here are the reasons why:

  • Acquiring a new client requires money and time that keeping a client doesn’t. A gym with 300 members and a 50% annual churn rate will spend thousands trying to get new clients every year to replace the ones they lose. That’s a new client every second day to make the same money, if you’re keeping track.
  • Cost of acquisition is going up. Until now, Facebook ads have been very cheap compared to any other media. They’re still more effective, but the price is going up. Soon, the cost to get a lead in your door from Facebook will be over $20. That’s twenty bucks for the opportunity to sell them something.
  • Quality of clients from online leads is dropping. In most markets, we’ve been through at least two stages of market awareness (the early adopters, and the early majority.) These folks educated themselves on your service before they came in. The new market (late majority) mostly haven’t. They’re further from making a commitment. We call those “cold leads”.
  • The colder the leads get, the fewer will buy, which multiplies the cost of acquisition–and greatly magnifies the time spent talking to people who aren’t going to sign up.
  • The time cost of marketing is high. Even if you hire an agency, you still have to meet new clients, call them on the phone, text them or onboard them. Many coaches now spend more time marketing than coaching, and they hate it. I know I would.

What are the long-term ramifications of a high churn rate? Market exhaustion. Coach burnout. Narrowing margins.

Back to Catalyst: in 2008, a leading gym “consultant” was recommending free intro classes. So I offered them. People came and tried CrossFit. I had zero sales skills (I didn’t understand that I needed to ask them to sign up). I thought they would want what I wanted (a ridiculous workout that left them bloody-palmed and puking). I had no follow-ups other than our email newsletter.

Some signed up. Most checked “CrossFit” off their bucket list. To this day, ten years later, they’ll tell friends “I tried CrossFit and didn’t like it.” and then do a bunch of thrusters and pull-ups in their knee socks at 25-Hour Fitness. But they weren’t around long enough to give it a real chance. Like blind men describing an elephant, they formed their long-term impression on their first contact. And then they told their friends.

I pumped dozens of people through free trial classes. They had no idea how CrossFit could help them, or why they should sign up; I was just trying to sell memberships to a fitness group. Half of them signed up, but left within six months. None of them are still at Catalyst. That’s a high churn rate: all of the work I did to coach them and sell them has zero benefit to me today.

And those clients KNEW that the purpose of the free trial was to sign up for CrossFit long-term. What if I had brought them in and said, “This is a six-week challenge?”

Would their mindset be, “I’m going to turn this into a lifetime activity”? Or would they think, “Six weeks of this, and I’ll move on”?

If you traveled to Spain for a six-week vacation, would your mindset be “I’m probably going to move here permanently” or would it be more like “I want to try everything because I might not ever be back”?

Some could afford the vacation, but not the move. Some might be content with their selfies in Madrid.

The government of Spain can’t plan its annual budget on vacationers. Those are the long-tail sources of revenue. Instead, Spain–like America and Canada and every other country–needs a tax base to survive. That means a permanent audience, not a transient one.

Data from short-term challenges, free trial periods and other one-and-done marketing shows a much higher churn rate (between 70 and 85%.) You might be twice as good at keeping people after a challenge than the average, but that still means losing 40-70% of the clients who come in your door this week before they reach the 3-month mark.

You might get 300 new clients this year. Seriously, I know gyms who are doing it. And they’ll get 300 new clients next year, because they’ll have to. And 300 the next–I hope. I want them to succeed. But that path isn’t for me: needing to sell a new client virtually every day; making no long-term relationships and changing no lives. Constantly wondering “Where’s tomorrow’s new client coming from?” while budgeting for rising costs per acquisition, and dealing with tourists who plan to trash my beaches and fill my emergency rooms? No thanks.

How does a lower churn rate translate into more money without more costs (in other words, real profit instead of just gross revenue)? Read this next.

A year ago, before six-week challenges were the vogue marketing strategy, our Gym Checkup results showed rising LEG (length of engagement, or the time the average client spends at your gym.) CrossFit gyms were moving away from free trial classes and embracing a consultative intake process. Average LEG scores were climbing, and eventually reached 13.1 months (the average client stayed just over a year.) And this is a great thing: the average gym owner who filled out our Gym Checkup could earn an extra $45,000 in 2018 by increasing their average retention by TWO MONTHS, with zero extra costs.

Over the last three months, LEG scores have plummeted as more gyms adopt a “six week challenge” marketing strategy, and stop doing anything else. Of course, the TwoBrain gyms’ LEG continues to rise. Yesterday, TwoBrain Mentor Brian Alexander declared war on the six-week challenge, free trials and other high-churn entry processes. His “first 100 days” model is a dramatic shift away from churn. And TwoBrain Marketing Mentors John and Mateo have an approach to a “challenge” that actually results in long-term retention, with the data to prove it. The key is to have a plan to keep people around.

Take our Gym Checkup for free here. Then book a free consultation to learn how the Incubator will reduce your churn rate.

No matter how large your population, you’ll eventually run out of leads. Focusing on long-term engagement means changing your business–and the lives of your clients.

Retention isn’t a nice add-on after a sale. It’s what really matters.

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