In this series, I’m telling you how to maximize the returns you get from your gym business. In the first installment, I told you how to measure your return on entrepreneurship. Here, I’m going to give you 10 ways to maximize the financial side of your business.
You have many different levers to pull to make more money.
Most gym owners focus on only one of these multipliers (“get more clients”). Unfortunately, that’s one of the least-effective methods because it always comes with increased costs.
Here are my top 10 ways to grow your income as an entrepreneur based on the metrics and tactics we employ at Two-Brain. I’ll use an average gym as an example:
- 100 members paying $125 per month (ARM).
- Average retention of seven months (LEG).
- Profit margin of 10 percent.
Feel free to use your own numbers to calculate how to improve your ROI.
10 Ways Gym Owners Can Improve ROI
1. Increase Your ARM
If each of your 100 clients paid $10 more per month:
- 100 x $10 x 12 months = $12,000 ROI per year
2. Increase Your LEG
If each of your 100 clients stays an extra three months:
- 100 x $125 x 3 = $37,500 ROI (rolling)
Imagine if you increased your ARM and LEG together!
3. Increase Your Profit Margin
If your profit margin increases by five percent:
- Current profit: $15,000
- New profit: $22,500
- ROI: $7,500 per year
You can increase your profit margin by using a strategy like Profit First, streamlining your staff or removing expenses.
4. Scale Your Staff Time
- Staff costs at 50 percent of revenue: $75,000
- Staff costs at salary cap of 44 percent of revenue: $66,000
- ROI: $9,000 per year
Staff are your most important investment. Put people in roles where they’re most efficient and you’ll get a greater return on the time they spend.
Marketing and ROI
The next categories are marketing metrics. Each multiplies the effect of all the other categories.
Let’s use these average numbers:
- 10 leads per month.
- Appointment set rate of 40 percent.
- Show rate of 50 percent.
- Close rate of 70 percent.
These are Two-Brain averages, but the real industry average is far lower in every case.
If you have to replace a client every seven months, then you need to get at least 15 new clients every month.
And the average gym’s on-ramp program costs around twice its ARM, so we’ll use $250 in this example.
The top gyms in Two-Brain for lead generation pay between $5.60 and $11.49 per lead (the number is high right now because it includes Facebook lead costs, which are way up).
5. Generate More Leads From Paid Advertising
Current rate:
- 10 leads, 6 set appointments, 3 shows, 2 sign-ups.
- Front-end revenue (FER) is $500.
- Front-end ROI: $385 (FER minus ad costs).
- Long-term ROI: $1,885 per (FER minus ad costs plus 2 clients for 6 more months each at $125).
New rate:
- 20 leads, 12 set appointments, 6 shows, 4 sign-ups.
- FER is $1,000.
- Front-end ROI: $770 (FER minus ad costs.)
- Long-term ROI: $3,770 (FER minus ad costs plus 4 clients for 6 more months each at $125).
Difference: $1,885
6. Improve your Set Rate
Current rate:
- 10 leads, 6 set appointments, 3 shows, 2 sign-ups.
- FER is $500.
- Front-end ROI: $385 (FER minus ad costs).
- Long-term ROI: $1,885 (FER minus ad costs plus 2 clients for 6 more months each at $125.)
New rate:
- 10 leads, 8 set appointments, 4 shows, 3 sign-ups.
- FER is $750.
- Front-end ROI: $635 (FER minus ad costs).
- Long-term ROI: $2,885 (FER minus ad spend plus 3 clients for 6 more months each at $125).
Difference: $1,000
7. Improve your Show Rate
Current rate:
- 10 leads, 6 set appointments, 3 shows, 2 sign-ups.
- FER is $500.
- Front-end ROI: $385 (FER minus ad costs).
- Long-term ROI: $1,885 (FER minus ad costs plus 2 clients for 6 more months each at $125).
New rate:
- 10 leads, 6 set appointments, 6 shows, 4 sign-ups.
- FER is $1,000.
- Front-end ROI: $885 (FER minus ad costs).
- Long-term ROI: $3,885 (FER minus ad costs plus 4 clients for 6 more months each at $125).
Difference: $2,000
8. Improve your Close Rate
Current rate:
- 10 leads, 6 set appointments, 3 shows, 2 sign-ups.
- FER is $500.
- Front-end ROI: $385 (FER minus ad costs).
- Long-term ROI: $1,885 (FER minus ad costs plus 2 clients for 6 more months each at $125).
New rate:
- 10 leads, 6 set appointments, 3 shows, 3 sign-ups.
- FER is $750.
- Front-end ROI: $635 (FER minus ad costs).
- Long-term ROI: $2,885 (FER minus ad costs plus 3 clients for 6 more months each at $125).
Difference: $1,000
What if you improved all of these marketing metrics?
9. Get More Referrals.
While referrals generally account for fewer leads, their set, show and close rates should all be close to 100 percent.
Current rate:
- 3 referrals per month, 3 set appointments, 3 shows, 2 sign-ups.
- ROI: $2,000 (FER plus 2 clients for 6 more months each at $125, no ad spend).
New rate:
- 6 referrals per month, 6 set appointments, 5 shows, 4 sign-ups.
- ROI: $4,000 (FER plus 4 clients for 6 more months each at $125, no ad spend).
Difference: $2,000 per month.
10. Get More Clients
I saved this one for last, but I can’t avoid it.
If you want to skip the “marketing math,” we’ll use the simplest equation of all:
- 110 members at the same ARM and LEG and profit margin.
- $16,500 net profit.
Increase: $1,500 per year.
But wait—shouldn’t your profit margin go up with more members?
Surprisingly, most gyms don’t improve their profit margins as they gain more members. There’s no set point at which every new client is pure profit. That’s a fatal flaw in the mindset of most gym owners.
Gyms: Exponential ROI
We do each of these things—very deliberately but not always in the same order—with clients in our mentorship program. That’s why the ROI on any of these things is incremental, but the ROI on all of them together is exponential.
