150 clients are enough to build a microgym that pays you $100,000 per year.
But not everyone knows this.
Two years ago, I was speaking in Montreal, Quebec. It was a split seminar: another speaker took Saturday’s presentation, and I followed on Sunday.
The first speaker was a gym owner with several locations. His model: volume. Very different from my value-based model. I was eager for the seminar because I thought we’d cover both options really well.
During the first day, one attendee volunteered that he wanted to earn $100,000 per year (net). He shared his rates (which were low but not grievously so). The speaker did some quick math and told him, “You need 374 members. Go get them.”
In his high-volume model, it would take 374 members to earn $100,000 per year.
374 recurring memberships is a tough number to reach. Where will they all fit? How many bars will you need? How will you coach that many people?
A handful of gyms have reached large numbers like this, but next to none have a decent profit margin (33 percent or above). I’ve written about all these problems at length. But some gym owners are making $100,000 per year with this model. Many went out of business during COVID lockdowns, when retention made all the difference. A few outliers made it.
What Makes It a Myth?
The simple number “374” hides a deadly trap. What the speaker meant was that the owner needed to get and keep 374 members, averaging that number forever, to make a good living as a gym owner.
We track retention data through surveys, monthly accountability calls and our Gym Dashboard. I first wrote about retention data in the CrossFit Journal in 2009. This is the number we watch most closely in gyms because, in the service industry, client acquisition is very costly.
Let’s say you have a 95 percent monthly retention rate. If you have a small gym of 50 members, the rate will probably be slightly higher. But as your gym grows, you’ll have a weaker connection to each member. That’s one reason retention rates tend to drop in larger gyms. 95 percent monthly retention in gyms over 300 members is very, very rare. People quit because they don’t like it, they quit because they don’t like you, they quit because they move. But the real reason they quit is because the gym can’t maintain a 1:1 relationship with every client.
Even at a 95 percent retention rate, a gym with 374 members would have to gain 19 members per month just to stay even. That’s more than one new member every two days all year, including holidays and weekends.
Where will you get those people?
Well, you could run a six-week challenge and market it on Facebook. Let’s say the challenge grabs you 30 new people. Retention data from these challenges shows that fewer than 24 percent of people in the challenge become members, and fewer than 10 percent are still members three months later. So if you run a challenge, you might keep seven people—or about a third of the total number you need. You’d have to run six-week challenges for 90 people every month to convert enough people—and you probably won’t keep many, which accelerates your need for recruitment.
If your business is doing well, you should need to recruit fewer and fewer people over time—not more and more. A business model built on 300-plus members will have you constantly chasing marketing ideas.
What’s the Real Answer?
Build your model on 150 clients. Set your rates, choose your location and hire based on 150.
Retain people long enough to change their lives.
Don’t discount. Every time you give someone 20 percent off, you have to recruit another client to make up that gap (because you can’t recruit one-fifth of a client). That means more space, more equipment, more coaches, more costs and more risk—and higher turnover, poorer retention and a downward spiral.
What Should You Do?
Start tracking the metrics that actually matter: average revenue per member per month (ARM), profit and retention.
Remember: The goal is never to serve the most clients. The goal is always to serve clients the most. Being successful means being profitable and sustainable. Don’t fall into the trap of bad math.