ROI: How to Make Money With Every Dollar You Spend

20220530-Roi-Blog

Chris Cooper: 

Hey guys, Coop here and today, I’m gonna tell you how to improve the ROI on everything that you spend money on in your business. If this helps you out, I would like you to hit like, or subscribe to our YouTube channel and to your favorite podcast platform. 

So there are six ways that you can make your business more profitable. And one of the ways is to improve the ROI on all the stuff you buy. I’m talking about your expenses or the investments that you’ve made with the money that’s coming into your gym. Now you can’t cut your way to wealth, but you can definitely improve what you get back for the money that you invest in things like your space, in things like your staff , your professional services, like your bookkeeper, your software, your equipment, the ad spend that you’re making and the supplements that you’re buying. So today I’m gonna tell you how to do all of those things. One on one through conversations, through audits, and also just through introspection thinking things through before you buy them. 

If you’re in Two-Brain, you can go to the growth roadmap and you can find something called the six audits, which is a super valuable little minicourse and worksheets that you can go through. People who go through the six audits generally save themselves about a thousand to $2,000 every single month. And of course that money drops straight to the bottom line and they get to take it home instead of leaving it in their business. 

So today I’m gonna talk about how to improve the ROI on the investments that you’ve made. I call them investments because , you know, you had a plan when you made these bets, when you committed to spending the money on them, right? You’re smart. And so every time you bought something, you probably had a reason or a picture in your head at least of how this was going to work. But down the track, you got busy and maybe you’re not optimizing these investments to get a good ROI. You’re just overwhelmed and you can’t do everything at once. So going through this six audits process helps you set aside the time. And it’s only a couple of hours to go through your gym and go through your expenses and actually get the return that you had in mind when you signed up for the service. All right ? So let’s start with the big one. 

Let’s start with your rent. Every square foot that you rent should generate at least four times what you pay for it. So if you’re paying a thousand dollars a month for a space, it should generate at least $4,000 in revenue. Now this helps me because it makes me have a clear plan in my head for every square foot that we’re going to rent. And before I learned this lesson, I was renting just way too much space. I thought, well, if I rent 10,000, 11,000 square feet, I’ll just put more bodies in there. But I hadn’t actually thought through what I was going to do with that space. 

And when I first opened a CrossFit gym , a lot of my heroes had these like athlete lounges or, you know, coach break rooms, and I just loved that idea, right? It seemed so luxurious to give the coaches this space or to have a couch where my athletes could hang out and I could, like, foster community. But the reality is that these spaces cost money. And if you can’t measure the return that they’re giving you, you should use that space for something else. 

Let me use the example of athlete lounges. Now, these aren’t as common anymore, but three or four years ago, even a lot of gyms were putting these spaces in with couches, maybe a couple lockers, a coffee machine, and these spaces were taking up a couple, a hundred square feet. Usually it doesn’t take long to add up. If you’ve got a 10 by 10 space, you’ve got this, you know, a hundred square foot that you are paying rent on every month. And so that space needs to give you a return. And so what these gyms would find is that it was cool, but it was usually messy. It took longer to clean. People were hanging out, maybe, but was that improving retention? It was hard to say. Was that increasing adherence? That was hard to track. Probably not. The mess was really turning new people off. You know, most clients were just busy and they weren’t using the space anyway. And so they converted that space to something else. Now that is a great example. 

Another one that comes up a lot is, I want to start a smoothie bar. Wonderful. Go ahead. But unless you’ve got food industry experience, running a smoothie bar is probably not gonna make you a lot of money because a smoothie bar has a ton of waste and it has huge overhead because you have to staff it all the time. I remember 20 years ago, I was working at this personal training studio and the owner loved espresso and he wanted to put an espresso bar in. But what he found out was that while you might make $1 off a cup of espresso, you need to sell about 12 of those just to pay the person to sit there and make the espresso. So you gotta sell 12 in an hour, but that doesn’t cover the cost of the $6,000 espresso machine that he bought. And it also doesn’t cover the cost of having that extra space rented. And so he started selling muffins and sandwiches, but then he had to train the staff and then he had to get second staff. And so after a while, what he found out was that his expansion to have this like sandwich shop espresso counter was actually sucking the money that he was making from the personal training studios that we were doing kind of behind the scenes. And he was trying to, you know, use this person to book personal training and take the money and all this other stuff. But the reality was that this just became a drain on his business. 

And I visited this, like, flagship CrossFit gym in Southern California years ago that had this beautiful coffee bar, but they were paying so much rent on the coffee bar space. And they had so much waste from the fruit that they were throwing out for the smoothies every day, that the espresso bar cafe actually bled them dry and it killed their fitness business. 

So before you make a decision on space, you wanna have a really clear plan on how you’re going to use every square foot that will get you a return of about four X on what you spend. This isn’t really complicated, but it does require some forethought and planning. 

Okay. So what do you do if you got too much square footage? There’s never been a better time to renegotiate with your landlord. You can use the COVID excuse if you want to, you know, and that’s justifiable. Some of my tenants just said, look, we need to downsize. And I said, “Okay, no problem.” You could also say, like, “Look, we’ve gone over and above.” You could sublease some of your space if you can’t downsize yourself, okay. You could put some retail products in that space if you need to. But just the concept that every single square foot has to generate the revenue to pay for itself four times over is really important when you’re making these decisions. 

Okay. The old “if I build it, they will come” model. I think that myth has been dispelled so many times that I don’t even need to go into that here. 

All right , next, your staff. So the next largest expense commitment that you make and the largest for most gym owners is their staff. Now we’ve always taught something called the four ninths model. And basically the 4/9ths Model is that you have a salary cap in your gym business of 44% of the gross revenue that you bring in. Now, the way that you deliver this model is different. You know, maybe you set a fixed rate for personal training or a set rate for CrossFit group classes, or you pay a certain amount, but whatever that is, every person coaching for you should earn about 44% or less on the service that you’re providing. Now, when you reach higher levels of accounting, and we teach this in our Tinker program, this is called contribution margin. And as your business scales up, it’s really important to make sure that everybody that you’re paying is contributing to the business and the way that you measure that contribution or the amount that they’re bringing back, their contribution margin is that they should be generating about 2.5 times what they’re being paid. 

Now, the industry average in fitness, outside of our gyms, the contribution margin is 25% , or, sorry. The contribution margin is about four X. So that means that staff costs should be 25% or less. We’re in a coaching business and we have to retain really solid top talent. We’re also probably under charging. And so our contribution margin is about 2.5 X, which brings you back to the four ninths model. So look at the 4/9ths Model as your salary cap. Now you can flip this on its head, right? 

And you can say to somebody, you can earn more at my business by growing the pie. We call this intra-entrepreneurialism, you are creating the time and space and resources and systems like the billing system, the insurance, the scheduling, the opportunity, the access to your clients. You’re giving them the marketing. You’re doing that for them. You’re doing the sales for them. And their job is just to show up and coach, and you can pay them 44% of the gross revenue from any additional program that they start. 

So, for example, when our kids’ program was at its peak, there were times when the kids’ program instructor was earning well over a hundred dollars per class, because her program was big. She grew the pie for the gym. All of her clients basically came from our current clients and their friends. So we did the marketing. We had the equipment, we had the space, the time, the scheduling, the payment systems for her, we insured her and she kept 44%. And that’s how entrepreneurialism works. 

But the reality is that your staff is the biggest and most important investment that you can make. And you wanna make sure that you’re actually earning a return on that investment because building careers for your staff, while noble, is not your top priority. Your top priority is feeding your family. Your second priority is getting your clients to their goals, ’cause that’s what they’re paying you for. And your next priority is providing meaningful opportunities for your staff. OK? 

We don’t need to go into whether those opportunities have to be full time or whatever. But you wanna make sure that the investment that you’re making in your staff is providing you a good return. Next is external services. So these are also investments that you make in people, but these people are not your staff. 

So one example might be your mentor. Another example might be your bookkeeper or your attorney or something like that. A person that you turn to to provide a service, a cleaner is another example. If you can’t measure the ROI that you’re getting from them, and this is very tough with external services, uh, it’s tough to measure the ROI that you get from a mentor because that ROI compounds you make incremental gains every single month. And those things add up and multiply on each other over time. And so mentorship, you always get an outsized return, but it’s hard to see the incremental returns. It’s like losing fat or investing in something with compounding interest. You know, you’re making progress, but it’s really hard to track that progress month to month. 

So for example, the average ROI on the Two-Brain Business Growth Phase is about three X. So if you invest a dollar in growth phase in Two-Brain, you should be able to get $3 back. And that should just keep compounding over time. But it’s harder to see that with a bookkeeper, it’s harder to see how you’re getting a return on paying for a bookkeeper. It looks like a cost, not like an investment. And so my advice is you call up the bookkeeper and you say, “How can I get a better return on the time that we spend together?” You don’t say, “I don’t think I’m getting a good return on this.” You don’t say, “Man, I don’t see value in your service.” What you say is, “How can I get even more value from your service?” Or “how can I get more return on the time that we spend together?”

 And I’ll tell you something. When I asked this of a mentor, he immediately said, “Oh, well the clients who get the best return from our time together, they keep this checklist. They make this notepad note and it’s like, ‘questions to ask Todd’ and all month long when something comes up and they wanna ask me  and it’s not urgent, all they’ll do is write it on the list. And then when we get on a call, we’re just solving problems, bang, bang, bang, and we’re taking next steps. And when they get on a call and the list is empty, that’s our opportunity to work on the future, to solve problems in advance, to actually build a plan that will grow the company. But I don’t want them to have to be distracted and trying to worry and remember all the things that they need to talk to me about. If something’s urgent, they can just email me, text me whatever, you know, the mentor has set up, but if it’s not urgent and they need a plan or they need a long term solution, or they need to talk something through, they add it to the list.” 

I’ll give you another example. When I spoke to my accountant and said, “Bob, how do I improve the ROI on our time together?” He said, “Actually, Chris, like, you know, right now what we’re doing is reactive. I’m counting the money. I’m paying your taxes, you know, but if you wanna get proactive, I also act as a virtual CFO. Now it will cost more, but your ROI will be multiplied many times over.” 

And so, you know, the cost of accounting might have been 600 bucks a month and the cost of CFO might have been $2,500 a month, but the accounting didn’t pay me back. Anything. There was no return. It was an expense. The CFO has paid me back many, many times over. I mean, honestly, this guy got me access to millions of dollars. He saved me $60,000 on a building purchase. He got me a tax refund of 40 grand. And so sometimes this is why I say you can’t cut your way to wealth. Sometimes improving ROI actually means investing more and you get an outsized return from that. 

Okay. Now this is gonna come up again when I talk about ads, but let’s talk about software. You, as a gym owner, probably have too many pieces of software. I sure do. I’ve got like six apps , you know, six pieces of software that we used to run the business. The clients are getting like four apps. It’s too much, and it’s hard to track the ROI. So gym management software, for example, it’s like everybody hates their gym management software, but you have to have it. Right. And so, for example, before there was gym management software, before I found MindBody, we were doing this manual ACH auto billing every month and it sucked and it would take me two hours and I’d use a spreadsheet and I’d use this little code generator thing from my bank. But the reality was that that was making me hundreds of dollars every month because everybody paid on time. 

And so sometimes we forget that the alternative, not having booking and billing software, would cost us thousands because we’d be chasing people for money or procrastinating chasing people and not actually collecting from them. Okay. So payment software has an intrinsically solid ROI because it takes that problem off your plate. And 10 years ago , there was a big problem. As for websites, what you wanna track is conversions, right? 

So if you’re thinking through your marketing funnel, the job of your ad is to get leads to your website. The job of your website is to get leads to a No-Sweat Intro. The job of the No Sweat Intro is to get leads to sign up for your program. And if you break down the funnel that way, you can measure your ROI on each step, individually. Few people do this. And so what they’ll do is they’ll look at the whole funnel. As one unit put a hundred dollars into Facebook ads, nobody signs up and they say Facebook ads don’t work. But the reality is that the Facebook ads might have been working just fine and their website didn’t work. Or the website was working, but their intake process didn’t work. Or their free trial didn’t actually get people to sign up. So when you’re measuring the ROI on your marketing, you wanna break each step down. So let’s do that. The first thing you wanna look at at the top of your marketing funnel is lead gen , how are you generating leads? Is it Facebook ads? Is it TikTok? Is it whatever? And what you wanna do is say, like, “the only job of these ads is to get people to my website. So how many people are going from my advertising to my website?” 

Now you could actually use this same lesson to measure the value of the ads that you put on door hangers, the ads that you put on a billboard, whatever the job of your advertising is to get people to your website. Really. So that’s how you measure its efficacy. Am I getting people to my website? If your website can’t tell you that, then you’ve got a problem with your website and you know, just sidebar here. This is a huge problem. Most websites don’t actually even tell you how many visitors you’re getting. Who’s clicked on what, how many people converted, where they came from. 

And so a couple years ago, I was sitting in Manhattan with John Franklin, who’s the CMO for Two-Brain. And we were trying to figure out the marketing funnel for gym owners and the big broken piece was websites. And so John actually went out with this problem in mind, acquired a website company, built gym lead machine to solve this problem. And now every single month I can go into gym lead machine for my website. And I can see exactly how many people are coming to the website, where they’re coming from. How many of those people are getting to a No-Sweat Intro and how many people are signing up. And I can actually track the ROI on gym lead machine every single month. And I tell you for me, it’s always at least three X the price, that’s the ROI that I get on it. 

OK. From there you wanna track how many people are converting at your No Sweat Intro. Now this is a process. So you wanna see how many people are going from your website to actually booking that intro. And that number from cold traffic should be above 40%. And then how many people are signing up at the No Sweat Intro for my program. You know, that number should be above 60% . And if that lead is coming from a referral or affinity marketing, then that close rate should be much higher. So when I say 40%, I’m talking about cold traffic from ads. When I say 80%, I’m talking about like a warm handoff referral or affinity marketing. 

OK. So that’s how you basically measure efficacy on your marketing funnel, right? Or your ROI. The truth is that Facebook ads work just fine. And if you put a dollar into Facebook ads, you’ll probably get a few leads from that where most people don’t get the ROI from advertising, Facebook, TikTok, or billboards is that the rest of their funnel is actually broken. All right ? 

So that’s how you measure ROI and you improve ROI usually by fixing that funnel, not by fixing the Facebook text or whatever you’re doing. Now, we give you these funnels. We give you swipe files for Facebook ads and different platforms. Instagram, we give you emails that you can use for lead nurture. We give you all of this stuff in Two-Brain and Two-Brain clients even get like the setup fee for gym lead machine waived. But if you’re auditing this yourself and improving your ROI, that’s how you can do it. 

Let’s talk about equipment. So , like you, I love buying equipment for my gym, right? I love having, like, the toys. I love seeing something new and bringing that in, because I get bored with my workouts and I like novelty. But the discipline that I’ve had to establish over the years is asking the question, how will this purchase make me money? And so I remember talking about this with a good friend and long time Two-Brain client. And he had like 12 rowers and he was running these classes of, huge classes, like 30. And he’s like, I need to buy more rowers. I need to buy more rowers. And rowers at the time were about 1,500 bucks . And I was saying, “Okay, how will these rowers pay for themselves?” 

And he’s like, “Well, people won’t have to wait in class anymore for their turn on the rower.” 

And I said, “Okay, but how are these rowers going to pay for themselves? Like, are people quitting because they have to wait in line?” 

“No.” 

“Are they complaining because they have to wait in line?” 

“No.” 

“Why is this a problem?” 

“Well, I see it. And you know, I just don’t like them waiting. I need to get more rowers.” 

The reality is that he could have spent 15,000 bucks getting 10 more rowers, and that would not have improved his business at all. So in general, if you can’t measure the effect of a purchase, just press pause until you can. And if you can’t say clearly, here’s how this will grow my business, then don’t buy it until you can’t. There are some cases where buying new equipment will improve your business. 

For example, if buying another rig will let you run a kids program at the same time as your adults program, then map out a kids program, map out the revenue model for that map out how they’ll use this new equipment or how they could possibly get by without it. And that is when you buy new equipment. If buying bicycles for your gym will allow clients to do workouts on their own, continue paying their membership, but not be in class every single day, or even upgrade their membership so that they can do more workouts per week on the days when they can’t make it to the gym, but can still follow your programming. Then that’s a good investment because you can forecast the ROI from that bike. And it’s really just having a plan. 

So the reality is that for most pieces of equipment in your gym, all you have to do is have a plan and you can justify it. I remember one time we were buying this used reverse hyper, right? Like how do you make an ROI on reverse hyper? Well, you run an eight-week, West Side-style powerlifting program, and you say, “Okay, we’re gonna make $2,000 from this program if we sign up 10 people. And out of that $2,000, I will invest 500 in equipment. I’ll invest, you know, 44% in the coaching, et cetera . And that’s how I’ll justify the purchase of this equipment. And next time I run this program, I won’t have to buy that equipment. And so , you know, that will drop to the bottom line for me.” 

Okay . So that’s how you justify it, is you have to keep making money from the equipment over time. What you don’t do is you don’t go to your clients and be like, “Hey, I’m starting a fund. Everybody’s gonna put in 20 bucks and we’re gonna buy a reverse hyper for the gym, right?” Your job is to make investments that cost something up front but pay out over time so that you get an exponential return. 

Okay , last one is supplements. And I’m bringing this up because years ago, when I was writing my first books, it was very hard to get an ROI on supplements or any retail. And the problem was that you had to order a decent inventory up front . If you only ordered a few bottles of whey protein, the cost of the protein and the shipping, you might make like a 10% margin. And if you had 10 bottles, but you only sold nine, then that 10% margin was wiped out. Right? And for me, it was like, I would eat the ninth. I would eat the 10th one. So I would just eat my profit up. And if I sold eight, I was actually losing money. 

So the way that you do a good ROI on supplements or any retail is you do a presale. So you might get in like one bottle of each thing or three bottles of protein with different flavors. And you run a taste test night and you say to clients, “Okay , um, here’s our pre-order form pay now. So you’ve got the money up front.” Then you make the order, you pay for the order. And you’ve got that profit right there. You don’t have to order a big supplement inventory as your clients get used to using supplements. If you find that you’re prescribing the same whey protein over and over and over, it might help you to carry an inventory, but you have to be absolutely sure that you’re going to sell it out. You do not have a big enough business, probably, to carry a big inventory or to have waste. And so , when you’re doing supplements or retail, you have to make sure that you’ve got a plan for pre-orders. 

Our friends at Forever Fierce have really mastered this with t-shirts. They’ve got some amazing, amazing plans that we’re gonna be sharing with you at Summit this year. There are other companies out there now, I think Driven kind of pioneered the pre-order, but most companies in the microgym space do a pre-order option now because it works for everybody. 

So this is how you improve the ROI on the stuff that you buy. When you commit to spending money, you don’t have to cut that thing out of your life to make that money back. Really what you should be doing is saying, “I made this investment for a reason,” actually looking at your purchases as investments, asking yourself, “before you spend the money, how will this make me money back?” And if you’ve already spent the money on it, “How can I get a better ROI on it?” 

Again, you know, we teach this in Two-Brain in the Growth Phase, we have a little course called The Six Audits. It generally saves people a thousand to $2,000 a month. And because they’re getting a better ROI on money, they’re already spending or trimming expenses. That money falls all the way to the bottom line in what the owner takes all. I hope this helps. It’s been a long one. I’ve tried to make it as interesting as I can. It’s hard to do that when you’re talking about expenses. But if you just take action on one of these things, you will make more money this month. 

If this helped you at all, just hit subscribe on our YouTube channel or hit follow on whatever podcast platform you’re using to listen to this, and spend an hour doing an expense audit today. If you can improve your ROI on one thing, you’ll improve your income for it .

Mike Warkentin: 

That was another edition of Two-Brain Radio. To hang out with the cool kids on Facebook, check out this final message from Chris.

Chris Cooper: 

If you aren’t in the Gym Owners United group on Facebook, this is my personal invitation to join. It’s the only public Facebook group that I participate in. And I’m in there all the time with tips, tactics, and free resources. I’d love to network with you and help you grow your business. Join Gym Owners United on Facebook.

Thanks for listening!

On Monday, Two-Brain Radio presents marketing tips and success stories. Chris Cooper delivers the best of the business world on Two-Brain Radio every Thursday. 

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