Andrew (00:02):
What if you’re shooting all your arrows at the wrong target? Today on Two-Brain Radio, Chris Cooper explains why some CrossFit gym owners are chasing after the wrong thing.
Chris (00:10):
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Chris (00:28):
When I became a personal trainer, I was too embarrassed to tell people what I did for a living. Not because the pursuit of being a personal trainer wasn’t an honorable one, but because I didn’t look like a personal trainer or so I thought. I had some muscle, but I was pretty skinny. My background was teaching kids to play hockey outdoors, and cycling. And so I was definitely not the biggest or most shredded dude at the gym. And at that time, fitness was really associated with bodybuilding. The most fit people were the biggest guys with the most shredded abs. In fact, the question that I was scared they were going to ask me after saying, yeah, I’m a personal trainer is, well, how much do you bench press? Because obviously bench press was the ultimate measure of somebody’s fitness.
Chris (01:20):
So I was scared if I said, yeah, I’m a personal trainer, that they would do that slow body scan. You know, like the down, down, down, down, down, up up up up, and then finish by looking me in the eyes and say something like, Oh, what do you bench? Something like that. And it’s really funny to think of that as like the perfect or the ultimate measure of fitness 20 years ago. But that’s what it was. And today I’m talking about a different metric. When we meet a gym owner, especially a CrossFit gym owner or any micro gym owner on the street, the first question that comes to our mind is how many members do you have? But how many members do you have is the modern equivalent of how much do you bench. It’s not the best metric for deciding how good a business the gym owner is running.
Chris (02:07):
And so today I’m going to talk about what the right metric is. But first, I’m going to tell you a story about why we believe this false metric that more members equals better gym. Before I get into what metric you want to track, let’s talk a little bit a little bit about history here. In his earliest writing, Greg Glassman told the story of working at a globo gym or two. His clients would show up regularly train with him and they would make good progress. And so he was talking to the owner about it because the owner one day walked into the gym and it was Sunday or something. And he said, Hey, Greg, there’s more people here than I thought there would be. And Greg said, all these are my clients. My clients are like the only ones in the gym training today. And the owner would say, that’s cool.
Chris (02:52):
But like, here are the clients that I want. And he pulled out this big stack of membership cards. And there were hundreds of them and they were all people who had signed up for a membership, but never actually showed up. So Greg got disillusioned and he started moving around from gym to gym, renting tiny spaces. And then he eventually found kind of a industrial space in Santa Cruz and you can watch all the original videos to see it on the CrossFit Journal. It’s really cool. It’s got like a balcony, but it’s set up to work with about six clients at a time. Max. Greg started out as a personal trainer and then he started partnering his clients up together. And eventually this small group group training studio became this worldwide phenomenon, but he never actually trained big classes of people.
Chris (03:37):
He couldn’t. That space was way too small; when you see it you’ll know that. So where did the idea come from that every CrossFit gym should have classes of like 12, 15, even 30 people to be successful? Or to have 300 members all paying you some, you know, recurring monthly membership, all sticking around, putting their names on the whiteboard. And that’s what it would take to build a successful box. Well, as close as I can figure, my best guess is that that myth came from the 2006 affiliate gathering. In 2006, CrossFit affiliates were brand new. The whole concept was only about two years old. And so this was one of the first times that he’d ever brought everybody together in a group. And at that meetup, the new affiliates heard about this model for their business for the first time. Now these new affiliates had met Greg for sure. Might have visited his gym in Santa Cruz.
Chris (04:34):
But this was the first group of affiliates who really weren’t in constant contact with Greg or who hadn’t actually trained with him themselves. So the model God presented to them in 2006 was from this guy named John Birch. And it was helpful because any business model is better than no business model. But the problem was that the model was built for martial arts school. Now, if you run a dojo, you want 30 people, preferably kids in a class because each person in your class doesn’t take up a lot of space. You’re basically keeping everybody following like the same choreography. And you have really minimal equipment. The only equipment that you do have it doesn’t change from day to day. So they have like some sparring pads and stuff stored in a locker in the corner, but it’s never different. It’s always the same sparring pads.
Chris (05:26):
And the retention strategy in a dojo is inherent. It’s the belt system, it’s the best. But none of those things are true in a CrossFit gym. Clients in a CrossFit gym take up way more space. The movements are asynchronous. This girl is doing pull-ups while that guy is doing cleans and you have a ton of equipment, 80% of your equipment is sitting around waiting to be included in your programming. Some of your equipment takes up space, even when it’s not being used, like your pull-up rig. You pay hundreds of dollars in rent every month, just for the floor space required for your rig and the retention system in a CrossFit gym isn’t obvious. The workout changes every single day, which is exciting at first, but people don’t see progress unless you’re programming the named workouts like Fran and Cindy and Diane. And you’re retesting those really, really often, right?
Chris (06:16):
Like every week. Very few gyms do that at all anymore. Level Method is great because it brings a belt system to CrossFit gyms and other microgyms. But back to the problem at hand. When this model: get hundreds of clients into big groups, was presented, it was accepted because information existed in a vacuum. There was no other model forthcoming from HQ. So early affiliates accepted this as the best model. And they went out and chased it. The quote unquote best affiliates were obviously the gyms who could do the best with this model, right? Like the gyms that could get the most members. And then the myth was perpetuated by the Games. The gym owners whose members won the Games were often those with the largest client base, this could have been coincidence. I mean, these gyms had great training and great coaches. They had great programming, but when you have a client base of 300, you have a broader selection of athletes to choose from.
Chris (07:15):
It’s like the Olympics. When a small country wins a medal, it’s a big deal because they’re drawing from a smaller pool of talent, or it could just have been coincidence that the biggest gyms tended to win the Games. And I don’t want to get into the Games. And I’m not saying that the big gyms always won the Games. My point is that the affiliate owners who won the Games at least at first were successful with the big class model, or at least they appeared successful. They got media coverage. And the myth that lots of clients equaled a successful gym was perpetuated. But as I learned, lots of members didn’t necessarily mean a profitable gym. I got to travel with CrossFit media, and I traveled around on my own for the mentoring agency I was with at the time. And I would meet a lot of these folks, and I was really interested in picking their brain because I, like everyone else, assumed that they were the model for success.
Chris (08:07):
I also owned my own gym. So I was very invested in learning everything that I could from them. And while some of these big gyms were pretty successful financially, others, the majority, were really struggling despite having like 300 members. So I’d sit down with these owners at conferences. And I would hear that most of their profit was coming from their online programming, or they were making a big chunk of their revenue from selling t-shirts. That was great. I was happy for them and they deserve to be successful. But the average gym owner couldn’t do that. It wasn’t a model that could be duplicated with any kind of success.
Chris (08:40):
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Chris (09:14):
So the story of get big classes and you’ll be successful had really weak roots. And it wasn’t grounded in a lot of experience, but the story was a sticky one. And as Jonathan Swift wrote, a lie can travel halfway around the world while the truth is getting its boots on. The myth of big classes and 300 members to make money has been rampant for the last 15 years, because it was told in a vacuum. There was no other theory in the micro gym community. Though it really didn’t stand up to proof, the few examples of success were enough to keep the story alive.
Chris (09:47):
And there are still gyms out there doing really well with 300 members, keeping those members engaged, getting them results and making the owners good money. But they’re rare. In fact, they’re the exception, not the rule. Even on our own mentoring team, these people are in the minority. There are gyms doing a million dollars in revenue on our mentoring team with 300 clients, multiple locations and all that stuff, but they are not the average. So if you think I’m going to get to 300 members someday, here’s where the problems really start to come out. Because you think, OK, 300 members, that means about 240 of those people, 200 of those people are going to pass through my door every single day. So you take on crazy expenses. Like you get a lot of space, more than you need, and you take on equipment and you take on too much staff.
Chris (10:37):
And look, I’m more guilty than anyone here. I should have figured this out in six months. Back in 2005, I opened up Catalyst. In 2007, we found CrossFit. In 2008, I opened up a CrossFit gym across town. So I had a personal training studio in the financial center of our city, which was thriving at the time. And then I would drive all the way to the outskirts where the industrial section was. And I had my CrossFit gym there. And in the morning I would train my clients downtown. They were high value clients. I was keeping them for five or six years each. They would pay with cash. They’d pay on time. They’d pay a high value rate. And then around lunchtime, I would drive across the city to relieve the morning coach at CrossFit Catalyst, which was bleeding me dry. And many times I can remember driving back downtown at five or 6:00 PM to check how much money was in the cash box and bringing it up to the CrossFit gym.
Chris (11:35):
In fact, I can remember calling the personal training studio from the CrossFit gym. I don’t know if Mike remembers this, but saying like Mike what’s in the cash box right now, and you’d hear him fluttering through and he’d say, Hmm, it looks like three or 400 bucks. And I’d say, I’ll be right there because I had to pay some kind of bill at the CrossFit gym. And so for years, about three and a half years, the PT studio was like funding the CrossFit gym. It should have sunk in within about a month or two that like, wait a minute. There’s a happy medium here between scaling my time and scaling my income. And instead of working one end against the other, I should be looking for that middle ground. Well, it’s taken me years to get my boots on, but here’s the truth. You don’t want more members.
Chris (12:20):
You want high value members. The number you should be chasing isn’t headcount, it’s ARM, which is average revenue per member per month. On average, you should be looking for an ARM of around $205. So that means the average client is paying you about $205 per month. And that’s to get started. 150 members at a 205 ARM will get more than 80% of micro gym owners to a hundred thousand dollars a year in net owner benefit, like profit plus your pay. As long as you’re not doing anything crazy with expenses. Let me repeat that again. 150 members at 205 ARM will get more than 80% of the people listening to this podcast, that’s you, to make a hundred thousand dollars in revenue a year. Flipping that, 205 members at 150 ARM, won’t do it, because at 205 members, you need more space.
Chris (13:14):
Your classes are bigger which means your retention is poor, which means that you have to spend more time marketing, which means you need more staff to coach classes while you’re doing that, which means you need more space and you need more equipment. Do you see? Just that simple little flip makes such a massive difference. The problem with chasing big group numbers isn’t getting the people, it’s keeping them. You’ll probably get 300 clients through your doors and signed up into your program. And you’ll probably do that in the first three years you’re open. But after three years, you’ll look around and you’ll say, I don’t even have half of the people who have been through this gym and signed up. Why? Well, obviously something is wrong with the system if you can’t keep clients long enough to get them meaningful results. So why are you losing, you know, almost everybody who signs up? Average LEG, length of engagement, which is like a metric for retention in a micro gym is 7.8 months.
Chris (14:11):
That means the average client coming in and signing up at the average micro gym CrossFit gym right now is staying shy of eight months. That is not enough time to change their life. And it’s not long enough to be a meaningful foundation on which to build your business. If you have to replace every client every eight months, you’re going to spend the rest of your life marketing and trying to get more people in the door. And I don’t have to tell you what happens then. It’s really, really important that we think about this new model. And I’m going to get a little bit deeper into retention here for a second. I said that the metric that we should be chasing is ARM, which is average revenue per member. Now talking about LEG, which is retention because they each feed off the other. Higher value
Chris (14:56):
clients stay longer. So you want to think about LEG and you want to think about retention. There’s some interesting stats here about what it means to keep people longer and longer and longer, and what that does for your business. So for example, the largest drop-off point in the client journey is the 90-day mark. So this is about three months in. The primary reason that people quit at the 90-day mark is that they’re saying, I’m not sure this is for me. In other words, they don’t understand what their future holds or like what the next step is for them. They don’t even know if they’re making progress. They need to talk to you at that point. They don’t know if they’re getting from your service the thing that they signed up to get, right? But if you can keep a client past 90 days, there’s actually over 70% likelihood that you’ll keep them for seven months.
Chris (15:46):
It’s, you know, 7.8 months, almost eight months. And that’s a huge jump in revenues because it’s the same client. You don’t have to onboard them all over again. You don’t have to market to get them again. They’re staying and they’re doubling, more than doubling what they’re worth to your business. But if you can keep them past that eight month point, the likelihood of keeping them for 12 months is big. It’s like 76%. What keeps them up to that first year mark? It’s not your programming. It’s not your community. It’s their plan and their progress. You need to sit down with them and show them their plan, change the plan if it’s not working and let them measure themselves on the plan, is it working or not? This really doesn’t happen in a lot of gyms, but it happens with every personal trainer two, three times a week.
Chris (16:35):
And here’s where it gets really interesting. If you can keep a client past the 14 month mark, then over 60% of those clients will stay to the 24 month mark, an extra 10 months. And if you’re doing 205 ARM on each client, that’s well over $2,000 in extra revenue from every client that you get. So while this LEG correlation isn’t linear, the benefits are massive. And if you’ve got 150 clients, even if they’re only paying you 150 bucks a month ARM, and you can improve their retention by three months, your net owner benefit goes up by $40,000 a year. That’s $40,000 a year in your pocket. So let me bring this back to ARM. How is that happening? Well, the higher value clients stay longer. It’s easy to pay somebody or to keep somebody who’s doing personal training for that long than it is to keep somebody who’s doing a group class.
Chris (17:28):
It’s time for a new model. And we’re going to give you that model. You can download our how to make a hundred thousand dollars with 150 clients guide from our site. I’ll put the download link in our show notes, but you can also get it by joining the Gym Owners United group on Facebook. It’s free. I’m in there once a day, twice a day. We post resources in there all the time. My mentors are in that group doing free help. It’s very supportive. Nobody calls each other names or attacks one another’s ideas, everybody’s tactful, or we remove them. It’s a safe place. And this is where people are really making progress before they enter our mentorship program, which is something else. Here’s the targets that you want to hit in this new model. At first. Now you can always exceed these targets.
Chris (18:12):
You can always go bigger. You can get 300 clients if you want to. And some do. But the key is that you don’t start with the goal of making 300 clients. When you start with that goal and you say, OK, well, I’ll do anything to get 300 clients, that’s when you start undervaluing yourself, charging unsustainable rates, giving unsustainable discounts, underpaying your staff, over-committing to space. All the stuff that’s killing gyms starts with this goal of I’m going to hit 300 clients. Instead start with a goal of 150 clients. Start with the goal of $205 ARM per month. Start with the goal of keeping everybody for at least 14 months. Start with the goal of spending only 22% of your revenues on expenses. That’s going to be the hardest point for most of you who are already open, but don’t worry about that yet. Start with a goal of paying your staff
Chris (19:05):
44% of the revenues that come in every month and start with the goal of making a hundred thousand dollars net owner benefit to you. This is the model that will make thousands of microgyms successful. The proof is there. We’ll share more success stories on this podcast and our site every week as we’ve been doing for the last five years. Look, it’s hard to change your mind. It’s even harder to change your business. So if you’re listening to this and you’re saying, Oh my goodness, 150 members at 205 ARM, it all makes sense, but you’re looking around your gym and you’re thinking, Oh crap, I’ve been shooting at the wrong target all along. I don’t need all this space or this equipment. And I’ve got too many coaches and I’m over paying for all this stuff. That’s OK. The most successful entrepreneurs are not the ones that get it right on the first try.
Chris (19:53):
They’re the ones who can say, OK, here’s where I am. Over there is where I want to go. Instead of trying to bend the world to fit me, I’m going to start to change right now. The best time to plant a tree was a decade ago. The second best time is today. So I’m going to give you the first seed and then I’ll sign off. This is it. When most people hear $205 ARM per month, they think I could never charge that. Instead, you have to change your thought to how can I charge that and go from there.
Andrew (20:30):
For more from Chris Cooper, join the Gym Owners United group on Facebook. Chris regularly posts articles, instructional videos, and advice in there. It’s the only public group he’s in. That’s Gym Owners United on Facebook. Join today.
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