A few months ago, I was speaking in Montreal, Quebec. It was a split seminar: other speakers took Saturday’s presentation, and I followed on Sunday.
We have very different ideas on business, so I was glad to go second.
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.”
Never mind additional revenue streams. Forget about hiring other coaches to help with the workload. For 374 members, this guy could buy himself a job.
374 recurring memberships is a high number to reach (where will they all fit? How many bars will you need? How will you coach that many people?) There are a handful of gyms doing it, but next to none have a decent profit margin (33% or above.) I’ve written about all of these problems at length.
The simple number “374” hides a deadly trap, though. 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 Checkup. I first wrote about retention data in the CrossFit Journal in 2009. This is the number we watch most closely, because in the service industry, client acquisition is very time-expensive.
Let’s say you have a 95% monthly retention rate. If you have a small gym of 50 members, you’re probably slightly higher. But as your gym grows, you have weaker connections to each member. That’s one reason retention rates tend to drop in larger gyms. 95% 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.
Even at a 95% 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 less than 24% of people in the challenge become long-term members, and less than 10% are still members three months later. So if you run a challenge, you might keep 7 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+ members will have you constantly chasing marketing ideas.
I walked through the method to build a great, profitable gym with 150 members here:
But I think it’s worth asking–as I always like to do–“who benefits?”
Who benefits from telling you to shoot for 300 members with high turnover and constant churn?
Internet marketing companies, for one. If you only need 150 clients, you’ll eventually back off your marketing. That’s not great news for them. The best retention strategy for marketing companies is for YOU–their client–to have BAD retention.
You increase your client base incrementally–one client at a time. But headcount increases other problems exponentially: overcrowding, cliques, drama, unpaid accounts, high numbers of volunteer coaches.
The high-volume model was introduced to CrossFit gyms in 2006, and it’s been the Achilles heel of the movement since. Shooting for 300 clients introduces all the problems of selling a commodity (price pressure, lack of differentiation, low client affinity, competitors created in-house.)
Who are the exceptions? The gyms who start with a good margin (we teach 33% to start) and THEN build from there. Ken Andrukow is a shining example.
What are the REAL metrics that matter: 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.