PT-FIRST

CHAPTER #4

HOW WE GOT OUR DATA

Here's Our Story

First, we needed to clearly figure out our intended goal for each party of the business: the client, the coach and the gym owner. Essentially we knew we wanted the client to win, the coach to win, and the business to win.

Pretty straightforward.

Thus, that became our prime directive when making decisions: All business decisions need to be aligned, so all parties win—the coach, the client, and the business.

After we knew our goals for each party, we said, “Ok, so how do we measure this?”

For us to know if the client was winning, we used:

• Churn (how long are clients sticking around)

• Average client value (ACV)

If a client is paying top dollar for a high-value service and not leaving, chances are they are getting fit and staying fit and value your service to continue to pay for it.

For the coach, we used:

• $/coach hour

• Total coach pay

If the coach earns a professional wage, there’s a good chance they’ll pursue a lifelong career in the fitness industry.

The gym wins if:

• It’s financially profitable, measure by EBITA (earnings before interest, taxes and amortization)

• It’s a truly sell-able asset (5 X EBITA)

When these numbers are good, everyone is winning, because…

If clients are paying you money and they’re sticking around, they’re obviously getting value from your service. The more the client pays and the longer they stick around, the more the coach has a chance to earn a good living. And, of course, the more the client pays and the longer they stick around, the more the business profits.

Madlab School of Fitness

We started with Madlab School of Fitness in Vancouver. We opened our doors in 2005, made a lot of mistakes over the years and basically learned through trial and error what works and what doesn’t for all parties to win.

Then we teamed up with some other small gym owners, and for years we did experiments on more and more gyms, found eerily similar results, and continued to learn about what works and what doesn’t. By 2012, we were mentoring other gym owners based on the evidence we had collected over the years.

From 2012 to 2015, we did formal alpha, beta and gamma trials. We started with seven gyms in 2012 and saw some really impressive results.

Then we took on 33 more gyms in 2013 and got similar results in less time.

In 2014, we took on another 55 gyms and got even better results in less time.

In these three years, we honed best practices and built infrastructure to support the gyms and their coaches.

Then we were approached by an MBA student (Kapil Khimidas) who was going to a gym that was implementing the Madlab model. He was blown away with the “complete transformation of the gym and its culture” and wanted to commission a study.

He looked at 66 gyms over the course of six months. Here is a short summary of what he found.

Then came the Zen Planner mass gym study:

We had a great relationship with the CEO of Zen Planner. They were interested in what we were doing and believed in our mission.

They had 1,600 gyms in their database to examine.

So we got started. First, we picked 100 gyms at random, looked at their website and divided them into three major groups: gyms that put new clients straight into classes, gyms that did group fundamentals/OnRamps, and gyms that did personal training for fundamentals.

Then we looked at another 100 random gyms. And another 100.

And we started to notice a trend when it came to ACV and churn. Every group showed the same results, time after time.

Group vs. One-On-One

Churn rate increased (client retention decreased) when coach to client ratio increased (i.e. the smaller the group, the better, with one-on-one coach-to-client ratio being best)
Specifically, when new clients did group fundamentals, churn rate was more than 70 percent after one year (and even higher when they were thrown right into a group class with more experienced clients without going through a fundamentals phase first).
When new clients did one-on-one personal training with the same coach, annual churn rate decreased below 25 percent (75 percent client retention). At Madlab School of Fitness, retention was closer to 85 percent (now we’re closer to 90 percent).

This graph represents its findings.

Price:

The second big finding had to do with the price clients pay for fundamentals. In short, the more money a client pays, the longer they stick around.

This graph shows the inverse relationship between churn rates and price:

Number of Fundamental Sessions:

The third big finding was that the more sessions a client does during the fundamentals phase, the longer they stick around.

We followed these gyms for one year, and we found the same results quarter after quarter.

This quarterly health check represents all of the gyms we followed, split into three columns: Madlab School of Fitness, Madlab consulted gyms at the time (in 2015), who were at varying stages of transitioning to one-on-one personal training for fundamentals, and other CrossFit affiliates, who predominantly did group fundamentals at the time.

You can see the ALTCV (Average lifetime client value) at Madlab School of Fitness at $10,911 ($217 per client per month, which is now closer to $260) (at the time we were averaging 15 personal training sessions at $82 an hour for fundamentals), compared to other Madlab Group gyms—$5,341—(at the time, they were averaging closer to 10 sessions at $65 an hour for fundamentals), versus other CrossFit affiliates—$1,737.

Thus, our conclusion that we still stand by today, as it keeps proving true at our gyms year after year: