Show us the data!
By: Craig Patterson
People often ask me where I got my data from to be able to mentor coaches to become professional coaches, and gym businesses to become more profitable.
“Where’s your data? Show us the data!” I have been asked.
As a mechanical engineer by trade, I can appreciate when people ask for data, as every business decision I make is based on data.
So here’s our story how we got the data:
Before we began collecting data, 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.
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)
• Simply: 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 he/she earns a professional wage, then he/ she has a good chance to 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 sellable asset (5 X EBITA)
Editors note: The two most important metrics, that set up all the other metrics, that allow all parties to succeed are HIGH average client value and LOW churn (i.e. client retention is high).
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 he sticks around, the more the coach has a chance to earn a good living. And, of course, the more the client pays and the longer he sticks 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 I 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 2013, I was mentoring other gym owners based on the evidence we had collected over the years.
And then, in 2014/15, we got serious.
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. What an opportunity to see data on such a grand scale.
So we got started. First, we picked 100 gyms at random, looked at their website and divided them into three major groups: gyms who put new clients straight into classes, gyms who 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 versus 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.
This graph represents our findings:
The second big finding had to do with 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 fundamentals sessions:
The third big finding was that the more sessions a client does during the fundamentals phase, the longer they stick around.
This graph shows how churn decreases as the number of sessions increases.
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 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 ACV at Madlab School of Fitness at $10,911 ($217 per client per month, which is now closer to $250) (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 $65 an hour for fundamentals), versus other CrossFit affiliates—$,1737.
Thus, our conclusion that we still stand by today, as it keeps proving true at our gyms year after year:
- The lower the coach to client ratio in fundamentals,
- the more money the client pays,
- and the more sessions they do =
The higher your ACV and the lower your churn.
Just some food for thought.