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Gym owners and operators, are you having trouble keeping your members motivated and engaged? It is well-known that disengaged members are not ideal, but do you understand how much it costs you when you lose them? This article will provide you with key figures that illustrate the cost of losing members. Keep reading if you want to learn ways to prevent disengaged members from leaving your gym.
It all begins by thoroughly understanding your business and financial metrics. Without this knowledge, it's nearly impossible to identify areas that need improvement and make the necessary course corrections.
Metrics you must know:
1. Member Lifetime Value (LTV)
Every person who signs up for a gym membership has the potential to generate revenue for the gym. The Lifetime Value (LTV) is a way to calculate this value over the length of their membership. For instance, if the average revenue per member is $81 per month (based on average membership cost) and the average membership length is 9 months, then the LTV is $729. This figure helps to understand how much revenue is lost when a member cancels their membership.
2. Customer Acquisition Cost (CAC)
Acquiring new members for any business comes with a cost. The cost of acquiring a new member is measured by CAC (Customer Acquisition Cost). For instance, if a gym spends $30,000 on marketing in six months to sign up 100 new clients, the CAC will be $300 per member. This figure is critical as it highlights the significance of member retention over acquiring new ones.
3. CAC Payback
How long does it take for a new member to become profitable? If the cost of acquiring a customer (CAC) is $300 and the monthly gross revenue per member is $81, the CAC payback period is approximately 4 months. This knowledge can assist in creating financial plans and evaluating the effectiveness of marketing expenditures.
4. Churn Rate (Member Attrition)
This metric shows the percentage of members who leave a business or organisation within a given period. For example, if a gym loses 100 members out of a total of 300 members in three months, the churn rate is 33%. A high churn rate may indicate that there are underlying problems with member engagement, satisfaction, support or value of services. One common mistake while calculating the churn rate is including the new member acquired against the total member number, which is incorrect.
5. Average Membership Lifespan (The importance of Member Retention)
Understanding the average membership duration is crucial as it gives insights into how engaged and satisfied the members are. The churn rate has a direct impact on the average lifespan of the membership. For instance, with a quarterly churn rate of 33%, the average lifespan of membership is only 9 months. However, if the lifespan is longer, it often correlates with higher member satisfaction, increased profit margins (more take home) and better loyalty and referrals overall, strengthening your gym’s financial health.
To reduce the negative impact of losing members, gym operators and trainers should keep track of financial metrics and look to implement strategies that empower enhanced member experiences, personalised support and engagement.
How to add value to gym memberships
Along with understanding the above metrics, here are a few ideas that will enhance the value of your gym memberships:
- Onboarding & Personalised Engagement: Setting up your members for success means personalising onboarding and engagement from day 1. Using data to power these interactions is critical.
- Strategies for Higher Retention: Implementing loyalty programs, personalised training plans, and community-building activities can enhance retention.
- Optimise Marketing Spend: Knowing the CAC and LTV helps in allocating marketing budgets more effectively.
- Enhance Member Experience: Regular feedback and adapting to member needs can increase the membership lifespan.
- Financial Forecasting: These metrics aid in predicting revenue trends and making informed business decisions about tools and resources to leverage.
Understanding and addressing member churn is crucial for the long-term success of your gym business, beyond just maintaining its current financial health. By utilising financial metrics, gym operators and trainers can turn challenges into opportunities, create a thriving community of engaged members, improve operational efficiencies, and increase revenue growth. By implementing strategic interventions to enhance member satisfaction and loyalty, your gym can reduce member churn and establish itself as a leader in offering exceptional fitness experiences. Let's use data to move forward and build more resilient, profitable, and member-centric fitness businesses.
Visit FitFlo to learn how to manage your gym's financial health and empower your team with data-driven insights and engagement tools to enhance the member experience. Contact us today!
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