Let's start with the obvious: your revenue comes from your clients. They buy memberships, apparel, clinic spots, event entries, and supplements. They are your top line.
When you want to grow, the money will come from them.
All gym owners realize this, but many fail to realize that all clients are not created equal. Some contribute more to the top line that others, while some are a drag, bringing your overall business down while placing the same burden on your asset base.
Regardless of top-line contribution, every client needs equipment, space, and time. You have limited amounts of all of these; you would do well to determine where you allocate them and which type of client populates the gym.
To help my consulting clients do this, we introduce a metric called ARCM. ARCM is an acronym: average revenue per client per month. At the AF Project, we live and die by ARCM. It is our bellweather, the number that we focus on every month.
To calculate your ARCM, simply take your latest month's revenue figure and divide by your total number of clients (of all types). You'll include every cent of revenue and every type of client; no exceptions for punch cards, drop-ins, clinic spots, etc. Do this now; it's a worthwhile exercise.
Our goal is to raise ARCM. If we can do this (and do so continuously), we can induce revenue growth without procuring a single new client.
Growing ARCM without growing your member count represents an ideal situation. Unlike membership growth, ARCM growth does not entail hiring new employees, knocking down walls, buying equipment, or increasing the administrative load on the business.
This revenue-without-burden scenario allows you to maintain fewer (and closer) relationships with your clients, a great scenario for a high-touch, individualized, one-to-one business. In turn, these tight-knit relationships increase membership retention (another key variable in maintaining and growing revenue).
Focusing on ARCM will pay dividends when you get new members as well. You'll be keenly aware of how new member membership and program participation choices influence the ARCM calculation, and you'll likely alter your sales process as a result.
Case in point: many of my consulting clients are shocked to find that their ARCM is less than they thought it would be. In a gym that charges an unlimited monthly membership fee of $200, we typically find an ARCM between 20% and 30% less than that figure; the average client is worth $150 to $160 dollars.
The reason it happens: the sheer impact of punch cards, pre-pay memberships, 2x and 3x options, and trade-out memberships is huge (and unrecognized). For every one of these membership options, the less-remunerative client places a time, space, and money burden on the facility equal to that of an unlimited member, but provides comparatively little revenue. Therefore, they drag ARCM down, quietly and quickly.
Remedying this issue is the first place we'll focus, but it's worth noting that ARCM (and therefore overall revenue) is driven by additional factors. We'll examine three:
Share of Wallet
Additional Revenue Streams
Influencing Membership Choices
This is your first stop. Realize that influencing membership choices is a two-pronged process. First, you want to encourage new members to choose high-revenue options: unlimited group memberships and one-on-one personal training. This pushes revenue up with minimal membership growth, the key to ARCM growth. Second, you'll want to induce current low-revenue members to upgrade to a high-revenue option.
Accomplishing this takes a keen understanding of your unique value proposition, not only as a gym, but within your membership options. What does the 3x option offer that the 2x does not? What does unlimited membership offer that cannot be had with less frequent options? Why would one choose personal training if group training is on offer? You need to be able to answer these questions clearly and compellingly (and you have to believe the answer with your whole heart).
If you cannot differentiate between your offerings, you won't be able to sell them convincingly. To create differentiation, you have two moves: either eliminate non-differentiated options or add more value to the higher-end options.
An example of eliminating non-differentiated options: if you offer a 2x, a 3x, and an unlimited monthly membership, and your average client attends the gym less than twelve times a month, your 3x membership is (effectively) an unlimited membership. Eliminate the 3x option for new members, and they'll need to select between a 2x and an unlimited membership. Forcing this choice gives you ability to sell unlimited more effectively, as you can emphasize the distinction between the options more clearly.
An example of adding value: with the same membership options available as above (2x, 3x, unlimited), run twice-monthly specialty clinics on important skills (double unders, snatches, pull-ups, etc.), and make them free to unlimited members only, with all other membership options paying $60 per clinic. If your unlimited membership is only $40 more than your 3x, it becomes evident to the new (or existing) non-unlimited member that they will get more value by upgrading.
Regardless of how you influence, your goal is to create a clear choice that obviously and immediately rewards prospects and members for choosing higher-revenue options. Brainstorm ways to do this with both current clients and incoming prospects. If you focus on this alone, you will grow revenue.
Increasing Share of Wallet
This concept is simple: your clients are spending money on fitness- and health-related items that they aren't buying from you. You can increase ARCM by capturing that spending rather than allowing it to go elsewhere.
Note that you aren't necessarily asking your clients to spend more money; you're just asking them to spend it with you. They're buying equipment, apparel, footwear, supplements, clinics and seminars, advice, accessories, and more; let them run it through your profit and loss statement.
To begin capturing those dollars, you'll need to determine what they're buying. Observe your members during pre-class times: what comes out of the gym bag that you didn't sell? What are they eating before and after class? What supplements are they taking? What's on their feet? In their hair? Where did their shirt come from? Their shoes?
Next, ask your members what they're reading. What blogs they're visiting. Are they buying cookbooks? Training manuals? Do they have equipment at home? Ask them if they're doing additional classes outside your facility. Do they go to Spin? Yoga? Running groups?
Once you have a good idea of what they're purchasing, strive to offer it. With physical items, begin by calling item providers, and ask it they would consider having you as a retailer. Ask if they have a referral or affiliate program that would pay you to re-sell their items.
Once you have the relationship secured, create an e-commerce site on your website, a store where members can buy all of their needs from you, picking them up at the gym. I'm astounded how many gyms don't do this. Running retail doesn't get any simpler than a digital store, and you'll be able to offer a wider range of products than you could ever stock on single shelf at the gym.
With knowledge- and training-based items, begin creating curriculums. Can you teach your clients beginning yoga? Can you inexpensively hire a yoga-only instructor? Can you teach that one-day olympic lifting clinic to 30 people at $100 a head?
Enacting a share of wallet campaign to increase ARCM will likely take you outside your comfort zone. You'll need to learn about e-commerce and retail: inventory tracking, merchandising, cost-of-goods-sold, gross margin maximization, shrink control. You'll need to learn curriculum development, lecture and public presentation, and creating word-of-mouth buzz.
Nonetheless, increasing share of wallet is a huge ARCM lever, especially when combined with a solid inbound marketing campaign. You'd do well to begin by focusing on the categories that are easy for you to pursue, expanding as you become more confident with the concept and its execution.
Creating Additional Revenue Streams
This concept is a close cousin of share of wallet, but rather than focus on what clients are buying elsewhere, we're focused on what they're not buying, but would nonetheless be interested in.
Let's begin with the keystone example: Personal Training. Every CrossFit gym that I've consulted with this year had derived less than 5% of its revenue from personal training at the outset of our engagement. This astounds me. From an ARCM perspective, there may be nothing more effective than adding personal training clients.
Let's look at the math:
Imagine you have $12,000 in average monthly revenue and 100 clients. ARCM is $120/client. If you add Clients 101 and 102 as group clients (at the same ARCM), you create an additional $240/month in profit.
Instead, imagine adding those two clients as a personal training clients. They are paying $75/hour for four hours a month, or $300 each, generating an additional $600/month in profit. What happens to ARCM?
ARCM (group add) = $12,240/102 = $120.00
ARCM (personal add) = $12,600/102= $123.52
Adding two personal training clients results in a 2.9% increase in ARCM, while adding two group clients results in no change. Repeat this phenomenon for six months, and you'll add $3600 to monthly revenue with only 12 additional clients.
Taking this concept to the real world, I asked one of my clients (a small gym in the Midwest) to offer incoming prospects the choice of personal training instead of group training during their intro session. Their uptake rate for this higher-revenue-generating, ARCM increasing offer: one in every ten prospects chose personal training.
At last observation, this simple change (along with the elimination of a lengthy, barrier-creating on-ramp program), increased the gym's ARCM from $82 to $98, representing a 19.5% increase in this metric and a $1,030 increase in monthly revenue, more than enough to double the profitability of this young gym.
Personal training is only one example. Your clients may also pay extra for ongoing mobility classes, nutrition counseling, or personalized goal setting and attendant programming. They may pay for massage or chiropractic services. They may pay for cooking classes.
While brainstorming revenue stream possibilities (and share of wallet options), recognize that it is important that your offerings fit with your training philosophies and provide direct benefit to the health and well-being of your clients. This is not a simple money grab, but an deeper question: what do your clients need to optimize their lifestyle, but lack the option to pursue? What would make them more complete athletes, increasing their success within your program while generating a stronger connection to your facility? Look there first.
The takeaway lesson from this article: stop focusing on increased membership count as the primary method of growing revenue. Rather, focus on ARCM with every client: existing and prospective. In doing so, you'll naturally raise your top line without adding significant overhead to the business, moving profitability upward quickly and effectively while enjoying a closer relationship with fewer clients.