The Path to Profit
If you’re a South Park fan like me, you’re going to be familiar with the underpants gnomes. The underpants gnomes have a business plan: to steal underpants from kids, and then they’re going to profit from it. They’re really good at stealing underpants. This is their business model: phase one, they collect underpants; phase three, they profit. The whole underpants gnomes episode on South Park is dedicated toward asking the question, “What’s phase two?”
It seems funny to think, but this is where a lot of gym owners are. It’s certainly where I was. I was really, really good at coaching, really good at getting people fit, helping them lose their weight, whatever. Getting them stronger. I could help with bad backs and all kinds of stuff. I wasn’t good at getting to profit.
Unfortunately, what I believed was that the path to profit was to get better and better at coaching. That wasn’t true.
Pursuing excellence at fitness makes me good at coaching fitness. Pursuing excellence in business makes me really good at business.
The profit that I get from coaching fitness is fitter, healthier, happier clients. The profit that I get from being excellent at business is profit. That’s how you measure success.
In the fitness business, you measure success by the outcome of your clients. You measure excellence in business by the outcome of the business.
I think if I’d said this two years, it would have been strung up, but now it’s okay. People are accepting this. It’s great. We’re also starting to see the difference between the fitness model of CrossFit and the business model — they’re not the same.
The reason that I want you to be excellent at business is because I want this movement — CrossFit, the micro-gym industry — to carry on.
This is how we’re going to make a difference in the lives of people in our communities. The way we’re going to save the country from going under is entrepreneurialism and better healthcare. The way we do that is the pursuit of excellence in business, making you sustainable, happy and healthy. My contribution to that is just to help you get to an excellent business.
Luckily, we don’t have to feel like the profit mongering, big corporations.
The base of a path to profit in your business is consistency, how to do things without thought, how things are done automatically without your touch, without your input all the tim.
At Catalyst, we haven’t offered a discount in at least 7 years.
When somebody comes through the door and they ask, “How do I get a discount?” The answer is, “We don’t give discounts.” It’s automatic. It’s that consistent base that lets us build a culture because my clients can trust that we’re not cutting a deal with the next guy who walks through the door.
Then we can start working on culture. We’ve formed that foundation of trust because my clients can trust that if we screw something up — like double-billing them — i’s going to be okay, because in the past we’ve shown we’ve made it okay and so we can build a culture on top of that.
It’s important to note, though, that there are a lot of gyms out there with a fantastic culture that don’t have that base of business consistency and so the culture keeps slipping through the cracks. You have to have consistency and that means habits, it means processes. I’m not going to beat you over the head with this.
On top of that culture, you have to have a solid base of service. You have to believe that we’re here to help people, not to sell people. On a base of consistency and culture, that means we help people exactly the same way, and that there are limits on what we’ll do. I won’t come in to the gym at 7 AM on Sunday morning to let a client cry on me. But, the gym opens at 10, and if you just come in and you want to cry, there’ll be coach here for that.
On top of that is joy. How does joy manifest in business? Profitability. Value for your time. Getting you what you want in your life.
It’s time for you to do some work here. We’re going to start thinking about 2017. Here’s a goal-setting exercise. The first question: what do you want to make in 2017?
My brother Sherman just posted a goal to net $150,000. To a lot of gym owners out here, that might sound high. But frankly, that’s not an arbitrary number. Sherman and I talk about this all the time and he is close. This is definitely possible in a gym with far fewer than 200 clients if you’re focusing on ARM. But we are not going to go there yet.
What do you want to make in 2017? I want you to write that down. You don’t have to share with me. You can share it with your wife. You can just pin it up on your wall later. It’s okay to choose kind of an arbitrary number now, because we are going to be modifying this over the next minutes.
Now, we’re going to take that goal and modify it based on what you want to accomplish in 2017. We don’t chase money for its own sake. We become profitable to support our education, family and service to others.
I want you also to have emotional reasons to hit this goal. The way we measure progress in Two-Brain mentoring clients is not how much they make. It’s how much education are they getting. Where they travelling? How much time are they getting off? Where are they going with their family, their lifestyle? Can they do certain things? A great friend of mine told me that he didn’t care what he made, but what he really wanted from his business was for his wife to be able to walk into any store she wanted and buy anything without looking at the price tag.
He really inspired me to do something this year that I’d love to share with you. We shuttle kids to hockey and guitar practice and stuff, nonstop. My wife drives all the time. I wanted to buy her a new car this year. My goal was that she could walk into car dealership. She could pick out whatever car she wanted and pay for it on her debit card. She did that and it felt amazing to me. She loves this vehicle. I like it. It’s great for napping in while she’s just driving me around too.
I want you to write down your educational goals. What are you going to learn in 2017? That might be fitness related. Maybe you’re going to take your Level Two. It might be knitting. It might be guitar. It might be accounting. It might be marketing. Whatever that is, I want you to write it down.
The second goal I want you to think about is where will you travel. Where will you go in 2017? Will you go to Disneyland? Will you go overseas? I want you to go somewhere. Because, the ability to take time away from work is one of the ways that we measure how successful your business is. One of the goals I give people on our program a lot, at the end of the Incubator, is to take five days without contacting their gym at all. Because we need to make sure that the boat will float without them so when they get back, they can be working on a higher level.
Third is a lifestyle goal. What needs to be upgraded in your life this year. Is it your house? Do you need to put a new roof on? Is it a new car, like I did last year? Do you want to get a pool for your kids? What kind of lifestyle do you want to create for them?
I coach kids in hockey. One of the parents of my little team of misfits works in a mine. He’s only in town about one weekend a month and he goes way up north, to the bottom of the Arctic circle, and he works in a pit mine. That’s not a happy job. When he comes home, you know what he says to me? “It’s going to be a great Christmas this year.” His goal is a lifestyle goal for his kids. He’s going to spoil the crap out of these kids this year. I love it.
The last goal I want you to write down is your service goal. Who will you help this year? What is the cause that really resonates with you? For me, that is always helping kids and gym owners. I always want to spend more time coaching kids, helping kids, giving to kids. I mentioned my group of hockey “misfits” a few minutes ago. While you’re thinking about your service or cost goals, I’m going to tell you my “misfit” story.
In Canada, hockey is political. It’s just like Little League in the States. This year, we added a couple of teams to our local hockey league. These are rep teams. That means that the top players get to travel to play — awesome for them, great experience. But also it means the recreational players might not even get a team, because there might not be enough kids. We’re pretty rural. At the last minute, we managed to scrape up 11 kids. That’s the minimum you need for a hockey team. We didn’t have a goalie. We had to talk a kid into playing goalie. Then we had to grab one little girl who had never skated before and put her on defense.
Every hockey team should have two jerseys. The league couldn’t buy them jerseys. They couldn’t get the ice time. I’m fortunate enough to be able to buy these kids new jerseys, more ice time, warmup suits — all the stuff the pros get. So I became the unofficial sponsor of this team. My good friend Keith is the coach. He’s kind of this grizzled old hockey expert who just loves the kids. I showed up to the first practice and he said, “Well, you’re coaching too. Go get your skates.”
Now, three times a week, I’m on the ice with these kids, and we just have a riot. That’s my service goal for the winter.
You set up your service goals. Now, we have to say, “Do we have to modify our profit goal because of these REAL goals?”
It’s important that you form an emotional connection to these goals instead of just saying, “I want to profit because I need to make more money.” I want you to picture: what will I learn? Where will I go? What will I upgrade? and Who will I serve next year? so that you’ve got a reason to achieve these goals beyond just a number. Okay?
From there, you got to measure your profit margin. If you’re not doing this, if you’re not a Two-Brain client, you need to start. The easiest way is just to take your gross revenue from the gym. Let’s say you made $33,000 gross last month. Then subtract out your fixed costs. We try to keep those at 22% or less. Subtract your payroll. Everything that’s left, including your pay, is your profit margin. We aim for a 33% profit margin. In the service industry, that’s pretty good. It’s not amazing. In the gym industry, 33% is low because they’re selling all the PIFs and you guys know all about that.
When you’ve measured your profit margin, you’re going to project the gross revenue that you need to create your net. If your net profit goal is to make $100,000 next year and your profit margin is 33%, then obviously you need to gross $300,000 in your gym. Right? Everybody can follow that math. If not, look at the reporting for this later and work through it.
From there, you need to know what your revenue model is going to look like. If we need to make $300,000 next year and you’ve just done some quick arithmetic in your brain and you said, “Uh-oh, I need 526 clients to get there”, That’s okay. We teach the stratified model, which is diverse revenue streams. I’ll be talking a little bit more about that later.
First, here’s the math, just so you have a picture of it. If we start off with a profit goal of $120,000 and a profit margin of 30%, our gross revenue goal is about $390,000.
Next, when we say build up a diverse revenue model, we want to look at who our clients are and how can we help them.
In any gym, our clientele is going to fall along a bell curve. We’re always going to have 10% to 20% of our clients who want to pay less or want less service than what they’re currently getting. That’s okay. They’re probably not our ideal client. We’re probably going to lose them or move them on anyway.
Then, you’re going to have about 30 of them who are content. They think that what they’re getting is worth what they’re paying. Then you’re going to have about 30% who believe they’re a getting great value, that they’re actually paying less than what they’re getting in return. I love these people. These are my sweet spot. And you’re going to have 10% to 15% who actually want more, who want to pay for more and will go looking for more somewhere else if they’re not getting it from you.
When we build your revenue stream to serve all these people and give them what they want.
There are a lot of people in my city who want to get fit. They want to get fit through exercise. The exercise that they choose is CrossFit instead of one of the many other options. They just don’t want to do it in a group, so they choose personal training. There are people who believe they can’t get fit. There are people who are too shy to go into a group.
These people all choose PT. There are people who have to overcome some other small barrier, so they choose PT. There are people who don’t want to do CrossFit because of the complexity so maybe they’re going to go into a specialty group for powerlifting. That’s all they care about. There are teams who want testing for their athletes. I can set up a profit margin or a revenue stream around that.
The point is that twice a year, when group revenues dip, you can still have a solid revenue base because other areas will pick up the slack.
A little bit of review on where money comes from. It’s not the number of clients that’s important. It’s your total revenue and your net profit that are important. If we’re only counting the number of clients you have, we’re not measuring success.
Often I’ll get on the phone with people who have 300 clients but don’t have enough total revenue to be profitable because they’re undercharging those clients. They’re not making enough average revenue per member.
You don’t have to necessarily have a really high group CrossFit rate if you’re following the model of “What do clients want?” Those people, remember in the bell curve, who want more and are willing to pay for more, pull the whole average up.
Next is Dunbar’s number. Theoretically, you can maintain about 150 relationships, that’s it. After 150, you start to forget important details about people. This is another reason why you have to have a high average revenue per member to be profitable because the reality of getting to 300 members is very small. If you can maintain 150 solid relationships, then that’s the number that we’re going to target in most boxes. Three hundred members is a completely different ball game.
With 300 members, you’re going to have to be prepared, even with 90% retention, to lose 30 people a month and have to regain 30 people a month. That’s crazy to me. I’d rather focus on 150 whose lives I can really change and be profitable with them.
Our next step is to break down monthly revenue targets. After we’ve figured out what profit you need to make, it’s really important to break this down monthly so that it seems more manageable. In this example of $120,000 net profit, you need $395,000 gross. We break that down by 12, the monthly revenue goal’s gross is $32,900. That seems a lot more achievable than that giant $300,000 mark, right?
Then we’re going to say, “Where did this person’s revenue come from?” This guy is a year into the business. He is so close to hitting $120,000 net and $390,000 gross. I’m so proud of this guy.
Right now, 50% of his revenue comes from CrossFit groups. 45% comes from personal training. Before he opened, it never occurred to him to even offer personal training, but he came to visit my gym. Before he signed up for our program, he drove 12 hours through the night to get to Sault Ste. Marie, Ontario so that he could stand in the corner for two days and watch what went on. Amazing. I love this guy.
45% of his revenue comes from PT, 5% comes from specialty. He’s an outlier, that’s part of the reason I chose him as the example here. What if 10% of your revenue came from personal training? That could make a difference of $30,000 in gross to you next year. This guy’s not offering a nutrition program yet, but he coaches a lot of sports teams.
The point is that he’s got a diverse revenue stream just by giving people what they want. Now, we’re going to divide our revenue goals by our average price to determine the number of clients that we need in each revenue stream.
For example, I won’t tell you what this guy is charging for personal training. I won’t tell you what he’s charging for CrossFit groups, but you can work it out backward from the math. If 50% of his revenue is going to come CrossFit and that’s $16,458.33 per month: he needs 113 clients. That’s it, 113.
That doesn’t sound like a lot if you’re thinking your frame of reference is 300 clients. If you think about how much change he’s making in these people’s lives, that’s 113 people who come to his gym at least every second day or so. They do exactly what he tells them. They’re changing their lives. They’re probably going to live another five years because of him. They’re not on diabetes medication. That’s profound, that’s actually a lot of people.
Personal training, if we break the packages that he sells, he needs to sell 19 or 20 packages per month. That’s it. 20 packages of personal training a month. Now, if you’re selling zero and that’s your frame of reference, it seems like a lot. But my frame of reference is 3000 personal training sessions a year. It’s all because we asked people, “What do you want?”
The next thing that you want to do is focus on which goals are you closest to achieving already. I really believe in Lowenstein’s gap theory and bright spots in changing the behavior of a gym owner by focusing on the easiest goals to achieve. If you break this down and you say, okay, well personal training is going to be 10% of revenue in 2017. To make it 10%, it needs to be worth $2000 and the most popular package I sell is five sessions for 200 bucks. That’s 10 packages per month.
That’s going to be your first goal: sell 10 personal training packages between now and Christmas.
All right. Next specialty groups because there’s a lot of variability there. Ryan and I didn’t actually break down what he needs to make per person in specialty groups but we know here’s his monthly target is 1645. If you’re train sports teams, that is not a lot. I’ve got three deals now with three sports teams that total $84,000 between now and May. It’s not hard to make $1645 a month on sports teams.
Your next job, when you’re developing these programs, is get you working at higher-value roles. If you’re spending 70 hours a week working at the gym and you’re coaching every class; you’re doing personal training; you’re mopping the floor; you’re processing memberships, you’re not going to have time to do this stuff. You will not ultimately have a profitable, successful gym, because work will always expand to fill the time you give it.
We teach this extensively in the Incubator program.
Moving out of the low-value roles into higher-value roles, has allowed me to focus on building my company. Here’s how you do it:
Break down all of them — cleaner, CrossFit coach, personal trainer, nutritionist, booking and billing, client communication, marketing joy girl — Then you measure the value of your time in each role. For me, cleaner was the lowest-value use of my time. It was worth 12 bucks an hour. You hire somebody to replace you in that role knowing that you’re going to invest that time into a higher value role.
Now, how do you start these revenue streams? You make time, as above. Then you get these things started and then you write down the process so they start to run themselves. Here are some of my revenue streams:
Catalyst was my first gym. That’s where I’m sitting now. I still maintain an office here but I come in three hours a week to coach. Three hours a week, that’s it. That’s just because I choose to. I don’t have to do those hours, but I like to come in Tuesday morning. I see my friends in the morning group and I like to come in Saturday morning and see the giant group.
I come to noon group to work out because I have higher value roles for me than coaching. If you’re in this because you love coaching then that’s a great high value role for you. My passion now is helping clients more with these other businesses.
Two-Brain Business, obviously, is where I spend a ton of my time. I’m most passionate about helping you guys get to where you want to get.
Two-Brain Coaching is a business that I have to help you develop your coaches better through the Upcoach program.
I recently sold both Spark Rehab and ConcussionPro. Both completely ran themselves. I didn’t have to sell either, but wanted to focus on solely on the TwoBrain group.
I spent less than two hours a month running Ignite. How did I do it? I started building the program. I left tracks knowing that I would not be the one to implement this service all the time.
This is our second gym, which was developed just for Ignite. Now, we have so much sports team training that I just can’t run Ignite there anymore. I moved Ignite back to my original building. I carved out some private space for that and that program continues to run itself.
This gym though, where we do athletic strength and conditioning has a whole bunch of teams: hockey, basketball. There are 40 kids who travel to freezing cold Ontario and live for eight months to train there from LA. We have a partnership with a prep school in LA. These kids are a couple of years out of the NBA draft and they’re freezing in northern Ontario right now. That runs itself. I was there yesterday for the first time in over a month.
The retirement point comes when your income doesn’t depend on you showing up anymore. It runs itself. You can’t retire until that happens, but here’s the bright spot. Here’s the silver lining: those things can happen by the end of 2017.
If we can do those things now, why wouldn’t we? Why wouldn’t you want to reach a perfect day, retirement point? Why wouldn’t you want to do that by the end of the year?
The last thing that a lot of affiliate owners have to get over is the mindsets. They believe that they’re serving an average clientele. They look at average demographic income in their city. Now, if I took the average demographic income in Sault Ste. Marie, I’d be pretty discouraged. But luckily for me the mean average income is irrelevant. What is relevant? The clients who want my service enough that they can pay for it. Can every client pay my average revenue per member? No. Some of them can only pay for unlimited CrossFit, and that’s fine.
You can’t focus on everybody or you’re focusing on nobody. Focus on the top 10%. In Sault Ste. Marie, a lot of the steelworkers are struggling. I’m trying to help them by making donations to support services, but I’m not donating my business to them. I’m not donating my livelihood because then I can’t help them.
For my business, I’m focusing on the 10% — the top earners. The dentists are still here. The highly-paid bureaucrats, they’re still here. Some teachers and school board administrators make $100,000 a year. I’m going to focus on them. I’m going to build my business with them. I’m going to stay profitable. I’m going to serve them the best I can and then I will turn some of my profits into helping other people. But I won’t dedicate my business and my price structure and sacrifice my profitability to become a martyr trying to help people that I can’t help now with the tools that I have.
I want most gym owners to succeed. The reason that we have to go through this math is not because you lack the knowledge. This is really the arithmetic that you learn in first grade: you decide what you want to make. You work backward from there. There’s a little bit of long division, but you’ve got a calculator on your phone now. You also know how to market. You know how to shoot video. You know you need content. You know how to do Facebook whatever. You know that you need to be working on higher goals.
So why aren’t gyms more successful? Because they don’t have anybody saying, “Did you do that yet?” There’s nobody saying, “Do this one thing and I’ll call you on Monday.” There’s nobody saying, “I will be looking for the changes that you make.” In short, they don’t have a mentor. They don’t have anybody looking over their shoulder helping them out. This is our service. We want to take all the broad conceptual ideas that you have for your gym, getting people moving better, saving their life.
We want to solidify those into systems that run themselves so that you can focus on growing that business, helping other people, working on a more sustainable revenue stream for yourself.
You can be through four modules by the time your gym opens tomorrow morning. What I promise you is a clear path: you’ll know always what actions you should be taking today to build your business. Instead of these broad ideas which everybody has, you’ll be able to say, “Today I have to write down my roles and tasks and Chris will be checking tomorrow when I get on a call with him.”
I think to save the micro gym movement, to save your clients’ lives, it’s necessary to get more gyms sustainable and profitable.
The most common question that I get is, “What does it cost?” The incubation stage is $2499. You could split it into payments if you want. The average ROI that most clients are seeing in the first six months is 26 times that. That means if you invested a thousand bucks into mentorship, most people on average would be making $26,000 back as a direct benefit within 6 months.
Thanks again to everyone who participates in our gym check up, in our surveys, in our social media, who uses our stuff and gets benefit and gives me feedback. It is my great joy in life to be of service to you.