Strong ARMs Lead To Happy Lives
“The gym owner’s daily routine can be one hell of a grind!”
Our friend Chris Cooper from Two Brain Business contributed to this article. If you’re looking for a killer business mentor that can help you identify the metrics in this article and improve them for your business, hit him up today! Tell ’em that #TeamRYG sent you!
Between coaching classes, interacting with members, leading employees, and ensuring the finances are in order…the tasks are CONSTANT. One way we can receive support is to talk with fellow affiliate owners, whether it’s through client groups, mentoring groups, or masterminds. We’re constantly striving to be better and enhance our communities.
During those conversations, there is a question that always seems to come up. It’s right after all the fluffy small talk: How many rowers to you have? Do you follow conjugate programming? How big is your facility? How many coaches do you have? How do you pay them? And wait for it… wait for it…
How many members do you have?
It is a peacock’s opportunity to show off its feathers — all 300 of them. But guess what? That number doesn’t mean anything — other than that you have 300 people showing up to your gym to work out.
Does it show how stable your business is? No. Does it show how much profit you are making? Nope. Does it indicate how many hours a day you are coaching? Wrong again. The list could go on! It pretty much means nothing when it comes to the health of your business.
Look, we know this isn’t your typical beautiful blog story — but we’re here to show why you don’t need to chase after a higher number of members, how you can have a higher profit, and most importantly, how to have a better quality of life. Read on and get after it!
So, if the number of members doesn’t matter, what numbers do?
There are three main numbers that we recommend checking out. They are:
ARM: Average Revenue Per Member
Simply put, ARM is the average value each client brings to your gym each month. Knowing your ARM provides a data-driven benchmark to fuel educated decisions and identify ways to increase profitability.
Let’s look at how to calculate your ARM. It’s important to note that calculating ARM isn’t based solely on the amount brought in from recurring membership. It is total gross revenue — anything that your members do that earns your gym money.
The equation for ARM is Monthly Gross Revenue / Total Members.
It’s pretty simple, right?
Knowing your ARM gives valuable information, and is especially important in calculating the value of each member over a lifetime.
LEG: Length of Engagement
This is a relatively easy one! LEG can be simply defined as the average length of time (in months) that a member stays at your gym. You’ll have to pull this data from your membership management software or whatever you use to track memberships.
Remember, in order to achieve a goal, you have to set one in the first place! How long has your gym been open for business? If it’s less than 10 years, this number should also be your goal for LEG. If you’ve been open longer than 10 years…well first off, congrats…and second off, shoot for the 10 year mark as your perpetual goal.
CLV: Customer Lifetime Value
Calculating your CLV is another incredibly useful metric. Of course, before you can calculate CLV, you’ll need to figure out ARM and LEG.
CLV = ARM * LEG
CLV is very useful for identifying things like advertising budgets, projected ROI on member outreach campaigns, and more.
Your ARM is very important…
It’s important because a 300-member gym with a monthly ARM of $150 grosses $45,000 a month. Sounds impressive, right? Well, maybe not. Let’s take a look.
You have to consider operational costs. How many employees does it take to run a 300 member gym? How much equipment do you need? How big of a facility do you need? We don’t have the exact answer, but you get the point. All of those costs impact profits, which impacts the quality of life you are able to provide for yourself, your family, and your employees.
Now let’s take a 150-member gym with a monthly ARM of $250. This gym has a gross revenue of $37,500 a month. In comparison to the first gym, could seem as though Gym #2 is making less money…but for the numbers to mean anything, you have to consider the big picture (ie. NET profit instead of GROSS revenue)!
Take every expense (and headache) a 300-member gym has and cut it in half! Now, you are operating in a profit-rich environment and delivering exceptional value to your clients, while also providing a worry-free and sustainable career for employees. Guess what? You’ve picked the low hanging fruit, increased your ARM, and can continue to scale and grow to a 300 member gym in a controlled manner that maintains your ideal profit margins and lifestyle.
We know you want to know the math — with 300 members and an ARM of $250, the gross revenue is $75,000/mo. As a side note, there are affiliate gyms with ARMs that are much higher than $250, AND that have more than 300 members.
I know my ARM — now what can I do?
Knowing your ARM provides a ton of information — and helps you identify opportunities to improve. Here are a few questions to ask yourself that will help you figure out ways to increase your ARM:
- What services are your clients using that are related to CrossFit but not conducted at your facility?
- Are there any referral relationships you can establish with local businesses?
- Are you offering your clients all of the services they want?
- Are you devaluing add-on services and/or not charging for them at all?
Make a list of answers under each question, and then tackle one item at a time. Talk to your members and close the gaps. Your members will be happier and you will increase the profitability of your facility.
When you start fiddling with the CLV, you can do some really cool stuff. For instance, you can accurately identify an acceptable cost of acquiring a new client, which will be based on how much that client is worth over time.
Plain Language Scenario #1
Let’s say your gym’s average CLV is $7300 and you decide to launch one of Run Your Gym’s badass “low barrier to entry” programs to help grow your community. The course material costs $250, and after coaching and expenses, you’ve spent $800 total — but you only received 9 participants at $50 each. Did you really just lose $350? Not so fast. If you convert one client (come on, just ONE) into a member…your gym has just taken a net program cost of $350 and turned it into a $7300 payday. That client is worth it!
Plain Language Scenario #2
This one is wild. Let’s run a Facebook advertisement to increase your attendance for your gym’s free one-on-one consultations. You spend $100 over the course of 2 weeks, and have 10 consultations that result in 4 new members. You just turned a $100 ad campaign into $29,200. Data-driven decisions for the win!
Before we sign off, you know what we’re going to leave you with:
Action Items
- Determine Gross Revenue
- Determine ARM
- Determine LEG
- Determine CLV
- Answer the questions we asked in this post to figure out where you can increase your ARM
- Pick one way to increase your ARM based on your answers and put it into play!
- Identify what is an acceptable cost for your gym to acquire a new client, and use it to budget for some type of member acquisition program or advertising campaign
- Continuously reevaluate your gym’s ARM and constantly develop plans to increase it
This isn’t necessarily as cut and dry as some of the previous information that you’ve received from us. However, it is extremely important, so take some time and get it done.
Remember why you read this blog! Increasing ARM will enable you to run a better business and have a better quality of life — the entire reason we created Box Builder!
