PT-FIRST
CHAPTER #3
GROUP ON-RAMPS: THE ECONOMICS
GROUP ON-RAMP
Onboarding clients into a group introductory class is probably the most common way of bringing on new clients in the functional fitness space.
Our data (more in chapter four about how we got our data) tells us that clients who come in this way churn at a rate of 50-60 percent annually. This means if you bring in 30 new clients in January, less than half will still be there at the end of the year.
On average, functional fitness gyms charge in the neighbourhood of $200-$400 for approximately eight to ten onramp sessions.
Let’s say you run a new onramp every two months—six over the course of the year—and you bring on 10 new clients for each onramp. That’s 60 clients over the course of the year, paying an average of $300 a head.
Total fundamentals revenue for the year: $18,000.
In comparison, if the pt-first Madlab model brings in 60 new clients over the course of the year, and each new client does an average of 15 sessions at $80 a session, that’s a fundamentals revenue of $72,000.
Even more importantly, however, are the churn numbers. We have discovered that the pt-first model retains 80 to 90 percent of their clients annually in comparison to the group onramp model, where retention sits around 40 percent.
That’s a lot of money left on the table.
SHORT TERM FITNESS CHALLENGES
Another popular way to onboard new clients is to spend some money to market a low-cost, short-term fitness challenge, such as a six or eight-week program. Sometimes these are weight loss challenges, where the client mentally prepares for six to eight weeks of clean eating and is promised their money back should they achieve their weight loss goal.
Client retention in the short-term challenge situation is even more dire than with traditional group onramp sessions. Generally, annual client retention falls in and around 10 percent, meaning only one out of ten people who start the challenge are still paying a membership fee a year later.
Again, gyms tend to charge between $200 and $400 for approximately one month to two months of introductory classes.
Here’s what that looks like over the course of the year:
You spend 4 weeks marketing your challenge
The first challenge—let’s call it D-Day—does well in terms of generating new clients and brings in a whopping 40 new 6-week challenge members! You are stoked!
4 weeks spent to market a new challenge.
The second one brings in just 30 people. Not bad, not bad. You can live with that.
4 weeks to market another challenge.
The third time around, the number drops to 20. Hmmm. Half the number from D-Day? Is this trend going to continue?
4 weeks to market another challenge.
The fourth challenge brings in only 10 members. Panic starts kicking in.
4 weeks to market another challenge.
(because you’re a glutton for punishment and desperate and don’t know what else to do).
The fifth and final challenge of the year, you get just 4. You are screwed.
Total new members brought in over the course of the year = 104
Case study of a short-term fitness challenge
Though the above is hypothetical, it’s based on what many gym owners have experienced when they run a handful of short-term challenges throughout the year. And it’s pretty much exactly what happened to Jason Caryl in Yakima, Washington, a city of around 100,000, at his gym Elite Functional Fitness.
He ran a number of 6-week challenges in 2018 that cost $400 a pop, although the money would be refunded to the client should they meet specific weight loss or body composition goals.
Results for Caryl
His first challenge brought in 40 to 50 people, Caryl said, but the next one only brought in 15, and by the end of the year, he was lucky to get 5 or 6. Though his retention converting challenge members into regular members after the first challenge was pretty good (70 percent), retention got worse and worse as the challenges progressed.
A year later, only a handful of people who came in via the 6-week challenges remained at his gym.
On top of this, his gym’s reputation was tarnished because people felt like they had been tricked because the advertisement Caryl used said it was a free challenge, but in reality, it was only free if you met your weight loss goal. Many people complained when they didn’t get refunds, so Caryl handed out many more refunds than he should have because he didn’t want bad blood.
“We poured our hearts and souls into these people, and they just left the minute the challenge was over,” Caryl said.
Back to Economics
Of the 104 people brought in over the course of a year, only 10 percent will still be there a year later. This is consistent with the data we have collected and also consistent with what we’re hearing from the approximately 50 gyms we have worked with who put themselves through the 6-week challenge game for a year or more. Of course, there could be some outliers, but we haven’t come across any.
This is also exactly what Caryl experienced in Washington.
Revenue generated in Year 1:
First challenge: $400 x 104 = $41,600
Post challenge membership revenue: $175 (the average rate for most affiliate type of gyms): $11,025
Total Revenue from bringing in 104 6-week challenge members in one year: $52,625 And at the end of the year all you’re left with is 10 to 15 of those members paying $175 a month for group classes.
This shows you what running five challenges looks like, where you bring in 40 people on the first challenge, 30 on the second, 20 on the third, 10 on the 4th and 4 on the last one, and how many ongoing members at $175 a month for your regular membership you get after each challenge. You can see this number under the “upsells” column.
A lot of work to generate $52,625, and all you have to show for it is just 10-15 clients at the end of the year paying $175 a month…
Not only that, but this number will only get worse heading into year two because you have exhausted your 6-week challenge market, and more and more people from the first year will continue to fall off.
Regardless of whether you run a series of challenges or some other version of it, the numbers are the same. Group fundamentals, and especially short-term challenges, lead to churn, churn, churn and a low ACV.
Now let’s consider those numbers in the PT-first model:
Let’s say you bring in an average of 5 new clients for 12 months, all of whom do 15 personal training sessions at $80 an hour (Madlab School of Fitness charges $100 an hour) with a personal coach they have a relationship with to prepare them properly for handling a hybrid membership.
60 clients x 15 sessions at $80 = $72,000
Once they’ve finished their initial one-on-one fundamentals, they graduate to a hybrid membership, where they do a combination of group classes and personal training (most continue to meet their coach once every six weeks at the start of a new programming cycle to prepare them to be successful in the next cycle, or to sit down for a lifestyle consult to tackle other areas of their lives that can’t be tackled in the group environment).
They pay between $220 and $300 for their hybrid gym membership. The average sits around $260, so let’s use that number.
Churn rates are around 10 percent when you do one-on-one personal training with new clients. (Again, this comes from 15 years of collecting data from more than 1,600 gyms, which we’ll go into in chapter four). This means 90 percent of clients are still around and going strong at the end of one year.
Thus, 54 out of the 60 clients are still around, paying an average of $260 a month at the end of the first year. (These people spent the first two months doing personal training and paid $260 for 10 months).
54 clients x $260 (hybrid gym membership) x 10 months = $140,400 (this doesn’t even include the revenue from the 6 clients who didn’t make it the entire year but who possibly still lasted 6 to 8 months etc…)
Total revenue: $72,000 from fundamentals + $140,400 from hybrid memberships = $212,400
…And after a year-and-a-half, you still have 50-plus of those clients from year one all paying $260 a month ($14,040 a month in recurring revenue).
Not only is your revenue dramatically higher at the end of the year, it will continue to be higher at the year-and-a-half and two-year mark and beyond without having to do any additional work. You’re also likely to start bringing in more clients via referrals in year two, as opposed to the 6-week challenge model, where your pool of prospects has completely dried up heading into year two.
Which one sounds more appealing? A life of a never-ending cycle of hustling to find new clients all the time, or the one-on-one model, where you work hard off the top, but create a sustainable client culture, where you’re properly servicing your clients and aren’t burning out in the process.
…Because, if you have coached for any period of time, you know that working with a veteran client of five years is much less drain on the old energy levels than working with new people fresh through the doors week after week, month after month, year after year.
“But my market can’t sustain $260/mo or $80/PT”
So…
OK, let’s consider what the system looks like at $50 per pt session and a base monthly membership of $175 per month (meaning a hybrid membership consisting of unlimited group classes and quarterly pt sessions (4 per year) amortized into the monthly rate.)
60 clients x 10 personal training sessions at $50 = $30,000.
Once the clients finish their 10 fundamentals pt sessions, which take about a month, they will pay $175 for the next 11 months of the year.
Let’s assume the same—that 54 people carry on to hybrid memberships after fundamentals.
54 x $175 x 11= $103,950
Total revenue: $103,950 + $30,000 = $133,950
And again, if 50 of those clients stick around for the next year, then you’ll be bringing in $8,750 per month in recurring revenue, plus whatever new clients you bring in.
Gymmin ain’t easy, but it’s a hell of a lot easier if you enroll your clients via pt-first.
Noteworthy Sidenote:
Economics aside, what we have found, and what Madlab coaches have reported to us, is when each client is teamed up with a personal coach—someone they know and trust and have a real relationship with from having spent as many as 25 hours of one-on-one time together—a culture of loyalty forms.
Clients around the gyms start asking, “Who is your coach?” To which the client responds proudly, “Sheppy. Sheppy is my coach.” It creates a real closeness, a sort of pride, between client and coach that we have learned is unmatched without a pt-first model.
1980 Clark Drive
Vancouver, BC Canada
V5N 0A9
info@madlabgroup.com