One of the most common questions gym owners hear -- in addition to “how big is your facility” and “how many coaches do you have?” -- is “how many members do you have?”
More members mean more money and more profit, right? 💰Not exactly. ❎
A gym with 300 members doesn’t mean anything, other than the fact that you have 300 people showing up at 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! The amount of members you have means nothing when it comes to the health of your business.
When we talk about the best growth strategy for your gym that doesn’t mean 🚫 acquiring as many members as possible.
You don’t always need to chase after more members. You can have a higher profit and a better quality of life without significantly increasing your membership numbers.
So, if the number of members doesn’t matter, what numbers do?
Build your ARM (we’re not talking about biceps 💪)
ARM: Average Revenue Per Member
Simply put, ARM is the average value each client brings to your gym each month, and it’s the best growth strategy at your disposal. Focusing on ARM to measure a gym's success is an idea popularized by our good friend Chris Cooper at Two-Brain Business. He has an excellent worksheet you can used to keep track of ARM and other important metrics.
Knowing your ARM provides a data-driven benchmark to fuel educated decisions 👏 and can help you 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 is important, especially when calculating the value of each member over a lifetime and coming up with a growth strategy.
Here’s an example.
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? 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, it seems 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) of a 300-member gym 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.
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 your gym but not conducted at your facility? This could be physical therapy, nutrition services, massage therapy, or even child care.
✅ Are there any referral relationships you can establish with local businesses?
✅ Are you offering your clients all the services they want? If you don’t know what they want -- it’s time to ask!
✅ Are you devaluing add-on services or not charging for them at all?
✅ Are your membership rates too low? Increasing your membership fees is a great way to improve your ARM. Your gym will remain a good value as long as you offer exceptional services that merit the increased fees.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.ARM is a start, but there’s more to the profitability equation.
LEG Day (and what is CLV?)
ARM isn’t the only thing to consider when thinking about the growth strategy of your gym. You also need to take into account LEG (length of engagement) and CLV (customer lifetime value).
Here’s more about each of these, and why they’re important.
LEG: Length of Engagement 📆
This is a relatively easy one! LEG can be simply defined as the average length of time (in months) 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, congrats 🎉, and second, 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 (average revenue per member) and LEG.
CLV = ARM ✖ LEGCLV is very useful for identifying things like advertising budgets, projected ROI on member outreach campaigns, and more.
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. For example, if you figure out the value of someone who is a member for three years is $200 per year, you know that as long as you spend less than $200 to acquire a new member you’ll be making a profit.
Hopefully this will also help you start thinking about retention, and how you can hang onto the members you have to increase your CLV.
Now that you know about ARM, LEG, and CLV -- and how they can help with your gym’s growth strategy -- how do you implement these concepts into your gym?UpLaunch can help! Our marketing automation platform can save you time and increase the profitability of your gym.