If you want to achieve great success in something, you have to get dialed into the performance of it. In regards to your fitness business, this means paying attention to your gym metrics. By fully understanding them, you can use them to make important decisions that will lead to greater success.
Here are the seven key metrics to start tracking today:
1. MRR (Monthly Recurring Revenue).
MRR = The sum of all recurring, predictable revenue streams (e.g. memberships) you have in a month-over-month basis.
Monthly recurring revenue is one of the most important gym metrics to a fitness business that sells recurring memberships. MRR represents cash flow or how much income is streaming into your business. Once you acquire a new customer you have recurring revenue, which means you don’t have to worry about one-off sales every month.
MRR growth comes from the growth of your MRR stream during any given period of time.
MRR Growth = New MRR + Expansion MRR – Churned MRR
Calculating the growth of your MRR is important in determining if your business is expanding or contracting. Adding new gym membership pricing can be offset by factors like churned memberships (see churn rate below).
The sum value of memberships from new customers. If you added 12 new customers at $100 per month, your New MRR value would be $1,200.
The sum value of upgrades and downgrades existing customers take on their memberships. Expansion MRR can be positive or negative after taking into effect all membership changes.
A customer upgrading from a limited membership worth $100/month to an unlimited membership worth $150/mo would create an Expansion MRR of + $50. A customer downgrading from an unlimited membership worth $150/month to a limited membership worth $100/mo would create an Expansion MRR of – $50.
If you had two customers upgrade from limited to unlimited (+$50 each), and one customer downgrading from unlimited to limited (-$50), using the above numbers, you would have a total Expansion MRR of +$50.
The sum value of all customers who have cancelled their memberships. If you had four clients cancel their $100/mo memberships, your Churned MRR value would be – $400.
Using the examples above, your MRR growth would be:
$1200 (New MRR) + $50 Expansion MRR – $400 Churned MRR = $850 MRR Growth
This means you increased your MRR by $850 last month. Great job!
2. Membership Churn.
Churn = The sum of value of memberships lost in a given time period.
Measuring churn is critical to evaluate your gym’s health, yet it’s one of the most overlooked gym metrics. If you are adding $1,000/mo in memberships each month, while losing $1,100 in memberships, you’re actually declining.
Many small business owners focus on New MRR while neglecting Churn. Often times the fastest way to increase your business is to focus on minimizing churn, as opposed to generating more sales.
Churn is measured as a dollar amount: It’s simply the sum of the membership value that was lost. For instance, if you lost four memberships worth $100/mo, your churn would be $400.
Churn Rate = Number of memberships lost in a given period, divided by the total number of memberships at the start of that period
Churn rate is measured as a percentage of customers that cancelled their memberships to memberships at the start of a time period. If you had 100 memberships and four cancelled during the month, your churn rate would be 4/100 or four percent.
Churn rate helps you understand at what percentage you are losing your customers. This number impacts your business more significantly than most gym owners understand. If your churn rate is eight percent, you will be losing almost 100% of your clients each year!
3. LEG (Length of Engagement).
LEG = Sum of all days engaged, divided by the number of memberships or customers included in count
Basically, LEG is the average length of time that a membership remains active. It’s another of the important gym metrics that measures gym member retention. A longer LEG generally corresponds with a smaller Churn Rate. The longer you keep clients engaged in memberships, the less you’ll have to continually go out seeking new customers.
LEG is best calculated using both currently active and churned users. The churned memberships will actually tell you the absolute LEG for those particular memberships, while the active membership will continually increase in LEG. This can skew your results when you are starting off, as your LEG for all accounts on day one will be at most, one.
You can calculate LEG in a couple ways:
- Membership Plan Basis – Determine the LEG of each membership plan you sell. This will help you understand the average length of time members will likely keep the plan once they join.
- Customer Basis – To take into account members switching from one membership plan to another, calculate LEG on a customer level. This will tell you once you acquire a customer, how long - on average - they will remain a customer.
For instance, let’s say we’re looking at three unlimited memberships. The first is has been active for 880 days. The second, 120 days and the third, 460 days.
LEG = (880+120+460) / 3 = 486.66 Days.
This tells you that for your unlimited membership plan, your average length of engagement is 486.66 days (or, roughly one year and four months).
4. ARPU (Average Revenue Per User).
ARPU = MRR, divided by the total number of customers
Average revenue per user is a measure of the revenue generated per customer per month, taking into account all forms of revenue, including non-recurring sales.
If recurring memberships are your fitness business’ primary revenue model, this is one of the gym metrics that will initially be less important for you. You should focus on MRR, as your ARPU will likely mirror your MRR at the start.
First, solidify your primary revenue stream. Then, once you start to focus on things like private training, gym retail sales, and other revenue generating activities, ARPU can help. It will become a good indicator of how you are diversifying your revenue away from strictly memberships.
If your fitness business is centered around private training, ARPU will be the more important number for you to focus on. This is because ARPU will indicate how frequently you are getting clients to book appointments.
5. LTV (Customer Lifetime Value).
LTV = ARPU, divided by Churn Rate
Also known as CLV or CLTV, this is the average revenue your business generates per customer. The purpose of this metric is to assess the financial value of each customer. Analyzing your LTV will let you know, based on your average churn rate, how much a client will likely be worth over the lifetime of their membership.
For example, if you have an ARPU of $96/mo and a Churn Rate of 4%:
LTV = $96 / 0.04 = $2,400
6. ARR (Annual Recurring Revenue).
ARR = MRR multiplied by 12
Annual recurring revenue is the annualized recurring revenue your business is generating.
Most gym owners are thinking of revenue in terms of month over month, mainly because most of our recurring expenses are due monthly. ARR paints a longer-term picture of your business that can help you make decisions in an extended window of time.
In general, until your revenue grows to a point where you’re comfortable with your monthly revenue and expenses, ARR probably isn’t one of the gym metrics you’ll focus on. Once you’ve started to be more comfortable with cash flow, and you’re booking significant profits, it’s time to begin to zeroing in on ARR.
7. CAC (Customer Acquisition Cost).
CAC = Total costs related to generating a lead, divided by the conversion rate of lead to paying member
Customer acquisition cost is the average amount of resources that a business must allocate (financial or otherwise) in order to acquire an additional customer.
Often times, and generally for early-stage gyms, this simply means marketing costs. For more established operations, CAC will often include sales and marketing salaries, CRM software and other lead-generation expenses.
When you reach the point of marketing to acquire customers, CAC will indicate how much you’re spending, per new customer, to generate that customer. Without this number, you cannot quantify if advertising dollars are actually being spent wisely.
For instance, consider the following scenario: You spend $200 on an ad that converts 50% of your leads to paying customers. The LTV of a paying member is $1,028.95. In this example, your CAC is $200 / $0.50 = $400.
It might seem crazy to spend $400 to acquire a new client. But backed with your LTV of $1028.95, you can see that on average, this ad spend will generate $828.95 per new client.
PRO TIP: Once you’ve got your gym metrics dialed in, take the next step! Set up your gym management system by registering your FREE account here!
PushPress is a gym management software that is here to help you grow your fitness facility. With PushPress, you'll be able to manage classes and appointments, take payments, track attendance, manage leads and create an unforgettable member experience!