It’s December already! The end of the year is a time of reflection, as well as a time of forward thinking and goal setting for the New Year. While many of you consistently monitor your performance throughout the year (whether athletic, financial or business-related) I’d wager to guess that quite a few folks are end-of-the-year or New Year’s types. Regardless of what camp you’re in, if you are the owner of a microgym or other membership-based business, I think you’ll find what I’m about to share helpful for planning your business growth for 2013.

Everyone has a magic number…and no, I’m not talking about the number of French fries you get to eat based on your Zone block allotment (wink). As a Performance Menu reader and follower of Catalyst Athletics, you likely have quite a few magic numbers or targets you are working towards. If you are a lifter, you may have your sights set on a 70kg snatch or 120kg squat. If you throw javelin, you may be striving to hit the 50m mark. Targets are not reserved solely for athletics, however, and if you are the owner of a microgym or similar service-based business, you also have a magic number you are working towards – the number of clients. You know that if you can hit your membership goals, you are also likely to meet your gross revenue net profit targets.

Your target number of clients

Most microgym owners seem to fixate on the mantra “must get to 150 clients!” Now don’t get me wrong; 150 is a nice number. If you have 150 clients you are likely doing a lot of things right. But depending on your circumstances, 150 might not the right goal, or it might be a great long-term goal. But for many of you, the critical number is the membership level that represents break even. Like a novice lifter with a dream of snatching 100kg, that dream is awesome, and quite possibly attainable, but first you’ll need to progress from the technique plates and successfully get under 35kg.

If you are not yet in the black, your primary focus should be on growing your client base to break even – the point at which your revenue covers operating expenses. This number will depend on many factors, including where you are located (since the cost of rent, utilities, etc. is greater in a metropolitan area versus a more rural area), your other overhead costs, and your average billing per client, (if you have two businesses with the same overhead, but each with a different average billing per client, the one with the greater average billing per client will need fewer clients to break even). Once you are covering all of your costs, your magic number changes. At this point, your goal is to continue to increase profitability. To do so, your membership goals will likely need to increase.

Now you might know exactly how many clients you need to break even, or you might know exactly how many you need in order to be able to hire a manager, increase your salary, etc. The question then becomes “how do I get there?” Here are some common sentiments:

“I had 82 clients at the end of 2011 and now as 2012 is coming to a close I am still hovering around that same number. I’ve only added 25 net clients this year, but I know I had far greater flow through.”

“I feel like I’m treading water when it comes to my membership numbers. I’ll gain several new clients, but then have several cancellations. How can I get out of this cycle of 2 steps forward, 2 steps back?”

Creating your plan

So, how do you plan growth? How do you ensure you reach your targets? As in athletics, simply having a target or a goal in mind isn’t enough. You must also have a specific plan that will help you reach it.

Before we can create our plan, we need to look at three key variables for growing a membership-based business: the number of new clients, the number of new client conversions (conversion rate), and the number of clients churning (attrition rate).

We need to understand how they interact and affect our ability to hit our magic number.
Each of these variables is equally important. If you are a master at getting new clients in the front door, but have an abysmal conversion rate or a poor retention rate (high attrition), then your business won’t grow the way you want. Let’s look at each of these in more detail.

Number of new clients per month

How many new clients are starting with you each month? You are not allowed to guess. You need to find the actual number. If you don’t know the actual number, start tracking it now. If you are using business management software, you be able to easily pull the rosters for last month’s On Ramp or Foundations workshops. If you aren’t using business management software, count the number of waivers that were signed last month. This number is important. If it’s too low, you’ll immediately know this is where you need to put some energy and focus. If it’s high, you can shift your focus to one of the other key variables. For example, let’s say you run two On Ramp classes per month and they each sell out at 10 clients. Your total number of new clients per month is 20.

Number of new client conversions

Of the number of new clients you get each month, how many are converting or signing longer-term membership agreements? Now that you are tracking your new clients, you can track how many are continuing in your ongoing program. Using our example above, we want to know how many of those 20 new clients signed up for a longer-term membership option. Let’s say in the evening class you had 8 of the 10 clients sign up for a longer-term membership and the morning class saw 7 of 10 clients convert. That’s an 80% conversion rate for the evening and a 70% conversion rate for the morning, leaving an overall conversion rate for the month of 75% (15/20). If you track this month over month, you’ll have a true average conversion rate that can be used to more accurately project growth.

Attrition rate

What is your general attrition rate? If you haven’t been tracking this, now is the time to start. This is the missing ingredient that most folks neglect to take into account when planning growth. You’ll need an accurate number in order to create an accurate plan.

To find your attrition rate, you’ll need to know how many members you have and how many you are losing each month. Using simple numbers, let’s say you have 100 members, and let’s say this month you had 8 cancellations, leaving you with an 8% attrition or churn rate for this month. Keep in mind that for whatever reason, it seems like cancellations go in waves. You may not lose a single client this month, but may lose 9 the next month. Again, if you track this number each month over the course of a year, you’ll have a nice average number that you can use to plan your growth.

The tight interplay between these variables is what drives your growth, and equal effort must be put into each. If you are overly focused on attracting new clients and do nothing to retain the ones you have, you are essentially trying to fill a bathtub while the water is draining. Obviously, the net result is less than optimal. On the other side of the coin, if you aren’t doing enough to attract new clients, you will also see your numbers flat line, or even decline.

Moving on: planning growth

Let’s get down to the goods. I’m going show you exactly how to plan the growth of your membership-based business with a short video tutorial. We are going to look at this in Excel, as it will allow me to dynamically show you how each variable affects your ability to grow.

Click here for the video. (Please forgive the video quality. The width of the spreadsheet makes it a bit tough to see if you use full screen mode. Viewing is best in large screen mode.) Those of you who want to play with the template I’m using in the
video you can download that here: http://www.catalystathletics.com/issues/issue95/membershipGrowthTemplate.xlsx.

Wishing you a healthy and prosperous 2013! May you far exceed your targets!