Nerding Out: Beating Your (un) Magic Number

Part 2 of a quick nerd sesh on understanding why your gym is stuck at 150 members

My mind at 5am

Bonus: Make a copy of this Google Sheet to run these calculations for yourself.

Yesterday, we went full nerd and even broke out some math equations. As a nerd myself, this is how I love to look at business. If you missed it, check out my post on The One Math Equation That is Destroying Your Business

OK - so hopefully at this point, you can see pretty clearly why you’re stuck at 150 members of your gym.

The question is - WTF do I do about it?

The Magic Number Math - Recapped

Your business will have a magical and unavoidable hard cap at a certain number, and that number is driven by math.

In short, when your churned members equals the number of new members you obtain in a month, you will stop all growth. In math this is the simple equation:

(ChurnRate x Total Members) = New Members

Let’s Talk Drivers

In this math equation, you have a couple “drivers” you can play with to see how they affect the outcome.

I love to think of business in the lens of drivers - because these are the simple things you can adjust to materially affect outcomes.

Often businesses I work with tell me “I just need more leads” or “I just need to make more money”.

Let’s be clear - those are outcomes, not inputs. Those are results, not drivers. I always redirect them back to thinking about drivers.

For our current formula, you have 2 drivers: Churn Rate and New Members. These are the only two things that you can work on changing to affect the outcome.

Let’s Get More New Members!

Roll out the new ad campaigns. Starting being more mindful of referrals from members. Let’s see how this looks if we can modestly increase our new member rates from 5 to 7.

Going back to the math:

0.03x = 7

or x = 7/0.03

or 233 Members! That’s not bad!

Let’s Reduce Churn!

Similarly, how does this look if we can cut churn down a tiny bit? Let’s add some additional services, talk to our members and listen to their feedback, focus on some community development. How do things look if we can reduce churn to 2% while keeping our new memberships at 7 per month?

0.02x = 7

or x = 7/0.02

or 350 Members… hot damn!

Small Changes Mean Everything

As you can see, these two small changes have material affect on your business.

If you’re charging $150/month and you can make the changes outlined above, you would be going from approximately $300,000 in annual revenue to $630,000.

What could your business or family look like with an additional $330,000 per year?

That Elusive $1M ARR Business

Keep in mind, this model assumes keeping pricing flat, and no additional services or upcharges.

At 350 members, getting your average client value to $250 immediately transforms you to a $1,000,000 Annual Recurring Revenue business. Can you add Private Training or Nutrition to your product offerings?

When you double your revenue in 2023, I expect a Starbucks gift card (as much as I hate Starbucks…)