Nerding Out: The One Math Formula That's Destroying Your Business

Like those crazy carny's who would guess your age or weight for a prize - I too can guess why you're stuck at 150 members

Do you recall going to a carnival as a kid and there was always this one wacky dude on a microphone who would guess everyone’s age or weight for a prize?

To a 10 year old kid, I was often in awe at how right that guy always was… but as an older person I realize now, it’s not all that hard to guess someone’s age or weight within a reasonable margin of error just by looking at them.

Well, prepare to be astounded, because I - the Great Danopolois - will guess the number of members you’re stuck at if you provide me only 2 clues.

1. How many members you sign up every month

2. Your churn rate

Most small business owners are obsessed with fact #1 there, and likely can tell me this with ease. The problem is #2 is the issue, and no one pays attention to that baby at all.

5 New Clients/Month. 3% Churn Rate. Capped at 167 Members around Year 5 ☠️

The Churn Problem

You see, your business will stall out when you add as many members as you lose every month. The problem here is most small businesses have a relatively fixed lead funnel and a percentage based churn rate.

For instance, barring any anomaly months, you likely average the same number of new members every month. For the sake of this article, let’s call it 5.

However, due to human nature, your churn rate isn’t fixed. It’s a percentage. This is because the larger you grow, the more likely you will have someone who moves, loses their job, or flat out decides they want to try a new gym. For the sake of this article, let’s call that 3%. (So for every 100 members, you lose 3 per month).

I think you can already see where I’m going with this…

Let’s Nerd Out

Math time, so if math isn’t your cup of tea just pretend to read this.

With those two numbers, we can predict a pretty reliable “max size” your business can grow to.

Recall - your maximum customer number caps out when your new member intake (fixed) equals your churn rate (percentage).

If you’re taking in 5 new members a month and experience a 3% churn, this math equation can be built as such:

(ChurnRate x Total Members) = New Members

or

0.03x = 5

or

5/0.03 = x

Which happens to equal 167 members.

This Isn’t Magic

When I built the test for this math model, I honestly picked those numbers, because it’s a really solid average for most boutique fitness studios out there. From my experience, these numbers are pretty close to most realities, give or take a bit on either side.

So - this is why your gym is stuck at 150 or so members. No prizes for you.

How do you fix it? That’s going to be Wednesday’s issue… stay tuned.