Gold or Bananas?

There’s a ton of new information being produced all across the health club industry, which is great — information is objectively good, but that doesn’t mean all of it is good… a lot of it is great and some of it is just bananas. This list digs into the good and the bad from the previous month. Enjoy!

GOLD

This is the stuff I’m reading and/or hearing that is helpful and aligned with what needs to happen for the industry to improve:

May’s Gold List

1. Kelly Card — SVP of Client Relations at ABC Financial
2. Paul Bedford — Founder at Retention Guru
3. Scott Draper — Founder at Club Northwest

Kelly Card:

“When I look at data — it has many operators frozen in fear as this wave of technology is coming towards us. — What this data allows is for us to get closer to the member, which enables us to design these hyper-personal experiences.”

These comments from Kelly came from her recent appearance on Bryan Orourke’s podcast and she nailed it. In the above excerpt and throughout the entire episode, Kelly kept dialing it into to two main themes:

1. Technology/Data may seem overwhelming, but it shouldn’t.
2. Technology/Data can help us better serve our members.

I couldn’t agree more… Technology is causing a ton of confusion and it doesn’t have to. Technology is super valuable and really important to the industry’s future — I dig into my thoughts a bit more here, on page 6 of the upcoming National Fitness Business Journal.

Paul Bedford:

“We look at retention as something entirely different than attrition. We measure retention in months of membership — the time from when somebody joins to when somebody stops paying. Attrition is a measure of a rate, because it’s a measure of people. Attrition is not the opposite of retention, because month’s is not the opposite of people.”

These comments from Paul came from his recent appearance on Bryan Orourke’s podcast and everyone should pay attention. If you’ve ever heard Paul speak at an event, you’ll first notice that he has the most incredible British accent, which for an American like me, commands my immediate attention — once you get over the accent it’s likely that you’ll hear him talking about the actual words we use and how we define them. This is so important and I’m so glad that he’s given voice to this issue.

Here’s the problem… It’s pretty hard to have a valuable conversation if you don’t first have a set of mutually agreed upon assumptions; without such a baseline any discussion is akin to a 3-year-old talking to a Zebra. We have a lot of those conversations in our industry, because not everyone is always on the same page.

In the above excerpt, Paul is speaking to two of the most important words in our vernacular, retention and attrition. As the Retention Guru (self-proclaimed I believe, but certainly warranted), you can check out a deeper dive into Paul’s thoughts on retention in both his White and Black Reports — definitely worth the read. In summary, his main claim is that attrition is not the opposite of retention and while they are somewhat correlated they are not interdependent.

In an effort to help clarify some of the terminology surrounding the unit economics of the health club business, please see my quick breakdown below and a more in depth report below that. Hopefully Paul will respond here and let me know if he thinks my assessment is accurate and/or of any value!

The goal is to create a gap between your MAC (member acquisition cost) and your MLTV (member lifetime value). A healthy business should have a ratio of roughly 3:1… if your ratio is higher than that, you should be spending more money acquiring members (assuming you have the capacity) and if your ratio is lower than that, you should be improving your business offering.

MAC (member acquisition cost)— Is a rough proxy, you can calculate this by dividing the sum total spent on sales and marketing by the sum number of new members acquired, during the same period of time.

• If you spent $100k on sales and marketing initiatives in Q1 ’18 and during that same period of time, you acquired

MLTV(member lifetime value) — As a rough proxy, you can can calculate your MLTV (relative to months) by dividing the number one by your churn rate. Once you have the number of months, you can simply multiply that by your your MMV, to get your MLTV.

• If your monthly churn rate is 3%, then your MLTV will be 1/0.03 which is 33 months.
• If your annual churn rate is 20%, then your MLTV will be 1/0.20 which is 5 years.

Churn — Is calculated by the % of your members that cancel over a given period of time.

MMV (monthly member value) — is calculated by dividing your sum total revenue in a given month, by the sum total number of members that you had, in that same month.

If you want to dig in a bit deeper, I created this quick outline for you to take a look at:

Scott Draper:

“We are in the behavior change industry. By placing and firmly holding this truth at the center of our relationship with our members and clients, we set a powerful context to create clarity and remove obstacles along the journey together. As humans, the direction we are moving is more important than the place that we currently stand. When we help a client see and feel this, we have opened to them the possibility of a life very well lived.”

These comments came from a recent conversation I had with Scott.

I just met Scott a couple of month’s ago at IHRSA and I must say… I’ve been more than impressed. I’m psyched to head to Oregon next week to spend some time with him and his team, but we’ve spoken a half dozen times since our initial meeting in San Diego and boy has it been refreshing. This guy has a totally different perspective on the industry than almost any other owner/operator I’ve ever spent time with.

In the excerpt above from one of our conversations — I think he really nailed it. Sure we monetize by selling memberships and personal training, we all get that. But that’s what we sell, what is the consumer actually looking to buy? I’ll report back, post-visit, but Scott is doing some great stuff and judging by my initial interactions with him, he seems like the type of guy that would be more than happy to speak to what he’s doing at Club Northwest, if anyone is interested in learning more.

BANANAS!

This is the stuff I’m reading and/or hearing that is just bananas

May’s Bananas List

1. Rasmus Ingerslev — Founder at Repeat Fitness
2. Bryan O’rourke — Founder of Fitness Industry Technology Council
3. Pete Moore — Founder and Managing Partner of Integrity Square

Rasmus Ingerslev:

“As much as I embrace diversity… when I work out I have a certain set of expectations, I want a certain time of atmosphere, a feeling of intensity — when you walk past a pool and have a group of very mature people doing water aerobics, that’s not really what sets me up mentally to do my heavy lifting… Once you’ve made a commitment to get fit and you’ve put in the hard work — you deserve to see the results and that requires the perfect lighting, the perfect mirrors and we spend a lot of time on those design components.”

These comments came from his recent appearance on Bryan Orourke’s podcast and I had to listen a few times to make sure I wasn’t losing my mind. So… If you’ve made a commitment to a healthier lifestyle you deserve great lighting, unless you’re old. Got it.

C’mon man! I get that you’re trying to create the Equinox of the Nordic Region, it’s probably even smart given that you’ve got the whole Barry’s thing going on there too and you can compound the growth of that established brand into your new niche club chain… but you’re the former chairman of IHRSA — you can’t say that you don’t want to be around old people in pools! Those old people in pools are why IHRSA exists.

I know nothing about the health club business outside of North America, if I’m missing something and you think I’m wrong… respond and let me know, because I’d love to learn more.

Bryan O’rourke:

“We see bifurcation in the market with increasing numbers of affluent that are shifting how they’re spending money, urbanization is a bigger and bigger trend, power has shifted because of technology as well with the consumer having more and more choices and then you see technology which is democratizing many many industries, that’s feeding this trend and then globalism… all these things converging to create massive disruption. That disruption is a huge opportunity, because we need to grow the market and because of digital our ability to grow the market is really tremendous.”

These comments came from his recent appearance on his own podcast and clearly I’m a huge fan as the majority of the excerpts in this post came from that very podcast!

Before I give Bryan a hard time, let me preface this with some facts… Bryan is, in my opinion, the industry’s foremost authority on technology. He’s on the IHRSA Board, he’s the founder of the industry’s most recognized thought leadership community on technology and a lot of the most respected and powerful folks in the health club industry respect him very much.

All that being said… Bryan — stop. You need to dial it in. You’re smart and have ideas that have merit and can be helpful… but at times, you speak almost exclusively in cliches and it’s confusing everyone.

Bifurcation, Urbanization, Democratizing, Globalism, Disruption, Digital, Tremendous. What are you actually trying to say? Maybe I’m just not as smart as you, but I had like 4 google tabs open just trying to look up all of these fancy words.

I think I’ve deciphered the code and I believe what you’re getting at is this — which I agree with by the way:

A bunch of shit is going on, we need to change or we’re screwed, if we do change we could be way more successful than we’ve been. I think I get it. But please Bryan… tone down the cliches if you can and take it easy on the big words, so that the rest of us can understand.

If I’m off here, please respond and let me know where I went wrong.

Pete Moore:

“I have the pleasure of being here with my friend, who I’ve known for 20 years…”

Pete’s podcast Halo Talks is awesome, I’ve listened to every episode that he’s produced and even had the privilege of being a guest on his show while out at IHRSA in March… I hope this post doesn’t prevent my episode from ever seeing the light of day!

For real though… His show is great, he gets great guests and I think he’s probably the best podcast host in the health club industry — he facilitates a comfortable environment that enables him to get to the point without much fluff and he has some killer insights and asks great questions.

This month Pete is on the Bananas list because he starts almost every show by saying how he’s known his guest for at least a decade. Pete — you’r not that old and though you’ve been around the block, you have a fresh perspective, everybody knows who you are… can we leave out the fact that you’ve known everybody for so long?

Anyone have suggestions for next month’s list? Please send me thought leadership pieces that you think are awesome or just plain crazy.

-B

Brett Maloley / CEO at Ladder / [email protected]