Partner Blogs, Sales
ARPM: The Member Value Metric Your Fitness Business Isn’t Tracking (Costing You Thousands In Revenue)
See that member over there? What’s her member value? The girl who comes in all the time, buys a protein bar and never misses a monthly payment? Are you losing money on her?
Right now you’re thinking, initiation fee, membership dues, retail purchases, positive customer experience, she’s a goldmine! Anecdotal evidence aside, if you can’t support your member value assessment with hard numbers, then it’s time to know your Average Revenue per Member (ARPM). And if you’re not careful, you could be calculating revenue projections all wrong.
Want To Increase Member Value? Crunch the Numbers!
First, let’s look at the formula. ARPM is calculated by taking your total revenue in a given period and dividing it by the number of members in that same time period.
Want to take it one step further? Calculate your Lifetime Value (LTV) of a member (also important to know for your business). Simply multiply the average number of months for your members by the membership price.
There you have it. Two easy metrics that any owner can use to help operate the business and understand annual revenue, as well as member value.
But, there are a few things missing there. Did you notice?
What about operating costs?
Non Dues Revenue (NDR) anyone?
Ever heard of membership acquisition costs?
All of these need to be accounted for in order to properly identify how much money you are actually making (or losing) on that girl coming in all the time and buying her protein bar.
Expanding On Non Dues Member Value At Your Fitness Studio
This would be a good time to expand upon Non Dues Revenue. It’s important. Like filing-your-taxes-on-time important.
As much as this is a hard industry metric to pin down exactly (most reports have it between 17% and 20%), you need to know your studio’s number. Any and everything that is purchased outside of a membership agreement is NDR.
…and it’ll help you predict overall member value.
So for big clubs, this consists mostly of personal training and massage services.
However, for the smaller gyms and boutique fitness studio, it will most likely be nutrition, apparel, registration, events, one-off classes, and anything short of the marquee signs.
So get creative and do what needs to be done to increase this number! Your fitness business can’t live on membership dues alone.
ARPM Case Study: The Power of Knowing Member Value
So, let me illustrate my point here with an easy-to-follow scenario. Here we go…
Judy walks into your fitness business on the first of the month and falls in love with the place.
She joins on-the-spot for $100 down and $30 per month, no questions asked. This happens, right? Anyway, she becomes a great client, comes in 4X per week, and even makes periodic retail purchases.
A year later, you sit down and decide to calculate how Judy’s membership is about to help you buy a new treadmill. So, you start with her initiation fee ($100), add her monthly dues ($30 x 12 = $360), then tack on the 20% average for NDR purchases ($72).
Annual revenue from Judy = $532. Ok, so maybe not a treadmill, but a really nice set of Plyo-Boxes.
Now for the bad news…
Your fitness business had expenses last year. So, if we subtract the customer acquisition cost (-$100), national average of 7.3% for membership-related operating costs ( $532 X 92.7% = -$493.16) and you get a total expense for Judy’s membership of $593.16.
A little simple math and we can see that a revenue of $532 minus expenses of $593.16 leaves your club with a -$61.16.
And we had such high hopes for Judy.
But Wait …
Don’t fire your team, close your doors, or start a support group just yet. There is hope.
For starters, member referrals are not factored into this scenario. If Judy brought in six friends who all joined then right there we find member value that doesn’t show up in the numbers directly.
Also, don’t forget about your Non Dues Revenue (NDR). That number could easily be more than the typical 20% industry standard placeholder that is often used.
Special add-on classes, priority registration fees, retail enhancements, and additional service offerings like stretching classes and monthly massage nights could all increase post-membership sale revenue.
The key is to not rely on membership dues alone. Of course, there is also the expense side of the equation as well.
Increase Member Value While Lowering Acquisition Costs
Refining your marketing to bring down acquisition costs.
Negotiating with vendors for better price points of retail items.
…and generally evaluating all operational aspects of your fitness business will financially contribute in the long run.
However, it all starts with knowing your numbers and your overall member value. Plus, too many operators misunderstand the metrics to begin with.
It’s said that 80% of all small businesses fail within the first year of operations. The fitness industry is not immune to this statistic.
It therefore, becomes imperative to differentiate your fitness business from the next and increase your profitability in an effort to survive those critical first few years.
You can do this by providing a great member experience, controlling costs, and most importantly, understanding the revenue generated by each and every member you have.
Final Thought on ARPM and Member Value
One last thing, and this is tricky…
As much as Judy is a dollar sign statistic, you need to treat her like she is the only member you have. Imagine that your businesses survival depends on her happiness.
People can always tell when a fitness business sees them as just a revenue source, and that’s not a gym they’re going to want to visit again, stay with, or invest additional money into.