Advertising has one goal, and one goal only: To make more sales.
Now that we’re clear on the objective, we need to define it more specifically. How many more sales? And, by when?
The amount you should spend on advertising to generate sales will greatly depend on how much you want to sell, and how soon you want to sell it.
If someone has a goal to lose body fat, the exercise output will greatly depend on how much body fat they want to lose + when they want to lose it by.
This goes for any goal you set. Whether it’s learning the piano, basketball, painting, or… growing your member-base at your gym.
By the time you’re done reading this, you’ll never wonder How much should I spend on advertising my business? again. Let’s get started!
Advertising: The Starting Line
Here’s a list of questions you should answer before reading on…
- How many active members do I currently have?
- Then, how much revenue am I currently doing on average each month?
- When dividing those up, what is my average member worth each month?
- How many months does my average member stay active?
- What is my lifetime customer value (avg. monthly payment x avg months kept)
- When doing the math, what is my max capacity for total members?
Orangetheory Fitness locations run 60-minute classes that fit about 24-36 members per class (depending on location), and the average location can support a little over 1,000 members. Hopefully that helps you determine how many members your gym can support.
Advertising: The Finish Line
Next, answer these questions before reading on…
- How many active members do you want to serve?
- Then, how much revenue could that mean for your business?
- When would you like to achieve that goal by?
- What could it mean for your business (profit-wise) once reaching that goal?
You’ll notice that although your costs will rise as you add more members (more staff, cleaning supplies, etc.), the percentage of costs-to-revenue will drastically drop as many of your fixed expenses won’t really increase (rent, insurance, software, utilities, etc.).
The Output Required For Advertising ROI
Now that we know more about the starting line and finishing line, we can fill in the blanks to determine the output required to get us there.
We’ll use my friend, Anita Profyt’s gym as an example. That way you can follow along with our math to see how we determine her advertising budget.
Anita Profyt’s Starting Line:
- Her current total active members: 150
- Anita’s current monthly revenue: $22,500/mo
- Her current value/member/month: $150/mo ($22,500 / 150 members)
- Anita’s average member stays for: 10 months
- Her average member is worth: $1,500
- Anita’s potential max capacity: 750 members
Anita Profyt’s Finish Line:
- She wants to serve 750 members
- Anita’s potential revenue at 750 members: $112,500/mo ($150/mo x 750 members)
- Goal date to achieve 750 members: 12 months
- Potential profit to business at 750 members: $45,000/mo (when considering rising costs)
Anita Profyt’s Required Output:
- She needs to add 600 more members in 12 months
- Anita needs to average 50 new members per month (600 / 12)
- 50 new members would equal $7,500 in new monthly recurring revenue ($150 X 50)
- Since Anita keeps members for 10 months on average, adding 50 new members is actually like adding $75,000 in total new business (50 members x $150/mo x 10 months)
This doesn’t include the value that will be added by ancillary sales, upgrades, or referrals. So, the real value in 50 new members is actually much greater.
Reverse Engineer Your Goal
Now that we know what adding new members is worth to Anita, we can determine what we’d be willing to pay in order to get her there.
After that, once she gets there, she can reduce her ad budget a bit as she’ll really be more focused on keeping her member count up by matching attrition with new sales. Meaning, if she lost 15 members in a month, she’d only need to sell 13 to get back to her goal).
In the example of Anita Profyt’s gym, Anita could theoretically spend $7,500/mo and still be extremely profitable. Here’s how that math works out:
By the way, we’re going to account for 6% attrition, just in case some of those new members don’t stick around as long as projected.
Ad Spend: Month 1
Anita spends $7,500 to achieve her goal of 50 new members. Her first month is 100% break even, but her monthly recurring revenue has increased by $7,500.
Ad Spend: Month 2
Anita spends about $7,500 again to achieve her goal of another 50 new members.
This month, she had a gain of about $7,050 because she was able to hang on to 94% of the members she just signed up the month before ($150 x 47 members).
Why “47” members? With 6% attrition, she lost 3 of the members she just gained from the month before (50 x 6% = 3 canceled memberships).
Ad Spend: Month 3 (and beyond)
You can probably see from here that by month 2, you’re profitable.
The fear is: How will I ever achieve that goal of 600 members in 12 months if I’m battling a 6% attrition? Won’t I have to actually sign more?
Well… there’s actually really good news for that:
#1 – You probably won’t have a 6% attrition.
The industry average is 4-6%, so you’d have to be on the highest end of average.
#2 – You probably won’t have to spend $7,500/mo in order to acquire 50 new members.
We were just making sense of spending $7,500 based on what it’d be worth. Based on what we’ve seen after working with over 2,000 fitness studios worldwide, you’re likely to achieve 50 new members from digital ads on a $2,500-$5,000 budget. Of course, that’ll depend on other factors like your location, offer, and ability to sell your leads into memberships.
#3 – This isn’t counting referrals!
If you follow our Infinite Return framework, you’ll learn how to get 3-5 referrals at the point of every sale you make!
So, if you gained 50 new members, you should have 150+ new leads to work with as well.
Considering referral leads are much easier to convert into members than digital leads, you can imagine keeping up with a 6% attrition should be pretty simple.
We teach you how to do this in our high level consulting program. Click the button below to see if it’s a right fit for your fitness studio!
How Spending Less On Advertising Actually Costs You More (Amateur Mistake)
One of the tricks many experienced advertisers have learned is that it’s often (almost always) more expensive to spend less than to spend more.
How can this be?
It’s actually simple math that most people just don’t take the time to calculate.
Let’s say you learned that you pay $30/lead (depending on your location, ability to advertise, and your offer… this may be more or less).
Then, let’s say you convert 20% of your leads into paying members.
This would mean that in order to gain 50 members, you’d need 250 leads. (250 leads X 20% close rate = 50 members).
In this case, 250 leads would cost you about $7,500 (250 leads x $30/lead).
Over the course of 12 months, you’d gain 564 members (which includes that 6% attrition – 47 members x 12 months). And, you’d ADD $84,600/mo in monthly recurring revenue ($150 x 564 new members).
You would have spent a total of $90,000 in advertising ($7,500 x 12 months), but would have gained over $579,000 in revenue. Your total profit would be $489,000+ from that $90,000 advertising spend.
Imagine giving someone a check for $90, and they give you $489 back in less than a year. Now… imagine you were able to do that 1,000 times. That’s what this is like.
But what if I spend less?
Let’s say instead of spending $7,500/mo, you were spending $750/mo.
That would only equal about 25 leads ($30 cost per lead X 25 leads)
At a 20% close rate, you’d only sell about 5 new memberships.
With 6% attrition, at the end of 12 months, you’d have LESS THAN 50 NEW MEMBERS. After an entire YEAR!
You would have only spent $9,000, but your monthly recurring revenue would only add $8,910 by month 12 (after attrition).
In total revenue, you’d only make around $57,000 in sales… giving you a profit of around $48,000. Again, for the whole year!
By only making $48,000 instead of $489,000, spending less on advertising ended up costing you about $440,000 that year.
That’s a pretty decent chunk of change left on the table. Especially considering the lost revenue you’d have gained from ancillary sales and referrals, because you’d have significantly fewer members to increase those things from.
So, How Much Should You Specifically Spend On Advertising?
The truth is, you probably won’t have to spend $7,500/mo to hit your goal. The top 10% of the fitness studios we run ad campaigns for spend over $5,000/mo.
The top 20% after that spend around $2,500/mo-$5,000/mo.
The bottom 20% usually don’t work with us for very long. They tend to spend so little that they have a difficult time seeing the value and eventually begin blaming lead quality, “cost,” and inconsistency.
When really what’s happening is the scenario I laid out in the previous section.
If you’re only getting 40 leads per month because of a limited budget, offer, or location (even at a 25% conversion rate) it’s hard to get excited about 10 new members.
So naturally, you would focus on the 30 you weren’t able to close and say the leads are poor. But…
On the other hand, If you’re getting 50 new members, then you don’t care if 80% of your leads didn’t convert. You got 50 new members!
Focus On Your First 2-3 Months Of Ads
The first 2-3 months are the most important.
If you spend the most here AND follow the recommended sales processes that we lay out for you, the profits made in the first month alone (maybe the second month if you’re sales skills aren’t as refined… yet) should pay your ad costs for the rest of your career.
At that point, the higher spend on advertising was obviously worth it.
If you spend just a little, however, you’ll always find yourself feeling like you’re shoveling the snow while it’s still falling and piling up.
Last But Important Note:
Your average cost per lead (CPL) will mainly depend on…
- Ability to advertise
If you want to see what YOUR average cost per lead might be, as well as help determine what your ad budget should be, we can help you with that.
Anyone that’s interested in learning more about this, as well as how Loud Rumor has helped 2,000+ gyms and fitness studios within 50+ of the largest fitness franchises with their ad campaigns, just reach out!
Phone Number: (480) 567-9794
Email: [email protected]
Subject Line: Mike’s Advertising Blog
We will break down these numbers for you. We’ll also walk you through step-by-step how and why we do things the way we do so you can get a better picture of what it’s like to work with us.
Talk to you soon and I hope this article helped you see your fitness studio’s advertising budgets differently.