There are many aspects that go into running a successful fitness studio. Beyond delivering excellent fitness and nutrition programs, you also need to navigate a range of behind-the-scenes tasks, including managing finances, sales, and marketing. Most importantly, you need to make smart business decisions to grow your fitness studio and make sure that it remains profitable.
However, without monitoring and assessing the performance of your fitness studio over time, it can be difficult to identify opportunities for improvement. While you could do this based on intuition, the most effective way to achieve sustainable growth is to actively monitor specific KPIs for your fitness studio.
KPIs (key performance indicators) are measurable values you can use to determine how successful your fitness studio is at meeting specific business objectives. Selecting the right KPIs can enable your team to make data-driven business decisions, clarify expectations, allocate resources efficiently, and ultimately define a clear path for your fitness studio's success.
What are some important KPIs for fitness studios and gyms to monitor?
While each business has a unique set of objectives, we have compiled a list of essential KPIs that are critical for every successful fitness studio.
Gross Profit Margin (GPM)
Understanding the profitability of your services is vital to the success of your club. Gross Profit Margin is the proportion of money remaining after subtracting the direct costs associated with servicing your members (e.g., cost of goods sold or services provided). Your profit margin should be substantial enough to cover overhead such as equipment, rent, marketing/advertising and other expenses.
How do you calculate your fitness studio's gross profit margin?
Gross Profit Margin = (Total Revenue - Cost of goods sold or services provided) / Total Revenue
To calculate the gross profit margin, subtract the direct cost of goods and services (COGS) from your total revenue, and divide that number by the total revenue. For a fitness studio, COGS can consist of the cost of hiring class instructors, music for a class, or any retail product costs. Costs of administering memberships don’t generally apply, as these can fall under general/admin expenses. While it can be overwhelming, gym management software can help you accurately track this data and make the process easier.
Why is it important to measure your fitness studio's gross profit margin?
At a high level, gross profit margin represents the percent of each dollar of revenue that your business will ultimately keep, after factoring in labor and additional overhead.
Gross profit margin indicates how efficiently your studio manages resources and costs on a daily basis. A low profit margin can be an indicator that your expenses are too high relative to the amount of revenue that you're bringing in. For example, do you need two instructors for your 5:00 PM HIIT class, or can one instructor complete the same job successfully? Are your classes priced too low? You will be able to gradually make improvements by carefully analyzing the profit margin for different areas of your fitness studio (personal training, classes, etc.).
How do you improve your fitness studio's gross profit margin?
Though analyzing this data in aggregate for your whole business is important, it's also important to analyze this metric for each revenue stream that you offer, such as personal training sessions, classes, memberships and retail. By analyzing various segments of your business, you can identify specific segments that have low gross profit margins, even if you're satisfied with your business's overall GPM. Because this helps you focus on specific areas of your business that can be improved, you can then develop a strategy to improve that section of your business. For example, you may realize that you're not making enough from your personal training sessions, in which case you may want to adjust the pricing structure for those sessions.
Adding ancillary revenue (revenue that differs from the main product line), such as nutrition programs, retail stores, smoothie bars, or other training programs is another way to provide new avenues for growing revenue in exchange for potentially lower costs. Adding new revenue streams with higher gross profit margins can help you increase this metric for your business overall.
Member Acquisition Cost (MAC)
MAC quantifies the cost of adding new members to your fitness studio; therefore, it is a critical KPI to understand when building your sales and marketing strategy.
How do you calculate your member acquisition cost?
Member Acquisition Cost = Total Acquisition Spend / Number of Acquired Members
To calculate your member acquisition cost, divide the total amount spent on member acquisition by the total number of new members acquired. You can either do this over a specific period to determine the success of a given campaign or monitor acquisition cost over the lifetime of your business.
Start with sales and marketing costs, as these expenses directly relate to member acquisition. However, other costs that may contribute to member acquisition include free trials, member referral campaigns, and sales commissions.
Why is it important to measure member acquisition cost?
Tracking member acquisition cost provides valuable insight into the performance of your sales and marketing strategy. It allows you to rectify problems as they emerge and utilize insights to inform your future sales and marketing strategy. For example, if you see your member acquisition cost increasing, this could indicate that you’re spending more on marketing and sales without seeing a proportionate increase in members. Or, it could indicate that your expenditure has remained steady, but members are no longer signing on at the same rate. Regardless of the reason, an increasing MAC is something you need to investigate, to make sure you understand why it's happening. A decreasing lifetime member acquisition cost, on the other hand, indicates an improved return on investment and whatever tweaks you made to your sales and marketing strategy were a success, or it can mean that costs have stabilized but the number of new members has decreased.
How can you improve your member acquisition cost?
If you’re looking to improve your member acquisition cost, the first step is to assess your current marketing strategy. How do you attract new members to your club? How successful are previous marketing campaigns? Make sure you compare your acquisition cost to member lifetime value, as this will tell you if you’re making a profit for each member that joins. As an example, if you’re spending $1000 on a direct mail marketing campaign, but you're only acquiring three new members that have a lifetime value of $300 each, you’re taking a $100 loss.
Don’t get stuck on one marketing strategy, and keep experimenting with new ideas to gradually reduce the cost of acquiring new members. If you're constantly tracking your member acquisition cost, you can easily determine which marketing strategies are more successful than others, and budget accordingly. The key is to understand your target market, and how to reach them. For example, one strategy that you can try is utilizing content marketing to educate/inform potential members.
Member Lifetime Value (MLV)
Member lifetime value (MLV) calculates the monetary value of a single member throughout their lifetime at your fitness studio. Acquiring many new members who have a low MLV can be an expensive endeavor that doesn't pay off in the long run. In contrast, acquiring new members who have a high MLV can be a very profitable strategy.
How do you calculate member lifetime value?
A basic member lifetime value can be calculated by taking your membership price and multiplying by the average length of a membership. As an example, if the average member remains at your studio for 2 years, and your monthly membership rate is $40, then a single member's lifetime value is $960.
For reference, according to a study by The International Health, Racquet and Sportsclub Association, the members between 16-24 years old remain at a health club for an average of 16.7 months, and the members over 55 years old remain at a health club for an average of 24 months.
Why is it important to measure your member lifetime value?
Member lifetime value is an important metric to consider when allocating your marketing budget (used in conjunction with member acquisition cost), as you want to generate a positive return on investment on your marketing channels. Your MLV should exceed your MAC in order for your marketing endeavors to be worthwhile, and ideally, your MLV should be quite a lot higher than your MAC, since each additional member you add to your group adds some additional overhead to your business.
How do you increase your member lifetime value?
What happens if your member lifetime value is low? While the cost of a membership is the easiest variable to adjust, you should always look to improve member retention rates. Satisfied members stay longer and generate a more predictable revenue stream for your studio. Focus on building relationships, creating brand loyalty and providing more value, and you should see a gradual improvement in member lifetime value. As long as you remain laser-focused on providing an exceptional customer experience, your member lifetime value will naturally increase.
Take a data-driven approach to running your fitness studio
Healthy values for these KPIs will vary across successful fitness studios, depending on various factors, such as the age of your studio and the types of revenue streams and pricing models that you offer. For example, newer gyms and fitness studios will tend to have lower gross profit margins than studios that have already iterated on their business model, and stabilized their marketing strategy and client base.
Since there can be a lot of variability, the best approach is to first measure your KPIs, and then monitor these metrics as you make changes to your business, to make sure that your new endeavors are moving your business in the right direction.
KPIs can help you improve performance and achieve long-term, sustainable growth. However, success doesn’t happen overnight. You need to be consistent and have a system in place to monitor and analyze KPIs on a daily basis. KPIs need to align with specific goals, and be actionable and results-focused to provide measurable improvement. It's important to pick the right KPIs, and not get overwhelmed with paralysis by analysis. Choose the most relevant KPIs for your fitness studio, and start tracking them in order to identify what's working and what's not. Taking a disciplined, data-driven approach to running your business will help you set your studio up for long-term success.