LESSONS FROM THE 2017 ZEN PLANNER YEARLY REPORT
An In Depth Analysis of the Recent Zen Planner Yearly Report By OPEX Fitness CEO Jim Crowell
Every year, Zen Planner produces a financial report compiled from surveys of all of the gyms in their Customer Relationship Management (CRM) system. Information such as member size, rent expense, number of instructors, and types of classes offered is compiled and analyzed to benefit their community and the fitness industry as a whole. We can learn a great deal about the fitness industry, how to run a gym, and how to determine what success means by taking a look at this report.
I wrote an article last year discussing Zen Planner’s 2016 Affiliate Report, and when the new report dropped this year, I thought it would be interesting to take a look back at what had changed year to year and what this information can allow gym owners to do.
My goal with writing this is to help coaches and gym owners sift through this mountain of data to help them use it effectively in their own gyms and business practices. Now for my favorite part, let’s take a look at the new exciting data!
Context Is Everything
Zen Planner curates information that would only be helpful to gym owners. People, like myself, who crave context will want to understand more information than would be beneficial to Zen Planner to put out. The rest of this article will be fashioned as an attempt to gain clarity and context from the large amount of data that Zen Planner presented. Without context, recommendations would be foolish.
The first contextual idea I want to throw out is that Zen Planner defined success as net profit. I get why they did that, but everybody and every gym has a different definition of success. As a coach or gym owner, you owe it to yourself to decide how you will define, track, and improve your success every month you’re open. Perhaps it’s net income only. If so, you will be forced to make concessions to your coaches and clients in favor of cash. If you’re unwilling to do that, merely tweak your definition of success. When you go after what inspires you, you will have more fulfillment and develop a platform to succeed financially long-term.
Leader and Laggard Affiliates
This year, Zen Planner adopted two terms to distinguish their winners and losers in the affiliate world: “leaders” and “laggards”. The leaders are classified as those who make $7,000 or more in net income, NOT revenue, and the laggards are classified as those who are break even or worse in net income. However, this is not always the case. Here’s an example of why:
Let’s say that a gym makes $20,000 in revenue…
If the owner takes no salary, commission or bonus (In other words, they take profit as a draw) and if the total expenses are $10,000, that would show up as Net Income of $10,000 which would classify them as a LEADER.
If the owner takes a $10,000 salary, commission, or bonus (In other words, an expense) and the other expenses were still $10,000, the total expenses would now be $20,000, and the net income would now be $0.00 – LAGGARD
Which of the above two situations is “better?” The tax savings of the above bullet (assuming they are paying taxes fairly in the eyes of the IRS as an employee of the business) looks better, but the net income is $10,000 different. See the confusion? To understand the specifics here, we need to understand not only the business’ net income, we must also understand the total cash flow that is earned for the gym owner. Without that, we are a bit in the dark.
Monthly Revenue per Client
The first thing that really caught my eye was the disparity between how much the ‘leaders’ were making per client – $145, vs. the ‘laggards’ – $66. What I’m more curious about, though, is how the average membership price for the laggards was $128 per month but the monthly revenue was only $66. Zen Planner discussed gyms giving discounts, but I tend to believe that discounts are not what caused this large of a discrepancy. While I don’t have any data to support this belief, I have worked with thousands of coaches and gyms at this point and I would chalk up this discrepancy to a few problems common to affiliates:
Grandfathering – The bane of gyms everywhere. Loyalty to your members is important, but problems arise when you have clients paying a substantially lower price simply because they came in earlier. My advice is to implement a plan to anchor your price point to the current membership price number.
Discounting – Gyms offer too many discounts. Certainly, there is an economic thought process as to why you may offer a discount to somebody who isn’t willing to pay as high of an amount (senior citizens or matinee goers at movie theaters), but I have rarely seen discounting used effectively in an affiliate or gym setting. Offering a discount out of respect is noble, but it doesn’t mean that you need to offer a 25+% discount to show respect. Each percentage point is very important to your business. Protect it as much as possible.
Not Collecting – Coaches are rarely good accountants. No offense to my coaching friends. There is potential for a lot of money to slip through the cracks. Strong gyms don’t allow that. Weak gyms do. Pay attention to your numbers.
Too Many Membership Options – This is a consistent mistake for group training gyms, like CrossFit affiliates. If you offer a specific class type, but then you offer it in 5 different forms, not only is it confusing, you are likely anchoring a prospective client’s eyes to a less beneficial option for you and them
Ex. Offering 1,2,3,5, and unlimited day/class per week options under one roof – don’t fall into this trap. You want to anchor your prospect’s thoughts to a few things. Don’t cloud
Results are the Key – Do you really think a 1 day/week option is going to get your clients to their goals? If not, why do you offer it? If you’re trying to be “used” by the Groupon class hoppers, I get it, but 1 day per week isn’t going to optimize things for people. It will seem like you are trying to take advantage of the client.
Anchoring the Price Point is Key – If you offer 1 option, then the prospect’s reaction will be “This is just right,” “This is too low,” or “This is too high.” There are no “outs” to continue the conversation. If there are two options, you’ve just opened up “the anchor.” Perhaps you want people to come to your gym in a more unlimited manner. Great, make a 2 day/week optin purposely higher so that they look at that and say “That is perfect” or “That is too high” so that when they look at your unlimited option, they are now warmed up to how amazing that price point is. An aggressive example may be $135 for 2 days per week and $165 for unlimited. It’s clear that the play is to go unlimited.
If you are claiming that your “go to” membership option is $165/month, I would argue that you had better have an average client revenue of $150+/month once you’ve gotten over apx 20 clients. I don’t say $165 on the nose because perhaps people pay annual contracts up front for a 5% discount – YES contracts are great!. Perhaps you bring in a number of new clients who have prorated their first month so that you get them to pay on the first of the month in the future. That act means that your average client price drops; nothing wrong with that.
Client Counts Are Everything In The Fitness Business
According to the report, Small gyms or ‘laggards’ have a median client count of 50 members. Leaders have 189. Nothing too out of the ordinary there. What I want to discuss, though, is how virtually everything else in terms of success will stem off of this number.
We’ve just discussed the dollar per client amount of gyms. I want to hold the dollar per client amount firm at $125 perclient (an amount I believe to be cheap for an affiliate). 50 clients at $125 = $6,250 in monthly revenue. 189 clients at $125 = $23,625 in monthly revenue. Micro gyms live and die off of client counts.
Micro gyms, including affiliates, aren’t complicated business structures. You have fixed costs which include rent, utilities, staff, costs, education, marketing as well as the cost of goods sold which include credit cards, coaching fees, and inventory.
Once you make enough revenue to cover your pre-built costs, which are often highly skewed to rent and coaching, every new client that comes in is profit, called contribution margin. The more clients you have, holding a monthly price point equal, the more profit you’re going to make.
I’ve not just blown your mind with that, what I’ve tried to do is to put context to how you’ll win this game. While holding costs relatively firm with each new client, you are putting in as many clients as you can each month. How do you do that, you may ask?
You track your retention by the gym and by the coach – Putting a number to a specific coach is a game changer. It helps you greatly to know this.
You over-deliver on service and relationships – this creates trust which increases client retention. Always try to increase the value of your service offering.
You deliver results – Results equal growth which equals client happiness in the service which leads to longer retention
You realize that retention is cheaper than marketing – There is always a client acquisition cost whether it’s time or cash. The more clients you retain, the easier it is to grow. Never forget the importance of keeping your current clients happy and satisfied.
On the flip side of the coin, let’s now “float” the monthly revenue number away from $125/month, but let’s hold the total client number equal at 100. How do you move the price point north?
You over-deliver on your service – While it also leads to retention, it earns you a reputation as a premium service which brings in a higher willingness to pay for your service.
You deliver results and market them – Everybody psychologically loves a before and after success story photo and story. The more of these you show, the higher your client’s willingness to pay will be. You must convince the market of your higher price point. Earn what you ask for.
You create a strong brand and push it hard – Who are you? What do you stand for? Why does it connect so clearly to your target market? How do you benefit them? The more and the more clearly you articulate this to your market, the higher their willingness to pay will be.
You create uniqueness – Not discussed in this report, but uniqueness is shown to lead directly to higher willingness to pay. How are you different than others? How are you better?
Confusing Data
I don’t work for or have any affiliation with Zen Planner, so naturally some of the information they provided doesn’t make much sense to me. In order to provide some clarity in certain topics presented in the report I would need more information into how certain datasets were acquired. That being said, I want to point out a few problems I noticed in the report.
These surveys could be very biased – Not purposefully, but this data is from one subset of the population who use Zen Planner software. Nothing more to do than take this information with a grain of salt and learn from your experiences.
Rent per square foot – Zen Planner breaks this out as a dollar per square feet which does makes sense, but they bucket what the gyms are paying in terms of small, medium, and large gyms, but the size of the gym isn’t based on size of the facility, it’s based on the number of members the gyms have. This is confusing because it’s saying that small gyms are paying $4.61/sq ft. whereas medium and large gyms (in the US) are paying $12.28 and $23.58/sq ft respectively.
Are they saying that small gyms are actually in quite large facilities so the unit cost per square foot is low?
Are they saying that the cost per square foot actually goes up with larger facilities? That doesn’t generally hold up in unit economic terms.
I’d very much like to know how big the gym spaces were, where they were located, how “quality” they were. Only with that context can we learn from this stat
Payroll as a percentage of revenue – The report says that leader gyms spend 30% of their revenue on payroll. That makes sense, and I am assuming this is a simple statistic that says that if I make $10k in revenue that I am paying out $3k. What I am curious on is the relevancy of this based on where a gym is in their life cycle – how many years have they been in business – and how many clients they have. It’s so hard to correlate a gym that has been open for 1 year with a gym that’s been open for 6 years. I’d love to see how this breaks out give the client size and longevity of the gym.
The report says 30% of revenue goes to payroll for the leaders – HOWEVER, the financials that Zen Planner then goes on to show say that they are spending 38% – $8,880 payroll / $23,628 rev = 38%. Perhaps I am missing the mark here
Things I Agree With
Plenty of good data came out of this report; here are some of the key points that I would echo as being really important to gym owners and potential gym owners.
Try to keep your rent at 20% of your revenue – This only matters when you have gotten to your revenue optimization point, meaning you have enough clients. If you have 20 clients, but you optimize at 80+, this number is worthless to you. In the first year or two, you likely aren’t going to be optimized which is a big reason why ‘leader’ gyms have 3+ years of operation in this report.
Affiliates are spending more money than boutique fitness studios on education – We’re bias at OPEX, of course, but education is critical to you and your coaches. The better you all are, the better your retention and client acquisition will be which will bring in more revenue and profit.
Affiliates @ $229/month
Studios @ $70/month
‘Leaders’ know their numbers – Nothing more to say on this. You either know them or you die a slow or fast death in business.
Get all clients on autopay for credit cards and ACH’s – Not everybody is willing to allow ACH, but you must get everybody on an auto pay. We recommend the same day each month (first 5 days of the month), so that you can handle any issues once per month like clockwork.
Punch Cards are Brutal – People hoard punches like gold bars. Don’t fall into that trap as an owner. It sounds like a good idea, but we believe your goal is recurring revenue, not a one time hit.
I really appreciate that Zen Planner takes the time to put a piece like this together. It’s not easy to get this much information compiled. They do it cleanly, and the information is quite helpful. If you are a gym owner or looking to become a gym owner, check out this report. I’m curious to learn what you think about the information inside of it. There are some great points to learn from; there are also some points that I’d stay away from. At any rate, you control your own destiny. Learn from your business every day. Learn from you clients every day. Improve your business every day and you will thrive.
Got some thoughts to share about the 2017 Zen Planner Report? Let us know in the comments below!