Summer is approaching and gyms everywhere are packed with people getting ready to show off their hard work. According to research, if you are in the health and fitness industry, you have two important things on your mind: the success of your clients and the contribution you are making to your community. However, you cannot help your members or your community if you are not properly tracking the health of your own business.
Just as your members must measure their repetitions and step on the scale to succeed in achieving their fitness goals, as a business owner you must measure the health of your business on a regular basis. Below are some recommendations on 9 important KPIs for health and fitness franchises to use to monitor their business health.
1. Cost per lead (CPL)
If you are going to measure only one metric in your marketing programs, cost per lead is the one most worth the effort. It helps you understand how much you are spending on leads and if the methods you are using are effective. For example, if you are paying $25/lead from Google and $100/lead from your print advertising, you will want to reconsider that print ad buy in the future.
CPL = Cost of Marketing Program/Total Number of Leads
Note that when calculating, a lead has two aspects:
1) They are actively searching for the service.
2) They provide a way for you to contact them for follow-up.
Ensuring that you have the above creates a fair measure for your sales team down the line. To make sure your marketing mix continues to be the right one, it is a good idea to dedicate about 10% of your budget to experimental initiatives.
2. Conversion rate
Conversion rate helps you understand your gym’s ability to turn leads into members. Typically seen as a sales metric, it shows how your sales team is doing with the leads provided by marketing.
Conversion Rate = Total New Members/Total Number of Leads
If this metric is weak, it may be an indicator that your facility is not up to par and you may want to look at renovations or an equipment refresh.
3. Active members
This is a basic but necessary metric that will outline your success on the most elemental level. Measuring the growth and decline of members compared with the previous year is a fantastic way to track where you are in terms of the big picture. It is calculated as follows:
Growth Rate = (Present – Past)/Past
If your absolute member count is low compared with benchmarks, and your growth rate isn’t high, you need to focus on increasing your member base through marketing efforts or by reducing churn.
4. Revenue per client (RPC)
This commonly used KPI provides a sense of clarity in terms of where you are in your business.
RPC = Annual Revenue/Total Number of Clients
If this KPI is low, look for upsell opportunities such as personal training, niche classes, or supplement sales.
5. Revenue per square foot (RPSF)
With the rent or mortgage costs associated with the space typically being the biggest cost associated with this industry, it is healthy to look at this oft-neglected metric. In a multiple-location environment, this metric tells you which spaces are working and which are not working for you. Also, if your RPSF is very low, you may want to consider a smaller space, unless you intend to grow rapidly.
RPSF = Annual Revenue/Total Square Footage of Facility
6. Utilization rate
Utilization rate is an amazing metric in this industry because it measures how much you are actually using your resources. If you offer personal training, for example, how much is the trainer actively engaged in the process of training? If you are renting a room for 8 working hours a day and only using it only for 4, there is an opportunity to add more classes.
Utilization Rate = Total Hours Used/Total Hours Available
7. Net Promoter Score (NPS)
Member satisfaction is both a customer service measure and a marketing measure. Why? Increasingly, brand is a verb, and you want to make sure the experience that people receive at your gym is one that leaves them satisfied. Technically a loyalty measure, the Net Promoter Score (NPS) is a fantastic way to measure this on a quarterly basis. This measure compares your biggest fans (promoters) to your biggest critics (detractors). Learn more about Net Promoter here.
NPS = % Promoters – % Detractors
Your NPS can help you in your marketing efforts by asking promoters to leave reviews or to recommend your facility to their friends and family. It also can help prevent churn.
8. Retention rate
Retention rates are something the fitness industry has struggled with for a long time, and member churn is a common topic of conversation at franchise conventions. In general, having a strong retention rate means you are keeping your brand promise. You can measure this over the course of a month, quarter, or year.
Retention Rate: Existing Clients at End of Period/Existing Clients at Beginning of Period
If this number is low, it is a good idea to do a root cause analysis on why people are leaving. Having a “leaky bucket” of customers means you will have to spend more on marketing up front.
9. Earnings before interest, tax, depreciation, and amortization (EBITDA)
EBITDA is a measure of a gym’s operational effectiveness. It is a way to evaluate effectiveness without having to factor in financing decisions, accounting decisions, or tax environments. Although difficult to say or even fully comprehend for gym owners who have come up through the health and fitness operations side, it is a key indicator.
To calculate the adjustments needed for EBITDA, see this article from Quickbooks.
EBITDA shows how good your business is at generating cash. Your business is valued as multiples of this metric.
Just like your clients, it is important for you to measure the right things. With these 9 key metrics in place, your business will be set up for success.
Looking for more KPIs for your franchise? See our post on How to Use KPIs as a Tool for Franchise Business Planning.