The hidden Costs of member Attrition

In the world of fitness, the focus often lies on the numbers that are easy to track - gross income, profit margins, and new memberships.

These are undoubtedly important, but some of the missing and crucial pieces of the puzzle that have helped me and other businesses that I have worked with are costing lost members or member attrition. For myself and my clients, this has been a consistently significant factor that impacts our bottom line. Yet it often went unnoticed.

According to a report by the International Health, Racquet & Sports-club Association (IHRSA), the average gym loses about 50% of its members every year. That's a staggering number, and it made me think ? Let's say a gym spends £75 on marketing to acquire a new member and that member cancels after one year. The gym then has to spend another £75 to replace them. If the gym could have spent £15 on retention efforts to keep that member for another year, the cost of churn, in this case, would be £60 (£75 for a new member minus £15 to retain the existing member).

So, in this example, the gym could have saved £60 per member by focusing on retention efforts rather than acquiring new members. Over hundreds or thousands of members, these savings can add up to a significant amount.

Bob Esquerre, working with Faster Health and Fitness, a renowned fitness industry consultant, has often emphasised the importance of member retention. In a recent conversation with Bob he states, "The cost of acquiring a new member is three times more than retaining an existing one." This underscores the financial implications of member attrition and the potential for increased profitability through improved retention.
However, let's consider the other side of the coin. Some argue that member attrition is simply a part of the business model for many gyms. They point out that the high turnover allows for a constant influx of new members, often at higher rates than those grandfathered into older, cheaper plans. This perspective suggests that the focus should remain on marketing and sales to continually attract new customers.

While this approach may work for some, it's worth considering the potential long-term benefits of investing more in member retention. This could involve investing in staff training to improve customer service, enhancing the gym experience, or offering more personalised fitness programs.

According to HRSA’s 2012 edition of Profiles of Success shows that clubs spent a median of $103.50 in sales and marketing costs per new member account in 2011. Although the cost to acquire a new member has never been cheaper, a newly acquired member may not necessarily replace the revenue lost from a member that quits.

From a study by the Harvard Business Review found that increasing customer retention rates by 5% increases profits by 25% to 95%. Applying this to the fitness industry, it would seem that even a small improvement in member retention can significantly boost a gym's profitability.

More importantly, satisfied members are more likely to refer friends and family, providing a source of new customers that don't require a hefty marketing budget.

According to Nielsen, people are four times more likely to buy when referred by a friend.

While the traditional metrics of gross income and profit are important, gym businesses may not want to overlook the cost of member attrition. By investing more in staff, experience, and member retention, gyms can potentially increase their repeat business and ultimately, their revenue.

Growing any business requires good decisions, however, you measure them. Each gym must consider its unique circumstances and decide where to allocate resources for the greatest return on investment.


However, the evidence suggests that focusing on member retention, and the team that delivers customer experience could be a game-changer for many in the fitness industry.


Let me know your thoughts in the comments below.

---

Button Text

Button Text

1. Cost of Acquisition vs. Retention: According to a study by Bain & Company, acquiring a new customer can cost five times more than retaining an existing customer. This principle applies to many industries, including fitness. By focusing on client retention, fitness clubs can save significant costs that would otherwise be spent on marketing and sales efforts to acquire new members.
2. Lifetime Value: The Harvard Business Review has reported that increasing customer retention rates by 5% increases profits by 25% to 95%. In the context of the fitness industry, a loyal member who stays for several years is likely to bring in more revenue than a new member who only stays for a few months.
3. Positive Word-of-Mouth: Satisfied, loyal customers are more likely to recommend the fitness club to their friends and family. According to a Nielsen survey, 92% of consumers believe suggestions from friends and family more than advertising. This word-of-mouth marketing can help attract new members without additional marketing costs.
4. Revenue from Ancillary Services: Retained customers are more likely to purchase additional services, such as personal training sessions, group classes, or merchandise. These additional purchases can significantly increase the revenue from each member.
5. Stability in Revenue: A stable member base provides predictable and steady revenue. This stability can be particularly important in the fitness industry, which often sees fluctuations in new memberships (e.g., an influx of new members around the New Year).
6. Case Study - Planet Fitness: Planet Fitness, one of the largest and fastest-growing franchisors and operators of fitness centres in the U.S., has a business model that focuses on customer retention. They offer a low-cost, high-value product with a non-intimidating, welcoming environment that they call the "Judgement Free Zone®". This strategy has helped them to retain customers and grow their business.