“If you can’t measure it, you can’t improve it.” — Peter Drucker
At the end of this article will be a link to download a spreadsheet to help you track and calculate these metrics, if you find that valuable.
It’s 2020, and businesses all around you have turned to data to power their decisions. Have you?
Most owners understand metrics are important, but have little understanding of what they mean, how to calculate them and why they need to be the cornerstone of your business.
Here’s a simple scorecard to track three key metrics which will give you the health of three important aspects of your business:
Lead conversion rate (LCR) measures the effectiveness of your marketing and sales efforts. Sourcing good leads and converting them into paying members is critical for the ongoing success of your business.
LCR = new MRR customers / lead count
New leads: 12
New MRR customers: 8
8/12 = 66.67%
To calculate this, you must keep track of every lead you communicate with during the month and compare that against your sales rate against those leads.
To keep this simple, we’re only focusing on leads to membership conversion. You can break this down further, as you sales process gets more advanced, to track the sales funnel efficiency:
If you are not tracking every single lead you get and their progress down your sales funnel, you should start doing so immediately. This will help you not only see your efficiency, but also remind you to follow up or reconnect with leads over the course of time.
MRR is the industry term for “Monthly Recurring Revenue” — a.k.a. the lifeblood of your gym. To you these are memberships. Forget customer “counts.” We need to focus on revenue.
MRR = sum ($ value of monthly recurring memberships)
MRR is a sum of the value of recurring memberships you have in effect. This gives you a huge insight into your predictable income for upcoming months. If you are billing weekly, or anything off a monthly cycle, you have an additional step of normalizing back to the month.
Shifting your mindset to focus on MRR allows you to “stack MRR.” This is the compounding effect you have as you add new members to your gym.
Stacking MRR should be the first goal of any gym, as it gets you to a place of financial comfort.
When your MRR is growing, you have a forecast of additional revenue you can allocate to things like:
When your MRR is contracting, it gives you insight that action likely needs to be taken:
In my opinion, this is the most important metric of the three to pay attention to. Too many gym owners focus on leads and sales because those are “fun” metrics. They encapsulate growth and new members.
Churn encapsulates loss, which means owning up to and realizing you’re failing some customers.
However, studies show time and again that reducing churn is the fastest way to building a thriving business.
Revenue churn is the industry term for the amount of MRR that has quit your gym in any given period. We will use months:
Revenue Churn = (MRR Start – MRR End)/MRR Start
Key caveat: Ending MRR is only calculating from the group of people who started the period. Do not include members who joined during the period.
MRR Start: $20,000
MRR End: $18,500
(20,000 – 18,500) / 20,000 = 7.5% Revenue Churn
Revenue churn is calculated by taking the MRR you have at the start of a period and subtracting the MRR you have at the end of the period, then dividing it by the MRR Start.
This will give you the percentage of revenue you lost over the course of the month.
Many gym owners I know focus more on customer churn, which would be the number of customers lost over a time period, but we prefer owners to focus on revenue lost. Losing 10 low-value clients might be meaningless to your business. Losing one big fish, might be impactful.
If you’re not currently tracking metrics, this can be a ton to go through. For that reason, you can find a free Metrics Scorecard here for free download. This will give you the starting point you need to start tracking these metrics and begin your journey to being a data-driven business owner!
By Dan Uyemura, the CEO of PushPress. For more information, visit pushpress.com.