In episode two of Gym Secrets, host Alex Tromosi challenges the traditional low barrier entry offer (LBO) for gym marketing, advocating instead for a medium to high ticket approach. Tromosi argues that while LBOs may seem cost-effective, they actually result in a net loss when considering customer acquisition costs and attrition rates. By providing a numerical breakdown, he demonstrates how a $600 medium ticket offer can generate significantly higher revenue per lead and enable gyms to profit from the customer acquisition process itself. This method, he claims, has allowed him to launch gyms successfully at full capacity, emphasizing the importance of understanding cash flow and customer lifetime value for small gym owners. Tromosi promises to explore further strategies for gym growth in future episodes of the podcast.
Welcome everyone to episode two of Gym Secrets podcast. My name is Alex Tromosi and I will be your host on this magic carpet ride. Hope you guys have an awesome morning or whatever time of day that you guys are listening in.
The quote serves as a welcoming introduction to the podcast and establishes the host's identity and the episode's intent.
One of the concepts that I want to talk about today is probably the first thing that I bring up with every single gym owner that I get on the phone with... And it's this basic concept between how do you attract customers and what is your initial offer going to be?
This quote highlights the episode's central theme, which is critical for gym owners to understand and implement effectively.
An LBO is probably how I'll refer to it going forward. And here's going to be a numerical demonstration of why I don't think why that makes any sense.
The quote introduces the term LBO and foreshadows a detailed analysis of why this strategy may not be financially sensible for gym owners.
But no matter where you're running your ads or you're getting your traffic from, whether that's YouTube ads, Instagram ads, Facebook ads, you're running newspaper ads, direct mail, whatever it is, you're going to be paying a certain amount for a certain amount of attention, right?
This quote emphasizes the universality of advertising costs across different platforms and the necessity of converting attention into leads and sales.
So let's say in LBO, you spend $1,000 on advertisements, wherever you get them from. And let's say from that $1,000, you get 100 leads. Okay? 100 leads cost you about $10 a lead. And then from those hundred leads, let's say you convert 30% of those people over the phone into a $21.21 day promotion.
This quote provides a specific example of how an LBO might play out financially, demonstrating the cost per lead and the potential revenue from conversions.
Here's why I don't think that works well. So I used to work with the concept is, okay,
Although the quote is incomplete, it suggests that Alex has prior experience with LBOs and is leading into an explanation of their inefficiencies.
"well, I lost a little bit on the front end. I spent 1000, made 600. So I lost $400, not too big of a deal, because I'm going to get of these 30 people, I'm going to get half of them to stay."
This quote explains the initial financial loss taken in the hope of long-term gains through customer retention.
"So usually they spend about $150 to acquire a customer that pays $29 a month for 36 months, which is usually their lifetime value. So you're like, they're happy to do that."
This quote outlines the cost-benefit analysis large gyms conduct when investing in customer acquisition, emphasizing their long-term profitability strategy.
"And I don't know about you, but most small business owners, especially small gym owners, don't have the cash flow to float or the cash reserves to float five months of acquisition costs for a new customer."
This quote emphasizes the financial impracticalities for small gym owners in mirroring the customer acquisition strategies of larger gyms due to limited cash flow.
"So from that 100 people, most people have about a 10% attrition rate. Like I said, average. Average gives you 10% attrition. So they lose ten people a month. They sign up ten people a month and that's where they stay."
This quote describes the ongoing challenge gyms face with maintaining their customer base due to a consistent attrition rate.
"And so over that whole period of time, you're net negative and you lost $400 on the front end. And guys will continue to get on this train and ride it over and over and over again. And usually they end up back where they started."
This quote summarizes the cycle of investment and loss that small gym owners may experience when trying to implement marketing strategies similar to larger chains, often leading back to their starting point financially.
"If you are a business owner that has a big old business and wants to get to a much bigger business, going to 5100 million dollars plus, we would love to talk to you."
This quote is an invitation to business owners who are looking to significantly scale their businesses and may be interested in learning new growth strategies.
"The new way of doing things is by offering medium and high ticket offers as front end offers."
This quote summarizes the core strategy Tromosi is promoting, which is to focus on more expensive offers right from the start to boost initial revenue.
"Let's say you spend the same $1,000, you get the same 100 leads. From those 100 leads, you close 20% of those people into a $600 offer."
This quote details the initial setup for the example, including ad spend, lead generation, and conversion rate for the medium ticket offer.
"The first example we had was $6.30 per lead. This example is $135 per lead."
This quote emphasizes the stark contrast in revenue per lead between the old and new methods, showcasing the potential financial benefits of the latter.
"Who's going to be able to reliably buy more leads? The guy on the right, the guy who had $135 per lead."
This quote explains how the higher revenue per lead translates into a competitive edge in acquiring more and better leads.
"So the reason that we have been able to fill up gyms in 30 days, and that was like my claim to Fame. And I always opened my gyms at full capacity, except for my first one, which I learned my Lesson from, and then everyone after that, we opened at full capacity."
This quote reveals Tromosi's successful track record with gym openings and hints at the lessons learned from his first experience, leading to a refined strategy for subsequent openings.
"Like a lot of gym owners, like Facebook used to work, doesn't work anymore. They changed their algorithm. Because they didn't change their algorithm, just better competitors came to the market."
This quote addresses common complaints in the fitness industry and corrects the misconception about Facebook's algorithm, pointing to the importance of competitive strategy instead.
"Marketplace and you just no longer were a strong competitor because stronger guys came in and they were able to outbid you for the same amount of attention, the same amount of impressions."
This quote emphasizes the challenge of staying competitive in a market where larger players can afford to spend more on acquiring customer attention.
"When you're making $135 a lead... if they five x their prices, we're still making four to one. And we can still play here."
The quote illustrates the advantage of having a high-profit margin per lead, which allows for flexibility and resilience against increasing advertising costs.
"So let's say you spend $50 on day, $150. Typically speaking as an aggregate of all the campaigns that we've been running, usually we'll get you about 15 leads."
The quote provides a specific example of how a set advertising spend can result in a predictable number of leads, forming the basis for the subsequent sales strategy.
"Your initial budget grew because of the positive cash flow in the acquisition process."
This quote highlights the concept of using the revenue from initial sales to fund further marketing efforts, creating a cycle of growth and investment.
"But customers were financing the acquisition of more customers."
The quote encapsulates the core idea of customer-financed acquisition, where the revenue from new customers funds the acquisition of even more customers.
"Once my gym is at full capacity, then what do I do? Which I will address in the next Gym Secrets podcast."
The quote sets up anticipation for the next discussion, which will presumably explore strategies for managing and expanding a business that has reached its current capacity limits.
"So, anyways, hope this was useful for you guys. It's a really central concept to how I talk about gyms and how we talk about acquiring customers and how talk about filling gyms."
This concluding quote reflects Tromosi's aim to provide valuable insights to gym owners on customer acquisition and business growth, emphasizing the central theme of the podcast.