Gym Money Math Ep 1



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.

Summary Notes

Introduction to Gym Secrets Podcast

  • Alex Tromosi introduces the Gym Secrets podcast and sets the tone for the episode.
  • The focus is on a fundamental concept for gym owners regarding customer attraction and initial offers.
  • Alex mentions his frequent interactions with gym owners, emphasizing the importance of the topic.

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.

Concept of Customer Attraction and Initial Offers

  • Alex Tromosi discusses the key concept of how gyms should attract customers and determine their initial offer.
  • He introduces the concept of a Low Barrier Entry Offer (LBO) and expresses skepticism towards its effectiveness.
  • The focus is on the financial implications (dollars and cents) and the psychological reasons behind choosing the right offer.

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.

Critique of Low Barrier Entry Offers (LBOs)

  • Alex Tromosi explains why he believes LBOs may not be the best strategy for gyms.
  • He plans to provide a numerical demonstration to support his argument.
  • The discussion will include the cost of acquisition and its relationship to cash flow.

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.

Advertising and Customer Acquisition Costs

  • The importance of advertising is stressed, with a call to action for those not currently advertising.
  • Alex outlines the process of converting attention from ads into leads and then into sales.
  • Understanding the cost of acquisition is emphasized as crucial for managing cash flow.

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.

Numerical Breakdown of LBOs

  • Alex provides a hypothetical scenario to illustrate the financial outcome of an LBO.
  • He calculates the revenue per lead and highlights the importance of this metric.
  • The time duration for the campaign and promotion fulfillment is outlined, with a total of six weeks from start to conversion.

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.

Inefficiency of LBOs in Terms of Time and Revenue

  • Alex Tromosi argues that the six-week time frame for LBOs is inefficient.
  • He points out the potential issue of a negative cash flow situation due to the upfront advertising costs versus the delayed 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.

Financial Outcomes of Marketing Strategies

  • Alex Tromosi discusses the financial implications of a marketing strategy where initial investment does not yield immediate profit.
  • A comparison is made between large gym chains and small gym owners regarding customer acquisition costs and cash flow challenges.
  • Alex Tromosi explains how large gyms can afford to wait for a return on investment, while small gyms struggle with this model.
  • The example provided shows an initial loss with the expectation of retaining customers to offset that loss over time.

"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.

Customer Acquisition in Large vs. Small Fitness Businesses

  • The business model of large fitness chains like LA Fitness is detailed, including their customer acquisition costs and membership fees.
  • Alex Tromosi shares insights into the large gyms' financial strategies and the time it takes for them to recoup acquisition costs.
  • The challenge for small gym owners to replicate this model is highlighted, as they lack the necessary cash reserves.

"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.

Cash Flow Challenges for Small Gyms

  • The financial strain on small gym owners who attempt to use similar marketing strategies as big chains is discussed.
  • The concept of cash flow and the inability of small businesses to sustain long periods without profit are explored.
  • Alex Tromosi uses the example of small gyms to illustrate the impracticality of adopting large chain strategies without the necessary financial backing.

"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.

Customer Retention and Churn Rates

  • The concept of attrition rate and its impact on the business is explained.
  • Alex Tromosi provides a realistic view of the average gym's customer base and churn rate.
  • The struggle to grow the customer base due to balancing new sign-ups with lost customers is detailed.

"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.

Realistic Outcomes of Marketing Campaigns

  • Alex Tromosi breaks down the expected outcomes of a hypothetical marketing campaign for gyms.
  • The discussion includes the number of sign-ups versus actual customer retention after a promotional period.
  • The financial repercussions of these campaigns are highlighted, showing that they can lead to a net loss when considering attrition.

"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.

Introduction to Business Growth Strategies

  • Alex Tromosi discusses the challenges business owners face when trying to grow their businesses.
  • He contrasts traditional growth strategies with newer, more effective methods.
  • Tromosi introduces the concept of medium and high ticket offers as a way to increase revenue.

"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.

Medium and High Ticket Offers

  • Tromosi advocates for using medium and high ticket offers as front-end offers to increase revenue.
  • He provides a hypothetical example of a $600.06 week offer to demonstrate the effectiveness of this strategy.
  • The strategy is said to work in various markets, including challenging ones.

"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.

The Numbers Behind Medium Ticket Offers

  • Tromosi breaks down the numbers for a medium ticket offer, starting with a $1,000 ad spend for 100 leads.
  • He explains a conversion rate of 20% for the $600 offer, resulting in $12,000 revenue.
  • Additional upsell of supplements increases earnings to $13,500 off the initial ad spend.

"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.

Revenue Per Lead Comparison

  • Tromosi compares the revenue per lead between traditional methods and his proposed strategy.
  • He highlights a significant increase from $6.30 per lead to $135 per lead with the new method.
  • The increased revenue per lead allows for more competitive buying of leads and market dominance.

"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.

Market Competition and Buying Traffic

  • The increased revenue per lead gives businesses the ability to buy more expensive and a greater quantity of leads.
  • Businesses can outprice competitors in auction-based lead buying markets.
  • The strategy provides a competitive advantage by maximizing front-end revenue.

"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.

Gym Opening Strategy

  • Tromosi shares his personal success with filling up gyms to full capacity within 30 days.
  • He contrasts his strategy with the traditional approach of losing money upfront and hoping to recover costs over time.
  • The new method involves making money on the front end, reducing financial risk.

"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.

Fitness Industry Challenges

  • Tromosi addresses the misconception among gym owners that changes in Facebook's algorithm are to blame for their marketing struggles.
  • He suggests that the real issue is the emergence of better competitors using more effective strategies.
  • The implication is that business owners need to adapt to stay competitive.

"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.

Competitive Market Dynamics

  • Alex Tromosi discusses the impact of increased competition on advertising costs and profit margins.
  • Stronger competitors can outbid smaller players, making it difficult for them to compete.
  • High-value leads allow businesses to remain competitive despite rising advertising costs.

"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.

Profitable Customer Acquisition

  • Tromosi explains the concept of customer acquisition that is self-financing.
  • By making a significant profit per lead, businesses can reinvest earnings into acquiring more customers.
  • This approach eliminates the need for a traditional marketing budget, as marketing efforts are funded by the profits they generate.

"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.

Day-to-Day Acquisition Strategy

  • Tromosi breaks down a daily strategy for lead generation and sales conversion.
  • With an example budget and conversion rate, he demonstrates how a business can grow its budget through consistent sales.
  • This strategy highlights the importance of a well-structured sales process and the impact of reinvesting earnings.

"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.

Cash Flow and Business Growth

  • The conversation turns to the significance of positive cash flow in business expansion.
  • Tromosi shares a personal anecdote about opening multiple gyms using the cash flow from customer acquisition.
  • He posits that if customer acquisition is profitable, it should be a continuous process for growth.

"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.

Customer-Financed Acquisition

  • The idea of customer-financed acquisition is introduced as a sustainable business model.
  • Customers effectively pay for the growth of the business by providing the capital needed to acquire more customers.
  • This model allowed Tromosi's gyms to start with a small budget and grow rapidly.

"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.

Scaling and Capacity Management

  • Tromosi teases the topic of what to do once a gym reaches full capacity.
  • The concept of scaling a business is hinted at, suggesting that there are strategies to address capacity limits.
  • This leads to a prompt for listeners to tune into the next podcast for solutions.

"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.

Closing Remarks

  • Tromosi hopes the podcast has been useful and reiterates the importance of the concepts discussed for gym owners with underutilized capacity.
  • He closes with an invitation for listeners to continue engaging with the content.

"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.

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