How To Make Money With A Gym [Listen to this First] Ep 4

Summary Notes


In the latest Gym Secrets podcast, host Alex Hormozi delves into the critical aspects of gym business growth, focusing on a three-part equation: cold traffic marketing, warm traffic marketing, and attrition percentage. He emphasizes that understanding and optimizing these elements can predict a gym's growth ceiling. Alex explains that increasing new member sign-ups or reducing member attrition can double a gym's size, but notes that cutting attrition is often more cost-effective and underutilized. He also highlights the dual role of warm market strategies in both attracting and retaining members, as well as their potential for pure profit due to low acquisition costs. Alex encourages gym owners to focus on these areas for sustainable business expansion.

Summary Notes

Introduction to Gym Business Equations

  • Alex Vermosi introduces the topic of gym business equations.
  • The focus is on a central equation that helps calculate a gym's potential growth and limitations.
  • The concept is described using a pie metaphor to simplify understanding.

What's up, everyone? Welcome to the Gym Secrets podcast. My name is Alex Vermosi, and I will be your host for this afternoon or morning or whatever time it is where you are. So the first two episodes that we're talking about, we're talking about some serious equations about how you run this gym business.

Alex Vermosi opens the podcast and sets the stage for discussing important business equations relevant to running a gym.

The Gym Business Pie Analogy

  • The gym business model is likened to a pie divided into three parts.
  • The "pie" represents the gym's market and growth potential.
  • Each slice corresponds to a key area of focus for gym growth.

So what I want to talk about this time is probably the most central equation to how you can calculate your gym's hypothetical math... the easiest way to describe this is a pie.

Alex Vermosi introduces the pie analogy as a central concept for understanding the gym business model.

Cold Market Marketing System

  • The top right third of the pie represents the cold market or cold traffic marketing system.
  • This system involves strategies to attract people who have never heard of the gym.
  • It is essential for bringing in new clients to the business.

So first top right is going to be your cold market or cold traffic marketing system. So whatever things that you do to go out into the world, get people who've never heard of you to come in to your business.

Alex Vermosi explains the importance of the cold market marketing system in attracting new clients who are unfamiliar with the gym.

Warm Market Marketing System

  • The top left third of the pie signifies the warm market marketing system.
  • This system is about marketing to existing clients to upsell, cross-sell, generate referrals, and retain them.
  • It provides a superior experience and is where most gyms fail to capitalize.

The second number is going to be the top left, which is your warm traffic marketing stuff. What are you marketing to your Justin clients? To ascend those clients, cross sell and then generate referrals and ultimately retain them and give them a superior experience.

Alex Vermosi discusses the warm market marketing system, which focuses on existing clients and how gyms often neglect this lucrative area.

Attrition and Retention Percentages

  • The middle bottom third of the pie deals with attrition and retention percentages.
  • Attrition percentage is used in equations to calculate growth rates and hypothetical maximums.
  • Understanding these percentages is crucial for planning and forecasting gym growth.

And then the last thing is the bottom piece of this pie, which is attrition percentage, retention percentage, depending on what side of the coin you're looking at.

Alex Vermosi highlights the importance of attrition and retention percentages in understanding and predicting the gym's growth potential.

Example of Gym Member Attrition

  • A typical example is provided of a gym with 100 members.
  • Many gyms do not know their attrition rate but can provide average sign-up numbers.
  • Understanding these figures is necessary for assessing the gym's health and potential.

So here is a normal example of something of a gym that would come to me, a crossfit or a boot camp that has 100 members around. And most of them don't know what their attrition percentage is.

Alex Vermosi presents a common scenario where gym owners are unaware of their attrition rate, which is vital for evaluating their business's status and prospects.

Understanding Gym Membership Attrition and Growth

  • Alex Vermosi identifies a common issue with gym memberships where growth stagnates.
  • He explains that a gym signing up ten members a month but also losing ten members maintains a constant membership count.
  • Vermosi highlights the importance of the 'attrition percentage' in understanding membership dynamics.
  • He demonstrates how adjusting either the number of sign-ups or the attrition rate can significantly impact membership numbers.
  • Vermosi suggests that reducing attrition is more cost-effective than increasing sign-ups.

"So if you're trying to grow your gym, one of the least exploited areas is actively trying to retain members."

This quote emphasizes the strategic importance of member retention in growing a gym's membership base.

"It costs less to cut attrition percentage by 10%, from 10% to 5% than it does to increase sign ups from ten to 20 a month."

Alex Vermosi argues that financially, it is more efficient to focus on reducing the attrition rate rather than trying to double the new sign-ups.

"If you never lost anyone from your gym ever, your gym would grow forever."

This quote illustrates the theoretical potential of a gym's growth if it successfully eliminates member attrition, underlining the power of retention strategies.

The Power of Word of Mouth for Podcast Growth

  • The speaker emphasizes the role of word of mouth in the growth of the podcast.
  • They acknowledge that the podcast's expansion relies solely on listeners sharing it with others.
  • The speaker requests listeners to promote the podcast just as they learned about it.

"The only way this grows is through word of mouth."

This quote underscores the importance of personal recommendations and sharing in increasing the podcast's audience.

"My only ask is that you continue to pay it forward to whoever showed you or however you found out about this podcast, that you do the exact same thing."

By asking listeners to share the podcast, the speaker is leveraging the power of community and personal networks to grow the podcast's reach.

Gym Business Growth and Challenges

  • Gyms often experience initial strong growth, believing to be successful.
  • The growth rate slows down due to the attrition rate, which becomes more impactful as membership increases.
  • A common pattern is adding new members while losing a percentage of the existing ones, leading to an asymptotic growth curve.

"Okay, now, just as a thought experiment, the reason that so many gyms can start off strong, or at least they believe to be strong, and they're like, man, we started off so good. Sound. Ten people. The first month, 22nd, we were at 20 and the 30 and the 40, and then it just slowed down."

This quote explains the initial strong growth of gyms and the subsequent slowdown as the attrition rate begins to have a more significant impact on the overall membership numbers.

Understanding Membership Dynamics

  • Membership dynamics involve both gaining new members and losing some due to attrition.
  • The speaker uses a mathematical explanation to demonstrate how the gym's membership growth approaches a hypothetical maximum due to the attrition rate.
  • The asymptotic growth curve is a concept from calculus used to describe the plateauing of gym membership growth.

"Their sign ups number stayed the same. It's just that when you're losing 10% of eight people, you're losing next to nothing. One person or zero, right? They get another ten people. The next month they get up to 18, they lose 10% of that, they lose 1.8. So now they're down to 16 or 17, they get another ten, they're 26. You see this growth, right? But it's an asymptote, if you remember from calculus and math, guys, it just approaches a hypothetical max of 100."

The speaker is illustrating how a consistent sign-up rate is counteracted by a consistent attrition rate, leading to a growth curve that eventually levels off as the gym approaches a maximum number of members it can sustain.

Warm Market Strategies

  • Warm market strategies are a blend of acquisition and retention techniques.
  • These strategies can reactivate former gym members and attract new members who are interested in solving specific problems.
  • Running targeted programs like accountability challenges or niche fitness programs can draw in people from a nurture list created from cold traffic.
  • These strategies build consumer confidence and trust, increasing retention and referrals.

"So that was a fraction, right? That what I was showing synapse over attrition percentage. But the third play here that I was talking about was, what's your warm market play now?"

This quote introduces the concept of warm market strategies in the context of gym membership dynamics, emphasizing their role in both acquiring new members and retaining existing ones.

"And you run that type of program. You run it to your nurture list, right? So your email list that you've generated from cold traffic."

The speaker suggests using targeted programs to engage with an email list of potential customers, which can lead to reactivation of former members and the acquisition of new ones.

"It works as a sign up play, but it also works as a retention play, because the more time someone spends money with you, the more problems you can actively solve for them."

This quote highlights the dual function of warm market strategies as both a sign-up incentive and a retention tool, underlining the importance of solving customer problems to build loyalty and trust.

The Value of Cash Plays

  • Cash plays, as referred to by the speaker, are warm market strategies that generate immediate revenue.
  • These strategies are favored because they can quickly bring in cash while also serving the dual purpose of signing up and retaining members.

"And here's probably what I think to be the coolest part of why I love the worm traffic plays, and I call them cash plays, or meaning cash plays with me and my guys."

The speaker expresses enthusiasm for warm market strategies, which he refers to as cash plays, due to their effectiveness in generating revenue and their impact on both member acquisition and retention.

Cost of Acquisition and Profit Margins

  • The cost of acquisition for warm traffic is essentially zero because the media (attention) is already owned.
  • Warm traffic includes owned channels such as email inboxes, Facebook pages, or cell phone numbers.
  • Making $6,000 from a warm traffic play is highly profitable, especially when compared to cold traffic plays.
  • Average gyms run about 25% margins, but those who seek consultancy often have much lower margins, sometimes around 0%.
  • To match the net profit of $7,000 from warm traffic, one would need to generate $21,000 from cold traffic at a 30% margin.

"Because if you think about cost of acquisition, and that's why it's not a full traffic site, because you have to pay for those, right? Worm traffic you don't pay for because you already own that media."

This quote emphasizes the advantage of warm traffic in terms of cost of acquisition since the media is already owned and there's no additional cost to reach the audience.

"If you run a play and you make $6,000, even though that doesn't sound super impressive, right. If you normally run 30, 20% margin, whatever margins you run. Okay, I'm pulling this out of the air, because they varied very dramatically, gym to gym."

Alex Vermosi is highlighting that a $6,000 profit from warm traffic is significant when considering the typical profit margins gyms operate on, which can vary widely.

Value of Warm Traffic

  • Warm traffic is profitable due to the lack of acquisition costs and existing trust with the audience.
  • Selling to warm traffic is easier because there's no need for a sales process; customers are ready to make purchases.
  • Despite its benefits, warm traffic is often a neglected aspect of the business.

"And so if you already own that media, then it doesn't cost you anything to reach them."

The quote underlines the cost-effectiveness of leveraging warm traffic since the channels to reach them are already in possession and no additional spending is required.

"And you do that five, six, seven times a year, and it will add up."

Alex Vermosi suggests that repeatedly capitalizing on warm traffic throughout the year can lead to substantial cumulative profits.

Gym Business Strategies

  • Gym businesses should consider three key strategies: acquiring cold traffic, maximizing warm traffic, and reducing attrition to increase retention.
  • Focusing on warm traffic can lead to reactivation of old leads and upselling current customers to higher service levels.
  • Improving retention has a significant impact on the bottom line and is often more cost-effective than acquiring new customers.

"So when you're thinking about your gym business, do me a favor and think about it within the three slices of this pie, okay? Cold traffic sign ups, what plays you're doing to attract new customers that have never heard of you?"

Alex Vermosi advises gym owners to think strategically about their business, considering customer acquisition, customer retention, and upselling as three key components of their business model.

"What specific plays are you doing to cut the attrition percentage and to increase retention in your gym?"

This quote highlights the importance of strategies aimed at reducing customer attrition and increasing retention as a means to improve profitability.

Conclusion and Call to Action

  • The podcast aims to provide useful and entertaining insights for gym owners.
  • Gym owners are encouraged to share the podcast and implement the discussed strategies.

"I hope that it was useful for you. I hope it was entertaining, and share it with a gym owner friend, gym owner buddy, and I hope to talk to you soon. Alex, out."

Alex Vermosi concludes the podcast by expressing his hope that the content was helpful and engaging, and he encourages listeners to share the insights with others in the industry.

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