26 January 2022, by Andreas Bechler & Till Pitschel

Why are existing Customers so valuable?

Many gym managers still think that all customers are the same. However, in financial terms existing customers are a lot more valuable than new customers.  Read on to find out why. 

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The Covid crisis has made it clear to the fitness industry how important existing customers are for securing their livelihood. Without the continued payments made by these loyal customers many gyms would not have survived the pandemic period. In the past, however, existing customers were often neglected and rarely in the focus of efforts undertaken by managers responsible for gyms. This article will shed some light on why existing customers are so much more valuable than new customers, not only during Covid times. 

Turnover rate in German fitness clubs

Let’s first look at the turnover rate to get an impression of how many members turn their backs on gyms in Germany each year. The figures in the following graph are taken from the official statistics of the fitness industry “Eckdaten der Fitnesswirtschaft des DSSV. They are based on gym operators’ own data. 

 

The turnover rate is comparatively high overall, remaining relatively unchanged at between 20% and 30% for the complete period under review since 2014.  Needless to say, the Covid pandemic has made the figures rise markedly in 2020 but figures already started rising as early as 2019 – without the pandemic. This shows that reference made to the pandemic alone as a reason is too short-sighted. 

Fluctuation Rate

Looking at other sectors of industry pays off

Looking at other sectors of industry is also worthwhile here. It is, of course, difficult to find a completely comparable sector since the fitness industry is characterised by certain peculiarities in terms of contract structure. Nevertheless, we should always dare to look beyond our own backyards to get a better feel for what might be feasible. Which is why we have decided to compare our industry with motor insurance, energy supply contracts and hairdressers. Why these three? Because at least in the DACH region there are certain similarities in contract design with motor insurance and energy contracts (longer duration with corresponding termination periods) while hairdressers enjoy a similarly personal connection with their customers as do fitness trainers in a gym.

 

Fitness industry must take a back seat in comparison

Surprisingly, motor insurance at 5.2% and energy supply contracts at 10.2% have a clearly lower customer turnover rate than any type of gym. Hairdressers are roughly on par with us at the (pre-Covid) level (22.5%). A hairdresser, however, cannot bet on a long-term contractual obligation so that one mistake can mean the immediate end of a customer relationship. All in all, the fitness industry does not fare particularly well despite having such an important product for general healthcare.

 

The added value of existing customers at German gyms

We have seen that compared to other industries we still have plenty of room for improvement in terms of turnover rates. But do efforts pay off at all? Bechler (2015) already carried out an analysis to establish the difference in contribution margin between new and existing customers a number of years ago. The outcome is pretty unambiguous. 

Contribution Margin: New Customer compared to Existing Customer

Considering all the costs associated with recruiting new customers (advertising costs, labour costs etc.), the contribution margin per new member was as low as EUR 299.28 at the time of calculation. An existing customer by comparison generated EUR 475.92. You could try and compensate for the difference by charging an entry fee, for example. However, this high amount would only rarely be accepted by new members and also reduces the chances of concluding a contract after a sales talk. 

 

This calculation naturally only refers to the direct financial value added; but satisfied existing customers also come with other benefits of a not purely financial nature. The following advantages can also mean added value for your gym:

 

  • Word-of-mouth: there is no better and cheaper advertising. Only satisfied customers will endow you with referrals.  
  • Less staff tied up: long-standing members know their way around and do not require the same support as newbies. Your staff has more time to deal with more demanding but also interesting problems.
  • Customer feedback: lang-standing members are more likely to address issues in a constructive way allowing you to improve your internal processes. New customers will simply not return to the gym.  
  • Data basis for further analysis: long-standing members offer a wealth of information for analysis permitting you to understand relevant customer groups better. As a result, you can optimise marketing campaigns on this basis, which in turn benefits new customer canvassing.  

Andreas M. Bechler is an author, consultant, lecturer and podcaster in the fitness sector. In addition, Andreas is the spokesman of the “Arbeitskreise Fitnessbranche des VSD – Verband für Sportökonomie und Sportmanagement e.V.” (Working Parties Fitness Industry of VSD – Association of Sports Economy and Sports Management). You can contact him via LinkedIn https://www.linkedin.com/in/andreasmbechler/

Till Pitschel is an expert in customer turnover management and customer retention processes, author, speaker and personal trainer. Together with two partners he manages the start-up “Keep Your Members” to consult gym operators comprehensively about customer turnover processes and customer retention strategies. You contact Till via LinkedIn: https://www.linkedin.com/in/tillpitschel/

Calculate your personal added value of existing customers

It is always easy to deal with a topic in theory – but you can probably only relate to it when you look at your own case. Which is why we should now jointly calculate your personal added value of an existing customer versus a new customer. To this end we will roughly calculate the contribution margin together. So get a pencil and paper and let’s start!

 

Average revenue per member

How much money do I actually make on one member? This is the question we want to answer first. In an ideal world this can be quickly established by means of your own membership management or bookkeeping software. In doing so, it is important to include total revenue – meaning membership fees plus additional revenue per member. If this data is not available, you can also resort to a simple equation: divide total sales by the average number of members in the year under review. Now we know, how much money we make per member.

 

 

 Total sales

 / 

 Average number of members 

 = 

 Revenue per member

 

Advertising costs per new member

After looking at the sales side of things we now want to focus on the costs. Let’s start with advertising expenses. Here, too, your own data is easy to retrieve in an ideal world. If not, you can help yourself by assuming four (optimal) to five (maximum) percent of revenue.

 

Now this figure must be divided by the number of newly recruited members. So consult your gym software again and establish the number of new members recruited in the year under review. If you then divide the advertising expenses by the number of new members you get the advertising budget required per new customer.

 

 

 Total advertising expenses

 / 

 Number of new members

 = 

 Advertising expenses per new member 

 

 

Labour costs in sales per new member

The next cost factor is the staff you employ in sales. Do you have any employees who are only engaged in sales? Their labour costs have to be factored in 100%. Do you have employees who are involved in sales activities at least part of their time? Their salaries have to be added on a pro rata base according to their contribution to sales activities. Added up, these two items represent the complete labour costs for sales, which then have to be divided by the number of new members.

 

 

 Labour costs in sales

 / 

 Number of new members

 = 

 Labour costs in sales per new member 

 

 

Personnel costs for increased service needs

Most new customers are likely to make more training appointments at the beginning of their training period than existing members would. Here, too, your software can tell you how many appointments new members make on average during their first year of membership and in following years. If you then multiply this number by the hourly wage of your fitness trainers, you get the service costs for your new vs. existing members.

 

 

 Personnel costs for trainers per hour

 * 

 Number of trainer hours per new member / existing member

 = 

 Personnel costs for training per new member/ existing member 

 

 

Comparison of sales and costs

Now you have established all relevant KPIs for your gym and it is time to compare them.

 

 

 Revenue per member

 Revenue per member

 - 

 Advertising expenses

 

 -

 Labour costs for sales

 

 -

 Labour costs for service

 Labour costs for services

 = 

 Contribution margin new member 

 Contribution margin existing member 

 

The calculation shown above is, of course, not perfect. It certainly leaves room for refinement here and there and definitely also needs to be adapted to each concrete case. What is key, however, is that it clearly highlights the difference between your existing and new members in terms of financial value.

 

Summary: existing members are incredibly valuable

We have shown why existing members are so valuable not only in general, but also and especially, for your gym. Never underestimate this value and show these people the appreciation they deserve. In the second part of this report we will examine why your members terminate their contracts as a rule. 

 

 

About Hashtag Fitnessindustrie

“Hashtag Fitnessindustrie” is a podcast on the German fitness industry covering all its facets and actors. It aims to promote knowledge transfer between interviewees and listeners for the benefit of the industry as a whole. Current trends and developments are just as much part of this podcast as are basic, strategic questions arising in the daily business of fitness service providers.

For more information go to: https://hashtag-fitnessindustrie.de