How to measure retention?

As one of the most important key performance indicator in the gym business is retention you have to read and understand the data in this regards carefully.

How to measure retention?

I would always believe that doing business is a mix of talent, intuition, luck and of course knowledge. As the first three either you have or not, the last one is a matter of time and hard work. Know-how comes with experience you gain over the time, with training, workshops and analysis. You may like it or not but without hard data you cannot manage and grow your business. You have probably learned tough lesson that some numbers may say two different things depending on how you read them. This may lead to completely contradicting conclusions and can seriously affect your business strategy. As one of the most important key performance indicator in the gym business is retention you have to read and understand the data in this regards carefully.

DOs and DON’Ts

Usually most health club managers and owners use attrition rate to review their retention level. What is attrition rate?  Take the number of cancelled members at the end of each month and divide this by the number of the active ones at the beginning of the month and this will give you a figure of customers who have dropped out. Example: in June 2016 there were 110 cancellations and at the start of the month there were 1549 members; dividing 110 by 1549 you get 0.071, which is 7,1%. The main trick and also a problem with using this measure is that your view of the real situation can be drastically disturbed by your sales team activities. If the sales team had a good month then your attrition rate will be low and you will not see that you have too high customer turnover and that maybe you do not care enough about regular customers. To have full and accurate view on how successful your retention efforts are you need to look closely on retention rate meaning the proportion of members who stay for a predefined period of time i.e. 3, 6, 12 months etc.

The other statistics measure often used by managers and owners is working out the average period of time a member stays with the club. How to calculate such a number? Take the total number of months your members stay, divide it by the total number of members and it will give you the average number of months each member remains with your club. Example: you have 100 members and the total of months they have stayed with your gym is 1500. If you take the average from it, you receive 15 months. However, this picture may be actually a bit different if you look closely into the numbers and find out that i.e. only 50% of these members stayed for the past 6 months and 75% had left after 12 months. But average does not show that at all. What is more, if you take 15 months into your further calculations and you assume that a new average member will stay with you for that period of time and spend $30 each month, then you also get the wrong financial picture. What is really important here is the median length of the time members stay and therefore, how much they pay with membership fees. In order to receive such a median, you will definitely have to work more with statistics pulled from Perfect Gym software which can give you a real view on how your business is doing. You can prepare a graph where on the vertical axis you place the percentage of members who retain their membership and on the horizontal axis put the number of months they stay with you. This may show you i.e. that the median membership duration is 7 months (for 50% of your members). When you mastermind the median membership duration you can freely use the average spend per head to calculate your customers lifetime spending in your gym.

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