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The Numbers Never Lie

Originally Posted:  09/01/09

Most owners make very emotional decisions, and often ones that are right for their businesses, based upon a situational management style. Situational management means you base your decision on what is in front of you at the moment, and if that something is causing you a little pain at the time, the reaction, and the decision, is often emotional rather than what is best for the business.

Effective management is always number based. If you track the right numbers, and understand what the numbers mean in relationship to your business, then you will make better decisions that will improve your business because the numbers never lie and will always point you to the decision you need to make to help the business grow.

For example, a typical owner who is not numbers driven has a poor and extremely stressful sales month. He is sitting in his office when his local newspaper sales rep drops by to check in to see if he needs to run an ad. Our owner, who is frustrated that sales are slow, listens closely as the newspaper person paints a great picture of a new section coming out in the paper next week on brides and summer weddings.
The newspaper person tells him he has to be in this section because it will be the best read special issue of the summer and if he isn't he will miss out big time on a chance to get great exposure. Our hardworking owner, but dumb as a kettle bell, slaps together a special for a bride's boot camp, the paper designs the ad in about an hour with no thought to the club's brand or marketing look, and a few people drift in when the ad appears, but not nearly enough to justify the ad.

The owner had a frustrating day, makes a quick decision to solve that frustration, wastes some money in the process and still hasn't helped the business. This is situational management at it's worst because the decision was made through emotion and the day's frustration and not based upon any real numbers that reflect the true financial situation of the club.

Most owners claim they track all leads, for example, and most owners lie in this case. Few owners really know the amount of qualified leads through the club over a typical 30-day period because they simply don't have a system in place that forces the staff to report correctly, therefore, the owner always thinks he knows but seldom has a tight number. In the case of our kettle bell head, he made the decision based upon frustration and not real numbers because first of all, he doesn't know how to gather real numbers, and secondly, he doesn't know what to do with them if he did have them.

In his case, if he would have looked at his numbers closely he might have found something like this, which is often the case in a typical club. If he had control of his leads he would have found out he really had 80 leads through the door and not the 60 the staff reported because there is really no incentive, or punishment, for not reporting true numbers everyday.

He would have also found out that he only converts 35% of his total leads each month and not the 60% and higher his staff reports because they drop the amount of leads to look better. They aren't trying to cheat, but they do find many reasons a person wasn't really qualified and dropped from the potential lead list and that eventually raises their closing percentage much higher than it should be.

If kettle head was really in the game, he would track his numbers every day for his team, and for each sales person, and find out he doesn't have a marketing problem, he has a sales training issue since the numbers would have shown him that he is really closing less than 40% and no amount of marketing money can overcome a bad sales effort.

Training his staff would be far more effective than blowing senseless money on an ad. If he really wanted to do the ad, he should have his ad company do a real ad for the paper that reflects a thought out special reflecting the club's brand, meaning the ad perpetuates the club's image in the market. A bride's boot camp might have been a good idea, but it has to fit the overall marketing plan for the business and the ad has to build a recognition factor in the marketplace.

The most important number you aren't tracking

The most important number you aren't tracking right now is your average EFT payment. Typically, a club might have a monthly rate of $39 for one person. If you break couples (two people at same address) into separate agreements, you will find that if the club sold seven memberships on a Monday, the average EFT is always going to be lower than the single rate of $39. For example (ignore the membership fees here):

Monday sales
$39 x 12
$34 x 12 (second person)
$29 x 12 (student)
$39 x 12
$29 x 12 (senior)
$39 x 12
$29 x 12 (corporate)
The average EFT payment is $34 ($238/7 = 34)

In our business, the average EFT has always been lower than the stated monthly single rate, which makes it hard to run a business over time since most owners base their success on the higher number. If you factor in all of your discounts, you'll probably find that your number is actually lower than this example.
This lower number is what makes you so vulnerable in the market place to the lower priced competitors, because whether you want to or not, you are competing head-to-head on price. If the guy down the street is at $19 a month, and your true average is only about $29-32 in this example, you are in the same price game he is except you are losing. Your price is high enough to differentiate or high enough to protect your business.

Your discounts reflect the only way most owners know to generate more volume in their clubs. You simply drop your price for every exception to the rule. Couples get discounts. Kids get discount. Seniors get discounts. Corporate people get discounts. Your business plan is to figure out a way to give everybody a discount.

What you should be working on is how can you raise your EFT average not lower it. You can generate a higher monthly EFT average, especially if you switch your training away from session driven to monthly EFT, something we have been teaching this year in the workshops and that has proven to be a very successful plan in the clubs.

Other clubs have also added weight management programs based upon 12 weeks that is also EFT driven. Yet others have added programs such as a Parisi sports performance school that allows the club to drive more memberships by adding the children for just $15 per month per child and then upgrading the kids from that point into higher priced sports performance training or one-on-one.
Once your number goes higher than the one person price, your vulnerability in the market drops because you are now making a much higher return per sale, or in other words, you are now making more money per club client. Here is what your sales for the day should look like:

Monday sales
$39 x 12
$89 x 12 (group personal training)
$150 x 3 (weight management)
$54 x 12 (one parent with one $15 add-on for the Parisi program)
$39 x 12
$39 x 12
$39 x 12
The average EFT for this club is $449/7 = $64

Couple this with a low entry price, such as value pricing members using the 18 month tool at $29, and you have the best of all possible worlds: you can show a low entry into the club at $29, which allows a higher monthly membership conversion but you also get a higher EFT average from all members you do sign up increasing your return-per-member.

Track this number every day and also get a monthly total. Your goal is to create programs in the club that allows you to seek a higher return-per-member and still get the highest number of new members possible each month.

This is just one of the numbers you should be tracking each month or each day. The secret here is to track the right numbers and then learn how to react to what you learn from these numbers. The numbers don't lie and keep you from making kettle bell head emotional decisions based upon situational management.
If you want more about numbers, try and get into the last few seats for the Chicago three-day advanced workshop in October. Most of the first day will focus on numbers and how to use them to make better decisions in your business.

Special note: The NFBA has Dan John's new book, Never Let Go, in stock. This book is only for people who are fascinated with the essence of what we do in this business, and the theory about how we should train clients on the floor, which should be providing our clients with the information and leadership to get in the best shape of your life. This book might be the anti-gym book but what he discusses is what most of the real training clubs are returning to for their clients. It is not a business book but if you love training and working out it will get you to think about what we do in the club and how we train our clients in a different way.

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