Important Gym Business Metrics – Part 4: Profitability

This is the final article in a four-part series detailing some of the more important metrics that you should be using in your gym to determine your performance. You can view part one here, part two here, and part three here.

The performance of your business is a key part of your business dashboard. It is paramount that you know how well (or poorly) your business is performing. Without this knowledge you are simply guessing your way through the complexities of running a business.

In this final part of the series, we will look at metrics related to profitability. This is the only article in this series that isn’t directly related to the three key Fill Your Gym focus areas: Leads, Sales, and Retention.

One of the important factors in measuring performance is to not measure irrelevant areas. For that reason this article present three key metrics. In the end, it’s up to you what you measure. Just be sure those metrics actually give you the information that you need to make better business decisions.

Average dollar sale

Your business likely has multiple products and services at multiple price points. You can get a clear idea of what an individual client is likely to spend per sales interaction by calculating the average dollar sale in your business. It is advisable to calculate this number over a specific period.

To calculate your average dollar sale, total the income from all sales and then divide by the number of sales made.

You can get more specific information by limiting the data to specific products, services, or groups thereof.

Average client lifetime spend

Getting clear on how much you can expect a client to spend with you (on average) will help you with planning. It will also help you make better strategic decisions.

There are a few ways that you can calculate this metric. It is actually something of an estimate as many of your clients are still active so you won’t have accurate data for all clients.

One way to calculate this metric would be to use data from all previous members. Add the total amount of income and divide it by the number of clients.

You could also assess this metric for a period of time, say a year or two. Add the total income from all active clients in that period and then divide by the number of clients.

Again, you can drill down by calculating this metric for individual products and services.

Profit margin and Markup

Profit margin is the amount you make for a product, service, or in total. It makes more sense to assess this metric with regard to specific items that you sell.

To calculate gross profit simply subtract cost from revenue. E.g. $250 – $100 = $150

To calculate your markup on an item, divide the profit by the cost. E.g. $150 / $100 = 1.5 = 150%

To calculate the gross profit margin, divide the profit by revenue. E.g. $150 / $250 = 0.6 = 60%

Conclusion

Ultimately all of your business activities are designed to create a profitable business. This final trio of metrics will help you better understand how your business is operating from a financial point of view.

Remember what Mark Twain said, “There are three kinds of lies: lies, damned lies and statistics.” These metrics can give you the info you need but if used out of context they can misinform you. Be certain of the context of these metrics and use them wisely.

Lastly, the metrics presented in this four-part series do not cover all areas that you should be measuring in your business. Be mindful of the information you need and the metrics that will provide it. Be consistent in your approach to testing and measuring your business, it is an integral part of your success.

2017-05-15T07:57:14+00:00 By |Categories: Other|