The Game with Alex Hormozi - Average Cost & Revenue per Member -- Industry Averages | Ep 141

Episode Date: August 1, 2019

"Small gyms had the smallest amount of profit, medium gyms had the medium amount of profit, large gyms had larger amounts than the large, medium, and small, and then the leaders had significantly more margin than the other three.” Today, Alex (@AlexHormozi) discusses the importance of pricing and how it can significantly impact a gym's profit. By analyzing industry reports, he found that higher prices resulted in higher profit margins and that discounting was not good for business.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(0:46) - Profit differences were due to pricing, not churn or acquisition.(3:12) - Leaders did not offer discounts as a trend.(5:26) - You can choose how much money you make per customer.(7:26) - Math is boring but crucial to making money.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

So for whatever reason, my internet cut out, and we were starting back at the top. So this little video I wanted to make is about average cost and revenue per member. And so I was looking over industry reports from Zen Planner and Wadify just to get kind of a bigger pulse on the industry and where it's moving and all that kind of stuff. And I found something that was really interesting that I thought I would share with you, which was, especially Zemplater, they separated out facilities between small, medium and large. And then they also had a category of top or leaders, right, the ones who were making the most money. What was most interesting to me was the fact that the cost of fulfillment for all four of those categories was virtually the same. And the reason that I think that that's incredibly significant is that the cost more or less remains fixed, right? It's $80 to $90 per month.

But the difference between the small, medium, large, and leaders was one thing, how much they charged, right? And that should be the biggest indication of the growth lever on monetization that pricing has on the business. right and so it wasn't it wasn't churn it wasn't it wasn't acquisition it was price right and because with higher prices you have higher profit and with higher profit you can spend more money on fulfillment you can stay in business longer you can bomb there's all these other things that you can do with more profit and so what was interesting to me is that small gyms had the smallest amount of profit medium gyms had the medium amount of profit large gyms had larger amounts than the large medium and small and then the leaders had security significantly more margin than the other three, like a lot more, right?

And so if you looked at the prices, it was like on average, I'm throwing rough numbers out. It was about $80-85-ish dollars to fulfill a member for small, and then they were charging about $109 per month on average, right? For the medium gyms, same cost, but they were charging $116 per member. And then the large gyms were charging, on average, $124. per member. So you can see the incremental increases in how much money they were charging. And so by extension, you can see that they were making more profit per member. And it may not seem like much to add $10, but if you're making $24 versus $35 versus $45 per member, it makes a massive difference

because you're talking about a 50% increase in how much profit is being taking home per month. That is why pricing is so important. Now, the coolest one for me was that the industry leaders were not just an incremental amount higher, but significantly higher. And so the industry leaders, right, their cost or how much they were charging per member, was between 50%, it was 50% higher than everyone else. All right. So if the small guys were charging 110, the leaders were charging 150 to 170 per month. Okay.

And so that extra $30, $40 per month that they're charging, is all profit. And so they were actually able to make three, four times as much money in take-home money based on their pricing. Right? And that's why pricing is so important. That's why discounting is also so not good for your business. And so one of the other trends that they saw across the board is that the leaders didn't

really do any discounts. And the people who struggle the most were the ones who always sold with discounts. And so if you can incorporate that in the behaviors that you have with your gym and your business, you will be able to profit. And the beautiful thing is that this is just the data, right? It doesn't care how you feel about it. If you're like, well, I'm special, my market's different, blah, blah, blah, blah, blah, no one cares, right?

It doesn't matter. So take that into consideration when you're looking at the pricing of your business. If you're like, if you look at the averages of how much you're charging per member and it's falling in that 110 to 1.30 range, then it means that you're going to be on the more average side. If you want to be an industry leader, then do what the industry leaders do and charge on average $150 plus per member, which means that's the average. That means that they have people who are much higher than that. If you shoot for that as your top number, you're going to fall below them. And so that's why for us, at gym launch, we tell everyone that their pricing should be between 167 and 212 per month, which rolls out to $39 per week to $49 per week.

And what's fascinating to me is that if I make a video about motivation, don't give up, like don't quit, whatever, we get tons of engagement, tons of likes, tons of comments and all that kind of stuff like this is amazing. When I make this stuff that actually makes people more money, they're not interested, which goes to show you where people put their attention, right? It's not on the things that actually drive the business that drive KPI's, and then people ask themselves, why am I not making money? Why am I not, you know, why am I not growing the way I want to?

It's because you're not paying attention to things that actually drive the business, right? The KPIs that matter. So the big takeaway for me here, probably the biggest one, was that the cost across all of them per member was basically identical. cost is basically the same. Mosy Nation, real quick, if you are a business owner that has a big old business and wants to get to a much bigger business, going to $50, $100 million plus, we would love to talk to you.

And if you like that, we'd like to hear more about it, go to acquisition.com. You can apply anywhere on the page and talk to one of our team and see if we can help you get there. And so when you look at that, for me, that just gives me this huge sense of relief and, like, certainty, that then it's just a question of how much money do I want to make? And that's a choice that you get to have, which is how much money do I want to make per customer? And you, the beauty of it is that you get to set that price. It's totally up to you.

And what's funny is that we as business owners will complain that people don't pay us enough, and yet we're the ones who set the fucking price. Right? And so anyways, if you hear this and you're like, okay, this is how much it costs me per member, right? And how much do you want to make on top of that? And so the incremental amounts, If you go from, let's say, $90 cost per member and you go from $120 a month to $100, let's say, $50 a month, that may sound like, oh, it's only a $30 difference.

And if you break that up on a weekly basis, you're looking at adding like $7 per week. Doesn't sound like a big increase, right? But that $7 per week doubles 2x your profit. Doubles, right? Doubles your profit. And so when you do things like this, these are the things that have massive bottom line implications that are aren't that difficult to implement within your business. And so that is why, if we're to bring this thing full circle,

that is why I get so pumped about hybrid, because with hybrid, if you get 30% of the people to take you up on an extra $49 a week for 101 remote coaching, right, that you can add on top of any facility, right? Then that overall translates to $70 more per month. I just showed you what $30 more per month did, but it translates to $70 more per month per member. right so that is two to two point whatever three x what the the two x was all right and so that is where

you go from making 30 per month per member which on average is what the reports we're looking at which confirms which with our internal survey data is almost the same too um of people coming in is between 30 and 35 in profit per member and if you can add 70 dollars to that you go from one x to three x that means you three x how much money you make by implementing one change in how you fulfill your services and what service levels you offer all right and again i'm going to say it this was about math which means it's a boring right it means the people who the guys who dig this type of content are the ones who make the most money the people who don't engage in this stuff are the ones who are always wondering why they can't make a profit every month because they want to have another

motivational manifesto they want to have a don't quit keep you know keep going fight the good fight and like i make that content because we need we need to have engagement but this is the stuff that matters, right? And so anyways, I hope you guys use this and take this data and implement it in your business so you can make more money. All right. Have an amazing day. Keep being awesome, lots of love, and I'll get you guys on full time. All right. Bye.