The Game with Alex Hormozi - Changed The Entire Gym Industry | Ep 358

Episode Date: December 30, 2021

Get them to care by showing you actually care. Today, Alex (@AlexHormozi) shares with us his story of how he solved the churn in the gym industry, and the process he did to achieve this goal!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:(1:03) - Alex shares backstory and struggles during Gym Launch.(4:14) - Gathering gym owners to discuss customer surplus and focus areas.(8:06) - Five factors in group discussion: accountability, feedback, community events, personalization, consistency.(11:33) - Solve problems: consult experts, find solutions, consolidate findings, explore industry efforts.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

about how I solve to churn for the entire gym industry. Welcome to the game where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. In this video, I'm going to tell you a story about how I solve to churn for the entire gym industry. And I think there are a lot of things you can take from this, both in the actual outcome itself, but also the process that was used to achieve it. All right? So, one of the of things I'm going to rewind the time clock here. So for those you don't know me, I had a chain of gyms in California. I just found it in 2013. I had six gyms by 2016 that I grew just using cash flow from the growth of the facilities. And so I was very good at the marketing and selling process of getting people in the gyms and opening them at full capacity, which was kind of my claim to fame. And so over time, I then pivoted to licensing that acquisition system.

to other gym owners across the US, right? So that was kind of the path, and then gym owners kind of took off from there. There was a two-year stint in between there where I did turnarounds, and I'd fill other people's gyms up for a percentage of the revenue that I was bringing in, right? So that was kind of, that's the long story short.

Now, fast forward, and now we've got thousands of gyms, right? This is still a few years ago, but fast-word in the story. It's got a few thousand gyms at this time. And one of the issues is that all these guys are bringing in people in the door, but they can't retain them for a long time. So they can convert them into members because we had a process around that,

which again was sales. But they couldn't keep them for a long time, right? And this wasn't because of the acquisition system. They just couldn't keep any of their customers for a long time. And so what's interesting about this is that this is for any type of service-based business that has any kind of recurring revenue model whatsoever. And so here's what I did to solve a problem that I did not know the answer to. So this is the takeaway that you can take from this.

So what I did was I said, hey guys, has anyone in this huge community achieved 3% monthly churn or less for six straight months? So 3% monthly turn. If you do the math on it, let's actually look together, shall we? So if we want to see how much, what percentage of your customers are staying, and if you have, let's say, 3% monthly churn, so that's 0.97, right? And let's say that this is for 12 months. So we're going to go X to the Y for 12 months.

That means that I'm going to keep 69% of my customers. I'm going to lose 31% of my customers year every year if I have 3% monthly turn. That's still a decent amount of customers that we're losing, just being real with you. Now, 3% is like the top 1% of gyms. I'll be real with you. Like most gyms do not do that. The industry average is about 9%. Now, if you want us to have something that freaks you out, let's just do this one together.

So 9% means we're retaining 91% per month. Now we're going to do our little twisty twistiness so that we can do our fancy math. We go X to the Y and we'll do 12 months again. Right? Right. Look at the difference there. 32% of your clients are still there, meaning you lose 68% of your recurring clients if your monthly churn is 9%.

This is why people don't want to buy these types of businesses. This is what makes your business unsellable. And so I had this problem. I was like all these gyms are acquiring customers and their industry average is that they're going to lose three quarters of their customers by the end of the year, right? Right, this is a problem because I'm going to have to keep showing them all these new tips and tricks to get new people in because literally by the end of the year they're going to have already turned over three quarters of the customers, right? This is a problem. So this is what I did. I put a poll in the group and I said, hey, if you've had less than 3% monthly churn for six straight months, I'd like to invite you to a roundtable. So 20 people out of the, you know, a thousand or so they were in the community at the time, 20, all right? It's a very small percentage, said, hey, I meet this qualification. So I said, okay, so if you think about this math-wise, right, I've already got the top 1%, I guess this is the top 2%, but top 2% of the entire gym world.

And so I had them all together on a call and I said, I need you to tell me every single thing that you do to provide excellent value or a customer surplus to your members, right? And so I went person by person by person. And I would sit there and I was like, and then what do you do? And then how does that work? And then why do you do that? And X, Y, Z. And I wrote down every single thing that every one of them had.

And so by the end of this, I had like four pages of notes, right? So this is what I did next. So we ended up the call. And so I looked through all the notes. And then I recategorize them because a lot of them were repetitive. Some of them were, you know, different, you know, one-off weird things. And so I said, okay, it's clear that all of them do lots of things. And the first one being they actually track it and focus on the metric, which 90.

5% of people don't even do, which is why most people are poor. Number one. Second thing that all of them did is that they had lots of different strategies to combat churn because they know that, and you guys want to know something crazy? Of course you do. We're watching the world's coolest YouTuber, all right? So if you, let's say, let's say you have a service that's $100 a month, okay? 100 bucks a month. And let's say that your churn is 3%, right? Because that was the, that was the goal of these people, right? So, three percent churn, all right? And so what I did was I did 100 divided by 3%. That's $33, sorry, $3,300 of LTV, right? Lifetime value, right? Lifetime amount of revenue that they're going to be able to collect over this customer. If they pay $100 a month,

you're going to get 33 months out of this person because it's $100 divided by 0.03. Watch this. Same $100 price point. Remember I said the industry average was 9, divided by 0.09. 11-11, all right? 1,100 bucks is what the LTV of those gyms are. So the people who had conquered their churn made three times more revenue per customer than everyone else. But here's what's even crazier about that.

If you make three times more revenue per customer, think about how much more profit you're making. A lot more. All right, and this is why this was such an important thing. So a lot of them were doing lots of things. I consolidated all of the things into buckets. And then I said, what are the things every single one of them is doing. And you can think about this like a voting system. If if if if if

all of them are doing one thing, then that's probably an important thing. If I've got 20 guys and there's something that only one of them is doing, it's probably not important because the other 19 are accomplishing the objective without doing it. And so the goal is how little, how few of these things are the things that are actually driving the outcome. Okay. Hey guys, real quick. If you're new to the podcast, I have a book on Amazon called 100 million dollar offers at over 8,000, $5,000. It has almost a perfect score. You can get it for 99 cents on Kindle. The reason I bring it up is that I put over a thousand hours into writing that book. And it's my biggest gift to our community. So it's my very shameless way of trying to get you to like me more. And ultimately make more dollars so that later on in your business career, I can potentially partner with you. So that's my give. Go check it out. Amazon and back to the show. And so what I ended up figuring out after doing this entire process is that there were five things that they were all doing to maintaining their members. Now, you can either say, oh, okay, Alex, well, the next five things that he's going to share are probably only for gyms. Yeah, because humans are totally different in your business.

But anyways, so let's rock and roll. First thing that they were all doing, all of them, is that if someone missed and they're not showing up at the gym by Wednesday of that week, so they missed Monday and missed Tuesday, they escalated them. And they had, all of them had different processes around this. Some of them did it by Friday. Some of them did it by Tuesday. But the end point was, if someone was not consuming the service, they immediately escalated it and would repeatedly try and contact them to get them scheduled for time to come in, which means they had accountability around consumption.

Number one. Number two, the vast majority of them had exit interviews, meaning if someone wanted to leave, they would have to come in and talk to somebody. And there's two benefits to this. One is you get to identify the things that are wrong with your business because these people will tell you why they are leaving. This gives you the opportunity to fix things that are not good, which is great, which is incredibly valuable data, right? Number one. Number two is a lot of times people just need to vent and the things that they're venting about, it sounds like pain.

It means it can be solved, which means a lot of times over half of those people get resold into a higher level package. It's like, no one ever contact me. He's like, well, you're not in the contact me plan. You're in the, you know, do it yourself plan. You should get into the coaching level where we actually hold you accountable. Oh, I didn't know you guys had that. Yeah, we just didn't know that you needed that. Ah, and that's our fault.

We should have asked you better questions on the front end. Right? Right. Cool. And then all of a sudden, this person goes from being a loss and a cancel to being an ascension. So, number one, they make sure people are consuming. Number two, they save exit interviews so they can collect data and to send existing customers. Number three, they all did member events.

All right, so they had some sort of community component that happened on a regular basis. The extent to which they had it was different, the cadence was different. But I'll tell you right now that if you do it on a quarterly basis, that usually works, you know, for in terms of bringing the community together, you're usually in good hands. Number four is that they had handwritten cards that they would send out on a regular basis to, each of the people in their community. And some of them would send it out with gift cards to bring friends, which is a great way to generate referrals as well. Some of them would just have it as appreciation.

Some of them would give them some sort of kudos or whatever. And here's the key point about how these cards had to be written. They had to be personalized. All right, so it can't just be, hey, thanks for being a member. Love ya lots, send. Doesn't work. It has to be, hey Charlotte,

you've really been advancing on your pull-ups and if you're like, well, this only works for gyms. I'm not even going to comment on that. Use your brain. Can you personalize something to any kind of improvement that someone has had in your business? Probably, hopefully. But it's like, hey, Charlotte, you made a lot of progress in your pull-ups. When you got here, you had to use the big, thick black band. And now you're using the yellow band, which is, you know, twice as hard in terms of the resistance level for you.

Keep, you know, keep it up. You're doing a great job and you're already down 10. pounds. So they're also reminding them of the victories that are happening, right, on a recurring basis. And the fifth one, I honestly cannot remember what the fifth one was. But the point of this story is the process of solving the problem, right? That was the point, all right? The process of solving the problem and that you can use this for any type of complex problem that you have. And so the way that this is done, this is called a consultative method, but you go and you talk to experts in the space. So if you sit on top of a community, all of the, all of the,

the solutions to all of the problems that you have already exist in that community. Someone has solved it. And so all you have to do is get all the smartest people in one room and then interview them, tabulate the answers, use a weighing system of which of these answers comes up most frequently, and then consolidate to what are the fewest number of these things that everyone is doing to solve this complex problem. And a lot of times when you use that type of process and that type of thinking, you will be able to solve the more complicated issues that come up in business. And a lot of times the payouts can be rich and very rewarding. All right?

Oh, remember the fifth thing. Every two weeks, they were able to contact them on a personal basis, independent of the service-based stuff. So it's just checking in on them as humans every other week or so. So it's like, hey, you know, imagine your phone buzzes with a text every 14 days, every 21 days or so. And it says, hey, just checking in. how's life, how's things, how you doing? Just making sure everything's great and, you know, just want to help you accomplish your goals, whatever, right?

And so you get that text from your service provider, you're like, wow, it almost appears as though they care. Isn't that wild? Of course it is. And that is why people pay you to pay attention. That is what they are literally paying for. People want your attention. And so do not automate what you should systematize.

It's one of the sayings I have when it comes to service. All right. As soon as someone finds out that communications are automated, they stop paying attention because you stop paying attention to the communication. All right. And so that's a little nugget, little tidbit for you as well, is that do not automate what you should systematize. Okay?

You can have a system around something. Just do not automate it because as soon as human touch is gone, people will stop caring about it all together. And it actually withdraws goodwill from the goodwill bank account of your customers rather than depositing. It's better to say nothing at all than to automate things. for the most part many times I have found when it comes to customer success and getting people to believe that you give a shit which is kind of the point of most services

okay so the best way as a total side note of getting people to think you give a shit is to actually give a shit