In this video, I break down the old model of growing a gym, talk about Alex Hormozi’s new model from 2017, why that has changed, and what the “new new model” for growing and operating a gym.
Times have changed since 2017, when Alex Hormozi rolled out his gym money math that made Gym Launch a huge success for many gyms at the time. Since, the landscape has changed quite a bit, Alex no longer owns Gym Launch and the system they sell isn’t nearly as effective as it once was for a lot of gyms.
The belief he was breaking was a good one, it was that the Big box marketing model of losing money for 5 months to acquire new members was not going to work for independent gyms and wasn’t the best way to do it. gyms run numbers games with discount offers to acquire customers at a loss and float the loss based on LTV
Big box gyms are known to spend somewhere in the neighborhood of 5x their front-end revenue for a new client. Usually, the strategy is to use a low-barrier discount offer and take a loss of around $150 to acquire the customer.
The old model math (example) looked like this, the average client stays 36 months at $29 a month, totaling $1044
This big box gym focuses on low attendance and high volumes of sales, so they sell 3,000 memberships. A $1044 lifetime-value multiplied by 3000 members is $3,132,000 revenue!
If they only spent $150 to acquire each member then that means the cost to make that $3,132,000 was only $450,000 in advertising spend. That’s 6.96x return on spend. The point: This only works for the bog box model because independent gyms focus on high attendance rates and quality of coaching. Plus, the independent gym can’t float 5 months of loss, so it doesn’t work.
Alex’s New Model in 2017 looked like this: Sell a medium ticket offer on the front-end $500-$600 with the offer being a “6-week weight-loss challenge”. Acquiring clients at around $30-60 using Facebook Ads, which at the time FB ads were super strong, while competition and prospect skepticism was super low.
How his gym money math worked was like this:
Run proven Facebook Ads campaigns and generate leads at a cost of $10 cost per lead. At the time, you could easily close 1 out of 5 leads you were getting on Facebook, effectively putting your cost per acquisition at $50. You would sell them a $500 front-end offer, typically a 6-week weight loss challenge.
If it all goes as planned you spend $50 to acquire the customer and sell them a $500 service, making 10x return on your ad spend on the front end. Then you would reinvest those profits from the initial campaign to self-fund next your ads campaign, so it’s coming from the money you didn’t have before. Truly a brilliant strategy.
This was a very effective strategy at the time and the gym owner could pretty much print cash with this strategy.
The problem became but here is how that math plays out now, in the real world… The cost per lead on FB is no longer $10, it’s between $20 and $30 per lead now. And Facebook Ads traffic is much colder, you no longer close 1 out of 5, it’s more like 1 out of 10 now. So instead of spending $50 to acquire a customer, you’re now spending $300.
Now, you’re still making money on the front end, and it’s still a viable strategy that many businesses use to acquire customers. Even if you made no money on the front end to acquire a customer, I still think that’s a great strategy because the rest of the cash flow that customer generates over their lifespan is all cash flow for the business.
But I will say this is a LOT of work because Facebook Leads have sort of gone into the gutter and the quality of the leads is really suffering now.
They also sold this system to over 5,000 gyms, so every major market became saturated with similar offers, and then hundreds of other gurus began selling knock-offs of the same strategy. Entire gym franchise businesses got built around this model, businesses like The Camp Transformation Studio, Iron Tribe, and many more.
At the same time, competition picked up in the general group fitness space. Big brands with deep pockets and investors entered the group fitness market and begin eating up market share. Brands like Orange Theory, F45 Franchises, and CrossFit affiliates grew by 3x in just 4 years time.
Churn also became an issue with this offer. Get fit quick weight-loss offers brought in a lot of non-committed clients into most gyms, and because the sales process Hormozi taught was so good, the gym owners sold them but they often didn’t keep them.
Now, this wasn’t Alex’s fault, because in my experience most struggling gym owners aren’t near as good at what they do as they like to think they are and were failing to level up their fulfillment processes. Additionally, many gyms weren’t built for the volume so they got crowded.
In short, it worked but the churn rates are reported to be very high. As a result, the lifespan was s a couple of months, putting the LTVs in the $1000 range. This process effectively turns the gym owner into a salesman to replace the lost revenue, it’s basically 4 steps forward and 3 steps back every month, making progress but it turns out the business owner.
Now, that’s certainly not a generalization because there are thousands of gym owners that this has worked amazingly well, and I personally think Alex is a genius who is well-intended. It’s the natural consequence of so many gyms adopting the program and also, the times changing. This isn’t whether or not Gym Launch is a good model, it is for some gyms still. This article is about the new model that is working now.
And the new model is that most independent gym owners have realized that they want long-term recurring revenue with low-churn rates. And the advertising models that work for gyms now have changed. And that’s what part 2 is about, that new opportunity. Enjoy the video above in this page breaking down the old models so you can understand better why they don’t work and why the new model I will tell you about does.
To Your Success!
Will Hurst & the team at Big Little Gyms
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