When it comes to industry-wide attrition rates, is your fitness center's math trustworthy?
I hope everyone had a good start to 2008. I always look forward to the New Year rush, because I know that what happens in the first three months of the year largely determines how things go financially for the next nine months.
Tracking and managing our retention efforts becomes of particular focus at the start of every year, and measuring our success (or lack thereof) is vital. I feel confident that I track the right data for my fitness center, but one of my pet peeves with our industry is that I can't trust how my retention figures compare with those of other facilities. We often hear about industry-wide attrition rates in the 30 to 40 percent range, which means there is a retention rate of 60 to 70 percent. We even hear about fitness centers that have remarkable retention rates of 80 percent and higher. I just don't trust those figures, and I tend to believe that, industry-wide, we run closer to 50/50.
The accepted formula for calculating membership attrition involves taking the total count of your lost memberships during a given year and dividing that into the average number of members you had per month. I've never liked how this formula smooths out the attrition calculation by averaging monthly membership. I've always believed that the only way to properly track attrition is to focus on a specific set of members. For instance, take all of your members who are active as of Jan. 1, 2008. How many of them will have dropped off by December 31? That will give you an accurate attrition rate. Granted, you will have added and dropped members after January 1st, but I think it is important to start with a quantifiable set of people, and see how many of them still exist in a year.
You can also track attrition monthly by calculating how many members drop in a given month, divided by the number of members you started with that month. This is a figure that can vary wildly, but, by studying it and tracking it on a monthly basis, you can learn something about your business' ebbs and flows.
Who is a member?
The more generous a fitness center is in defining a "member," the better its retention efforts will seem. I don't believe the health club industry adheres to a strict definition of "member." For example, at my fitness centers, we sell 10-workout punch cards, which are popular with vacationers. We also offer discounted rates for college students who return home for the summer. We do not include either of these membership types when we discuss how many members we have. But, I know from speaking with other facility owners that many are not so strict.
Certainly, you can make yourself feel good about both your total membership and your retention rate if you define a member as anyone who has ever given you money. But, you are painting an unrealistic picture for yourself, which doesn't help your business.
Who is a dropped member?
Figuring out dropped members is an even trickier problem. Members can cancel for an almost infinite number of reasons. Some facility managers don't count cancellations that are for reasons that they don't think are relevant. They choose to ignore, for purposes of calculating attrition, cancellations for reasons such as relocation or a member's death.
By not counting every legitimate cancellation toward the attrition percentage, facility owners can certainly make themselves feel better. But, when 30 percent or more of cancellations are due to factors beyond a club's control, it is inappropriate to ignore reasons you don't like.
We need a better standard
I have always believed that we need a better standard of gauging membership loyalty that goes beyond attrition/retention figures. In fact, I think the best measure of membership loyalty is Average Length of Membership (ALM). ALM is just as it sounds, and it can be tracked in several ways. You can start with a snapshot of every member you have. Take each person's join date and today's date to determine how many days each person has been a member. Do a little math, and you have your current ALM. (You'll likely want help from your club management software to do this.)
I prefer to gauge my ALM by using each month's cancelled members, treating them as a representative subset of all of my members. I see how long each of them has been with us, and determine that "this month, my cancelled members had an ALM of X months." As the months go by, if X is trending up, then I'm happy. If X is coming down, I've got a problem.
I'm not saying that my facts and figures methods are perfect and appropriate for every fitness center. But, I do find that my own figures are the only ones I trust, because I don't know the rules being used by everyone else.