4 Financial KPIs to Watch at Your Health Club

The following post was written by John Atwood, managing partner of Atwood Consulting Group, for our Best Practices series.

Question: As a club operator, I know it’s important to constantly monitor financial data, but there’s so much of it! Which numbers should I scrutinize every month?

That’s a good question. Understanding your business and knowing which metrics to monitor is a must if you’re going to manage and operate at your best. While there are many line items you can review and compare with your budget projections, there are four main key performance indicators (KPIs) that I suggest you study regularly and carefully.

KPI 1: Net Growth of Memberships

I like to call this your “No. 1 key metric.” Many operators are fooled when they look only at new member acquisitions, but don’t realize that there may be a “member leak” trickling out the back door.

It’s essential to take the time to ensure that your retention rate is high, and also take steps to see that it remains that way. For instance, have your staff place “reminder calls” if a particular member doesn’t come in for two weeks; add to and make adjustments to your programs; and hold member appreciation events. Such efforts connect a member to your club in a deeper way.

Your total number of members, of course, includes new and current members minus the dropouts. This metric is virtually impossible to reasonably compare to industry averages, so you should set your own goals and adhere to them. That said, as a general rule, attrition should never exceed 30% per year. The rates at better clubs will be lower.

KPI 2: The Cost of Acquiring New Memberships

The goal is to keep the cost of acquisition to no more than the equivalent of two months’ worth of member dues. We often find that, while clubs are growing their membership base, the expense involved is so high that they don’t break even for up to six months. Creative marketing, strong referral programs, and savvy outreach initiatives all drive membership growth—and, at the same time, help reduce the cost.

KPI 3: Ratio of Payroll to Revenues

We’ve found that, in the case of upscale facilities, payroll tends to hover between 38% and 44% of revenues. Multipurpose clubs fall at the higher end of the scale due to extra payroll costs associated with pools, tennis departments, childcare, etc. On the other hand, the percentage is much lower in the case of high-volume/low-priced (HV/LP) operations.

Clubs that exceed 45% should regard this as a red flag and adjust accordingly, unless they’re in the startup phase.

KPI 4: Nondues Revenues as a Percentage of Overall Revenues

Depending on the kind of club you have, the IHRSA benchmark figure you should shoot for could be as low as 18% or as high as nearly 40%. That said, we believe most clubs should strive for a nondues revenue percentage of not less than 30%.

Profit centers such as massage, personal training, or swim and tennis lessons should have revenue goals that each manager, trainer, tennis pro, and swim coach is held accountable for.

We know of one club company that even has goals for its parking attendants!

In addition to these four gauges, there are several other club-specific KPIs that should be tracked monthly. IHRSA offers the IHRSA Financial Management Tool, which can be used to forecast and track all KPIs. This comprehensive set of financial spreadsheets has helped countless operators gain control of their business’ performance. The cost is $995 for IHRSA members, and $1,495 for nonmembers.