What is the Lifetime Gross Profit for a parkour gym member (LTGP)?
LTGP calculates your gym's total profit from the average member over the term they remain members with your company. This is not the same as lifetime gross revenue, which measures the total income before expenses.
LTGP focuses on profit, which means it considers the costs associated with providing your services to that member. It’s a measure that reflects the actual financial benefit a member brings to your gym over their entire tenure as a client.
How to Calculate LTGP
To determine the LTGP for a member, you would subtract the costs associated with serving that member from the total revenue they generate. Here's a simplified formula:
LTGP =
(Average Revenue per member per month ARM)
x Multiplied by
- Minus
(Cost to Serve the average member during the duration of their LEG)
-Minus
(Cost to Acquire the Client CAC)
Calculation walkthrough
The easy part is combining the Arm and Leg to get your lifetime gross revenue. Take your ARM and multiply it by your LEG. Revisit those lessons if you haven't yet calculated these key metrics. This gives you the lifetime gross revenue of a client.
Let's say your ARM is $225/ month, and your LEG is 20 months. Your lifetime gross revenue is $4,500 (Figure A)
Lifetime Expenses
Time to find all the costs associated with servicing this member over their lifetime.
First, let's consider your gym's fixed costs. These include the building rent, utilities, vital software subscriptions, and other expenses essential to operating your business. They are not variable, meaning they don't change month to month (not payroll).
Take your fixed cost total per month and divide it by your total number of members in the class.
Example: If your fixed costs are $10,000 each month and you have 80 students, then the share of fixed cost per student comes out to $125 per student per month (Figure B)
Next, we need to discover how much payroll is necessary for each individual member.
If you offer group classes, this will get complicated, but bear with me; we'll get through this.
Your gym might have students who visit once a week and others who attend classes twice or more weekly. You can find the average frequency of monthly student visits by dividing your total class visits by the number of students in your program. That might result in a number of 1.7 visits per student per month.I like calculating the LTGP for each membership type and then getting the average. This gives me better insight into how profitable each of my membership types is and can reveal additional nuggets of wisdom.
I'm going to calculate the LTGP for a membership that visits once a week.
First, think about your class capacity and your gym's class attendance average. Say your gym's classes allow ten students into each session. Across all of your sessions this past month, you notice that your classes, on average, fill up to 6 kids per class, and you run one class at a time each day. If the average class had six students, then one student would be responsible for 1/6th of the payroll for that hour.
Now, we need to determine how much payroll your gym is spending during the average hour.
The simple way to do this is to take your total payroll from that month and divide it by the total number of hours spent that month. This gives you your average payroll spend per hour. Perhaps your gym paid $2,500 on payroll across 62 human hours worked. That means the average hour at your gym costs $42 hours in payroll. It may be higher than a normal coaching pay per hour because you are taking managers' and other support staff's hours into account.
Let's bring that all together. The average hour costs $42 in payroll, and because one student is responsible for 1/6th of that cost, each class visit for the average student has an expense of ($42 * 1/6th or $42 divided by 6) = $7 expense per student per hour.
This isn't very easy, I know. We're almost there.
Each week a student visits your gym, they cost $7 in payroll per the 1-hour. Multiply this by their four weekly visits; their monthly payroll cost is $28 (Figure C).
With our monthly fixed costs (figure B) and monthly payroll costs per student visit (figure C), we add those to get the total expense per student per month. In our example it's $125 + $48 = $173 (Figure D)
Figure D is a great number to know. If your ARM is close to or below your monthly student expense, you just found a major flaw in your business.
Now, take figure D and multiply it by your LEG. For example, $173 X 20 months LEG = a lifetime cost to service this member of $3460.Add your cost to acquire a client to this number. You had to pay that money to earn this client; therefore, it was part of their lifetime expense. Say you had a CAC of $50 that month. $3460 + $50 CAC = total lifetime expense of $3510 (Figure E)
Finally, we are here.
Take Figure A, your lifetime gross revenue, and subtract Figure E, your lifetime gross expense, to get your Lifetime gross profit.
$4500
-Minus
$3510
= a LTGP of $990
Why LTGP Matters for Your Parkour Business
Financial Planning and Sustainability: Knowing the LTGP helps you understand how much value each member brings over time. With this, you know if it's even worth the energy to gain new members or if you ought to fix other metrics to improve LTGP before adding more members.
Investment in Member Experience: Understanding the profit margin per member can guide how much you can invest back into the member experience without eroding your gym's profitability. This might include enhanced facilities, additional coaching staff, or new equipment. Reinvesting here should directly improve your ARM, LEG, or another vital metric that you can measure. Don't be wasteful.
Member Acquisition and Retention: By comparing the LTGP of various segments within your membership, you can identify which types of members are most valuable to your gym and tailor your marketing and retention strategies accordingly. For instance, if members who participate in competitions have a higher LTGP, you might decide to invest more in promoting and supporting your competition teams.
Cost Management: LTGP also highlights the importance of managing the costs associated with serving your members. It prompts you to look for efficiencies in how you deliver your services without compromising quality, ensuring that your gym remains profitable and sustainable in the long term.
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