2x Your Business By Asking These Questions
- The more you pull back the more people are gonna say, well, it's not the same. It's not the way it used to be, but here's the deal. (upbeat music) - Kevin Wood, it's good to see ya.
- Same to you. It's been a while. - I'm pumped to be chatting. Tell me about your business and how can I help? - Sure, so I've been in business now for 13 years. I run Crust at Monkton, one of the original CrossFits and not only the Maritimes, but almost in Canada. So I'm happy to have weathered the COVID storm and we're coming out the other end now.
Yeah, never satisfied with the status quo and always wanting to improve even though we've been at this for, for so long. And, you know, we have a good product and good service, but never satisfied, so. - What got you in the CrossFit in the early days? And I wore this shirt just for you obviously Repeate Everyday, CrossFit motto. Yeah, what got you into it? - I used to be a school teacher. I was a phys ed teacher for five years. So one of the parents did CrossFit on his own.
He was at RCP officer and told me I should try CrossFit with my students. Obviously there's a fitness component to physical education. So I looked at the website, tried it myself couldn't walk for a week. And then it kind of snowballed from there into a business. - Just the bit of a snowball.
Well, it's great to see you, you know, being involved with the community for so long. How can I help? - I guess I struggle with mostly prioritising what's most important. I'm kind of like a squirrel and I go after the shiny things and they may not be the best things to go after at that time, so. - Interesting, so when you say, what are examples of you doing this in the past? Or give me more context. What are examples of things you've pursued that maybe you thought after the fact you maybe shouldn't have? - Sure, so I'll go current one example.
I pulled my members and I thought maybe it would be a good idea to start a podcast. I don't know if that's a great priority right now if that's something that I should be investing my effort my time into, but it's something that interests me and I don't know. So that's kind of one, one example. Programmes that we've run at the gym you know, we've considered running March break camps. I don't know if that's a great idea because we don't really have the time slots and whatnot for that.
So I don't know. Those are kind of two, two recent examples. - Got it. Well, the fun part about being an entrepreneur is we're creators, okay? So if I'm in a crowd of entrepreneurs, I literally get them to repeat I'm a creator, okay? And because they're creators, complexity is actually easy. So it's easy for us cause that's what made us start the business in the first place.
There's a gotta be a better way. So we started a company, we start a business. We see something broken in the world.
I would argue that the world advancement if you think of it doesn't matter if it's a lawn care service to, you know a technology or a financial service, like every business exists because it's trying to do something better. If it didn't, they wouldn't be in business because markets reward better, faster, easier, right? So the challenge with being a creator though is we need to understand what we're optimising for. Because if we optimise for creating with no purpose then essentially we're artists, which is fine. And then, but then understand that that's what we are, we're artists, right? And if we want to create art, which is through our business without economic success or without customer success or without our team feeling like they're part of a great culture or some destination where they can have a career path, that's fine. But if you want those things, you know, a business that's successful that might have enterprise value you could sell in the future, a team that you know loves to work there and they can see how they're gonna progress, you know in their career or customers that continuously coming back and love what you're creating and value and you're not the lowest cost leader and all those other things. Then it requires us to be a little bit more strategic.
So one of the things I would say, as it comes to like how do we know we're making the right decisions today for the future is asking yourself what does this look like when you're successful? So if you fast forward to whatever time period that you might want to choose and you say I've made it, what is that timeframe and what does that look like? - Yeah, it's a good question. It's so it's kind of like the perfect day kind of exercise and that's that changes that's the hard part is, cause it's kind of like a moving target. So if you would have asked me 10 years ago what it would have been than it would have been in five years ago, that's what it was. And I reached it. So it's kind of a moving target. So if you asked me now it's looks a lot different than what it was even just a couple of years ago.
So I guess time. - So the cool part about that Kevin, is you're allowed to change your mind every year? That's my, my time horizon is like I planned my life in five-year increments. Cause it's enough time to not waste my time and enough time to give me time to do stuff. I planned business decision in decades, right? I like the 10 year window. And with new information every year I give my self permission to change the target. And I just call it new information.
Like I got new information this year. I didn't know. So I get to change the target.
But what I would recommend is we always need to know what that is. That's the thing. If we don't know what it is the moment then that's where it's hard for us to make decisions today with align with an outcome. So I'm giving you permission to change it in a year but from today's point of view, 10 years from now what does that look like? - Just, I guess the time, time to be able, you know, time is freedom.
So being able to choose where I spend my time, I guess as opposed to being forced. - Let's get specific. - Sure, be able to take four weeks away from the gym without having to touch it. - Four weeks in a row? - Yep. - Cool, and not touch it meaning that nothing breaks and you don't get called back in? - Well, if we want to go next level, it would be the gym would still grow without me going there. - Ah, see how it specificity changes the target.
As soon as you say the gym grows without you being involved, all of a sudden the optionality of your decisions have to change because you can then weed out stuff that's not going to support that. So even that little nuance is important. So, four weeks off gym grows, how big is the gym? Is it one location, multi location, 10 years from now what you want it to look like? - One location, it would be nice to own my own building. - Okay, what kind of revenue would you like to do on an annual basis in decades? - Man, 10 years. See, I never thought we'd be where we are now.
So it's hard to even think. - Again, it's why I give you permission to change your mind every year because you're going to have new information, right? - Let's say in 10 years, it'll double. So half a million. - Cool, so 10 years from now, half a million in revenue, you know, ideally 15 to 20% in profit. So that kind of gives you an idea of like a hundred thousand a year in profit.
That's after you take some kind of salary for managing the business because you need to take your own salary out of that. So that starts to give you a sense of kind of member size and also should give you a sense of revenue per member. The thing with a physical location, Tiffany's, Apple they're the world's standard for revenue per square foot, right? Like as a retailer. So understanding that that's the game, cause like the way I think about business that I think is unique is I'm really clear what game I'm playing. It doesn't matter what business I'm in. It doesn't matter if it's a CrossFit gym or a home building company or a software company.
I need to know what the rules of engagement are. Because if I jump on a soccer field and I think I'm playing football I'm gonna obviously make bad decisions, right? And I think that's what happens is we don't know what game we're playing. So your in this market, it's really important between now and the next few years for you to educate yourself enough to know what is the Tiffany's and Apple of the industry and where you're at and understand what's different about, what does Apple and Tiffany's do different that allow them to produce some of the highest revenue per square foot. Lulu Lemon's another one, right? It'd be like Apple, Tiffany's, Lulu lemon like in the retail space what's the equivalent, in the software space what's the revenue or reoccurring revenue per employee.
Who's got the highest. What does that look like? Oooh, Facebook's got 5 million revenue per employees. What's true about their business. What can I learn from that? So if we know where we want to go, we know what the economics need to look like.
And you've already set some filters for the life side which is four weeks a year off and the business grows. Then you gotta ask yourself, how do you get there? So if I asked you that question, what needs to change for you to enable that? What are some of the projects and action items that things that come to mind right off the math. - So we do metrics like crazy. So we kind of know everything on the back end.
We know that our average revenue per member, I just ran my numbers for last month is $183 per member-- - On a monthly basis? - Yeah, which is almost double of what it was I say two years ago. So it's already growing. Our length of engagement is 53 months. So four and a half years is the average amount of time that a member will stay with us.
So our average lifetime value of a member is around $9,000. So if we have somebody walked through the door we know that we can get roughly $9,000 out of them when they, when they sign up. So we, I don't think we can change our length of engagement with our members. Like the ones that stick, stick around for a long time. We have some of the longest retention in the world for gyms.
It's, it would have to come from increasing our average revenue per member. - Yep, so there's three ways we make money. We can increase the amount of customers that we get every month, we can decrease the amount of customers we lose every month, and we can increase the amount of revenue per customers we make every month. Those are like that's business one-on-one, right? Because if we lose 10% of our customers every month it doesn't really hurt until we get to a hundred customers that we have.
Because if I am adding 10 when I get to a hundred, 10% is 10. Meaning that what happens is you hit this turn flat line. And that may be where you're at today at a quarter million of revenue where the amount of members that leave every month, right? Even though it's high retention you still have two, three, four, 5% monthly churn. People move, they get jobs, they change workout protocol. And your ability to add new customers could be plateaued, right? So then the question is is what's the capacity, right? Do you have more capacity available at your gym? - Yep.
- Cool, so you have more capacity then it's how many customers are we adding versus losing? You want to make sure that revenue, that the number of customers higher than the ones you lose. What's the marketing programme to do that? Like, if I ask you what's the repeatable marketing process that you have to get customers in the door and buying every month? What is that today? - So physical members through the door, we do it through private training. So they take three private sessions to come through the door to get started. - How do you get them to get on those private trainings? - It's mostly through affinity marketing. So it's all referrals. - Mostly word of mouth.
- Yep. - The challenge with word of mouth is that it's not repeatable. I can't force word of mouth. - We've been doing it for 13 years. But (indistinct). - It has a cap.
Yeah, like it has the cap. You can't spend a dollar to increase affinity. Nobody is, the word of mouth marketing only works if the business has more people exposed to it. Cause then you have more word of mouth.
If that makes sense. So that would be the, that would be a big opportunity for you is to figure out where can you invest money? It doesn't even have to be like paid ads or whatever. It's just, where can you invest money in a 30 day window that you can clearly correlate that investment to increase number of members that come into your world. Have you ever tried anything in the past that worked? - Yes, so this is, that's the issue is it works for the short term, but not for the longterm. So we've done, we've done paid marketing through Facebook and Instagram.
It got a lot of leads. It got a lot of members through the door but then none of them stuck around because it was it was that little thing that just got them in. Versus the affinity marketing we have really high quality leads. So anybody that walks through the door we have a 90% close rate. It's shocking when somebody doesn't purchase if they walk through the door for just a, we do a no sweat intro. - Yeah, so I mean, the reality of it is every channel has a different performance throughout the business model, okay? So anybody that does any referral based marketing, affinity marketing knows that that's your highest, highest quality, highest calibre, sticks longer, uses the most.
Like it's a no brainer. But the challenge with that is that it doesn't allow you to invest in it, right? Like there's only so much where it's optimised and it's gonna grow. And like every channel, doesn't matter if it's Facebook partnerships, affiliates like they all have a ceiling, a maturity level, right? Where they repeat out, like even with Facebook ads.
Your, essentially your responsibility as the owner is to figure out which one can you do and how do you optimise it so they do stick around. So even if you get cheap leads, that's great. Maybe there's a way to add more of a hurdle so that the people that do come in show up that are higher qualified. Maybe you make them apply.
Maybe you say only if you know somebody in our gym and they vouch for you that you can even have the no sweat intro. Like you can decide a whole bunch of stuff that if the economics work, you can kind of, I call these funnel filters. You can increase the filter so that the people that do come through will have good economics.
Cause you're right. If you spend $300 to acquire a customer and they stick around for two months and they only pay 180 bucks you're essentially a wash, right? You paid $300 to get, you know $360 in revenue or $260 in revenue. Is that right? 180, three no, 360. Yeah, then the revenue doesn't, it doesn't make sense. Because that's not even gross margin. That's just top line revenue.
You have all the costs associated with that--- - Got to pay everybody to do the fundamentals and whatnot. So yeah. - Yeah, so, but that doesn't mean that everybody that came through that funnel look like that. So if out of 10, there was two that did stick around.
I would want to know what's true about those two. - Right, and so we've tried to run those demographics to figure that out. So we looked at our last two years of the people that have quit and averaged out when it was that they actually dropped off. And it's the three month mark. That is very consistent. It's 91 days.
- So what are you doing to ensure that people don't drop off (indistinct)? - So that's, at the three month mark we do a check-in. So I have a CSM hired and she books them. She keeps in contact with them, leading up to it. So we have check-ins after day one, five 30, 45 and 60.
And usually after their 60th class it's about the three month mark. And that's when they come in and they meet with our CSM to kind of go over, have we met your goals? If not, what can we do different? And if we have, then what's next? - Is this a new thing Kevin or is this (indistinct). - Well, we just started I guess, pre pandemic. And then we kind of got shut down. So it kind of throw (indistinct) into everything.
- I mean, this is the thing as I think you were on the right path and it's just having it work through a cycle, right? And say, okay, 90 day window, that's your window. How did that work for this cohort? How did this work for the second cohort? And I call it the three iteration test. Sometimes it takes us whatever the initiative we need to do it three times to see. Yeah, you just, you need to give it like I mean, as, you know, imagine somebody can't do a muscle up the first time they try it and they're like, I give up, no. Like now go do some training and build that muscle and then try again. And then, okay, now we see where we're at and we're gonna do some stuff.
To me, it's the same way for any business improvement. But at the end of the day our job as entrepreneurs is to say, you know if our goal is freedom, right? So our goal is to get four weeks free a year double the size of our business and grow while I'm away. So if that's the case, you need to figure out how to design over the next 10 years a repeatable process that you can hire somebody that can follow that goes through the motions. It'd be the marketing activities, the first call, the no sweat intro, et cetera.
That's not you cause it has to operate while you're on vacation. So that when they come back and again like the reality of growth is an interesting one because you may just hit the next natural churn ceiling in 10 years, which is half a million in revenue. Like there's only so much capacity that your gym can support, right? - Basically yes. - And then you can do like nutritional programming that doesn't require square footage and do online. There's other ways to amplify your business unit for revenue generation.
But in regards to just pure CrossFit, maybe some PT, there's a certain amount of capacity. So once you figure out that max capacity maybe that's half a million a year. Then if you went away for four weeks and if all it did was not decline, that would be a huge win. Because if you have this natural ceiling and you're already bouncing against it because of your churn and your new customers per month, and you go away and the team is able to execute for four weeks to get the new customers replenish the ones that might've cancelled on that 38 period, that's still a huge win. - We're getting closer to that.
So I ran my numbers and I think I'm in the business coaching the classes roughly anywhere from 30, 35% of the classes that are offered right now. So way better than it was two years ago where it was closer to 60 or 70% and I couldn't do it all, right? So it was a matter of bringing people in, the right people in, putting them in the right seats and making sure that they enjoy it. - Yeah, I mean, being, there's a difference between being self-employed and being an owner, right? Self-employed means that we essentially operate in our business and take a salary from doing the work which is coaching or whatever the services. Owning means that our responsibility is to support the team, to monitor, to lead, to coach to support the team, to deliver on the promise that we make in the market. And the challenge with a lot of service-based businesses is the entrepreneur has a really hard time disconnecting because they're worried that the experience is gonna be impacted.
The customers are going to be resentful. They're gonna expect a certain level of service that doesn't get done. And all those things are true. Like that's the reality, like the more you pull back the more people are gonna say, well, it's not the same. It's not the way it used to be.
But here's the deal. You're not gonna keep doing it if the business doesn't support you, like that's what I know. - (indistinct) business to complain about. - Yeah, and you have, you're literally talented enough to go do any other business and be successful.
So if you want to be in this business, own your own building and do this for the next decade. It's almost mandatory that you figure out how to work your way out of the business. And I call this the buyback principle, right? The buyback principle is a simple concept that every free dollar, every amount of cash you can kind of reinvest in the business it shouldn't be designed to hire people for capacity. It should be invested to hire, to buy back time out of your calendar. So if that creates capacity, that's a double win.
But if it doesn't, that's fine, right? So really auditing your calendar over two week period and looking at these big swaths of time, for you maybe it's coaching, maybe it's, you know managing the other coaches, maybe it's doing sales calls, maybe it's doing marketing, whatever it is. It's, everybody, it's different, it's unique. I mean, it's like a fingerprint. But at least if you have this process of saying every two weeks I'm gonna look at my calendar and I'm gonna look at these big chunks of time and I'm gonna stack them up. These are the activities I'm doing on a two week period.
And then you rank order them based on lease energetic, meaning that they take energy from you and lowest value, meaning you could pay somebody else to do this for way less than you would have to pay yourself. - Yep. - Those are the opportunities to hire somebody to buy that time back.
Then with that free time you invested in strategic things like working on the business, designing a marketing programme that's repeatable scalable, building standard operating procedures that your team can execute. Maybe doing just sales consults and nothing else. Cause that's where the biggest ROI is for you today. But eventually as you look at your calendar, you'll go geez, I'm spending 40, 50% of my time doing sales. Now it's time for me to buy back that time by hiring a sales person, training them properly and setting it up so that they can succeed.
That is how, because entrepreneurs won't grow into pain, okay? So Kevin, when you were coaching 75, 80% of the classes, if somebody came to you and said, Hey I've got a strategy that allow you to double the amount of clients you have. Do you think you would be eager to pull the trigger on that or you'd be scared shitless? - I would probably down the middle because it's encouraging obviously to have that, right? But it's also motivationally draining. - Yeah, because you're like, okay if I get this double the capacity now I have to teach more classes and my classes are big. And then, you know what I mean? So entrepreneurs will not grow into pain. This is pain. This is growth.
And it shows up in all these like unique ways where you'll be slow to reply to an email, or you have an opportunity to go on the radio but you kind of don't want to do it. Or you have a marketing campaign that's working and you decide to turn it off. Cause you kind of don't like it. There's literally all these different ways that entrepreneurs throw hand grenades in their business because they don't have a way to grow into pain. So the reason why I teach the buyback principle is because if you have this process of continuously buying time out of your calendar then as you grow, your life will actually get better.
And you won't wake up in five more years or even back when maybe you're like, man, this really sucks. You won't wake up hating the business. And that's the reality of why there's a high business failure rate is really talented people get into business with the dream and they're successful. But at that level of success, the way they look at their time, they've got a dozen people reporting to them. They wake up in the morning, they work for 10 hours.
The end of the day they're burnt out. They didn't get anything done on their to-do lists. They talked to a bunch of people. It wasn't like they didn't work, but they're not feeling like they're making forward progress. So to me, this is just a simple elegant kind of first principle approach to saying, Hey if the Kevin would have today in 12 months is then buying back time out of his calendar he just needs to look how he's prioritising his reinvestment of his money into the business. And that's where, when you say podcasts March programming or whatever, that's the question.
Is this going to help me generate more revenue that I can then hire people to take time out of my calendar to free me up to do that? If not, then I've got a list of things that I know are guaranteed going to generate more revenue and gross margin that I probably should execute on. Because from that profit I'll be able to hire people to buy back my time. And at that place, when you all of a sudden, literally and this is a beautiful place to get to as an entrepreneur, this is what an owner is. You wake up and you could or could not go to work and it would not change anything.
In that moment, then, then there's freedom. And it happens. And I remember one of my clients, Rick he ran a company called Unbounce and he built that his team executive leadership team, revenue, very deliberate six years, it was just bang, bang, bang, bang, bang. And he called me up and he says, what do I do now? And I said, why is that? He goes, I have no nothing to do. The team told me to leave them alone.
Marketing's dealing, sales dealing, customer success, product engineering, everybody's happy. And I said, well, you've got three things, a CEO as long as you want to stay CEO, if you don't, that's fine. Hire a CEO, work your way out of the business. That's like the next, next level, right? Where you have somebody managing your business and you are owner.
And I said the three things that you need to be focused on is vision. Cause you're the vision holder, right? Speak the future in new existence, making sure the capital structure is there so that the business keeps running, right? So making sure the reporting is in place, the receivables are tracked all the financial side. And then third is just making sure you keep refining the people you have on staff, because I'm sure Kevin you've had some people that were bad hires and had an incredible impact to the business. We all have, that in hindsight you're gonna make better decisions. And as long as we're always making sure the vision is clear to everybody on the team and that is communicated we have the capital to support the business and grow the business and the reporting and no hiccups come up, right? No unforeseen things.
And that we have the right people on the bus and they're in the right seats. I mean, that's what creates a business that is a joy to run. And that's kind of where you want to get to.
Does that help? - We're, I can taste it, right? It's right there. So we're getting very close to that, yeah. - Kevin, based on what I've shared today what's resonated the most with you.
- I guess the buyback time part, like I've always known that concept. I guess the harder, the challenge is figuring out what to do with that time that you've bought back. Where do you prioritise that time that you do have and focus it on something that's gonna grow the business.
- Those three things. Help you gain more customers per month help you keep customers per month, helping increase revenue per customer. That's it.
So if you've got free time you got an extra five hours this week. For some reason, tomorrow, somebody shows up and says Kevin you'll have to come into work. I'll take care of your whole Workday. You got eight hours, ask yourself, all right how do I get more customers showing up every month? And if you've got that dialled in, how do I get more people to stick around or how do I monetize the cod and really serve them more, create more value for them than I'm currently doing.
And again, these are the nuances where, you know 20 years of experience, it's easy for me to say for that, that, but it's in the practise and building that muscle where it just becomes second nature. The distractions will take care of themselves. Some of them will fit into one of those three things, but some of them will be quick nos or not nows, which is great.
It's not no forever. It's just not right now. And you can kind of keep them on a list to revisit in three months or six months or 12 months. - I guess thinking time is important as well.
Just being able to sit somewhere that's not in the business, that's not in my office and just go and think, so. - As long as you see the questions. So get really good at curating good questions.
Like one of my favourite questions to ask clients is, if somebody bought your business tomorrow what's the first thing they would change. - That's a good question. - I've got a whole bunch of those kinds of questions because the thinking time is great. But if I'm just sitting there, I, you know what I mean? Like I need to ponder on something that's gonna hopefully come up with some good ideas. Anything else that resonate with you today, Kevin? - No, those, those are the main points, they're useful, they're helpful. - Awesome, I appreciate the time, excited to see the journey and keep showing up for the community.
I know it's appreciated. - Alright man, appreciate it. - All right, we'll talk soon. - Thanks again.
- Later. (upbeat music)