Power Moves: Julian Barnes - BFS 2024 State of The Industry Report

This is Eric Melzone, and welcome to this special Power Moves edition of the Future Fitness. In these brief segments, we spotlight breaking news and advancements across the industries of fitness, health, and wellness. From partnerships and acquisitions to product launches and investment rounds, we bring you exclusive direct insights from topic industry voices. Power Moves are brought to you by the Podcast Collective. Learn more at podcastcollective.io. Hey friends, this is Eric Malzone, and this episode of The Future of Fitness is brought to you by the Podcast Collective. Since our inception in 2023, we have emerged as the fitness, health, and wellness industry's premier podcast placement agency. We're honored to work with many of the industry's most prominent technologists, thought leaders, startup founders, and business executives. Why? Because they recognize that being on podcasts is the most effective way to authentically connect with their specific target audiences and rapidly grow a lucrative professional network. From podcast placements to speaking engagements, go-to-market strategies to investor relations, and media kits to press releases, the podcast collective brings a level of professionalism and deep industry expertise that can only be achieved by spending decades in the trenches. If you are a startup founder, business executive, emerging thought leader, or simply a savvy operator that understands the power of authentic media, learn more at podcastcollective.io and feel free to book a 30-minute strategy session with yours truly. Traditional media is dying on the vine. Podcasts are rising quickly to fill the void. Do not miss the boat. That's podcastcollective.io. All right, we are live. Julian Barnes. Welcome to the special power move episode of Future of Fitness, my friend. How are you?

Doing well, Eric. Thank you very much for inviting me. It's great to see you. It's been a long time and uh grateful for the opportunity to be here with you today.

Yeah, well, thank you for the work you're doing. And uh it was great to see your uh press release hit my inbox. I'm like, this is great, this is perfect, exactly what we want to do with these power move episodes is give some uh real quick topical insights into the industry and let people know what's going on and where they could uh leverage things to improve their businesses and their livelihoods, and you know, specific to BFS, and you're the co-founder and CEO of uh BFS Network. You guys work with a lot of independent gyms, uh, a lot of franchises, especially in the boutique space, which is close to my heart, you know, as a gym owner for a long time.

Absolutely. Uh our community is overwhelmingly independently owned, signal location studio owners across modality.

Yeah, fantastic. So uh let's get right into the meat of it. So you released a report, right? Um you sent it to me, I've reviewed it. Uh, there's a lot of uh packed information, and it's very, very specific and actionable for the boutique sector. So give us at a high level like what is the report? What was the impetus for doing it? How many times have you done this thing? And what's the criteria for for the analysis?

So we've been producing annual reports since 2018 when we started, when we uh hosted our first summit in 2020, in 2021, during the pandemic and then the the recovery from the pandemic, we probably produced three reports in 2020 to give people kind of a snapshot of where the industry was. I think we did two in 2021 and then back to annual starting in 2022. And that was our last report, actually, 2022. So this time, we wanted to provide operators and we defined that as the decision maker at a business, manager, executive, or owner. We wanted to give them a roadmap or blueprint for what a profitable studio looks like in their modality and in their size of market. So we set out to determine what are the most commonly held metrics in KPIs that profitable studios are achieving. And so we published seven different profiles of profitable studios. Category number one is all studios, any modality, anywhere in the world. Now, the majority of the studios in the survey came from the United States. Second largest country was Canada with about 40 locations, the UK and Australia were represented, and then a bunch of one or twos from 10 or 12 other states. So overwhelmingly North America. And so category number one is any modality anywhere in the world, what are their KPIs? And then the next six reports are specific to yoga, Pilates, and Strength gyms, and divide it by suburb and city. So we have a yoga report for studios in cities, which we define as population of half a million or more, and then we have yoga in suburbs, same thing, Pilates, city, Pilates, suburb, strength city, strength suburbs. So no matter what modality you have, there is a report that is specific to your modality and your size of market. So we're not comparing apples and oranges, a yoga studio in New York to a yoga studio in Montana. We're not comparing a yoga studio in New York to a Pilates studio in New York. We only compare yoga studios in New York to other yoga studios in other similar size markets. So the metrics make sense.

For those specific categories, Julian, like why uh why did you pick those and why did you decide that they need to be different? Like from a characteristic standpoint and fundamentals, like what makes those modalities separate but but the same?

Well, they're just the the three most popular modalities by usage. Look at ACSM, look at some of the data that some of the booking billing management companies report, you know, which modalities have the most classes booked. It's in some order strength, yoga, Pilates, Pilates, Strength, Yoga. Those are the top three. After that, there's a significant trail off. So we want to focus on those three.

Yeah, cool. Well, let's get into, you know, when you do type of things, there's a lot of stuff that you probably expect. Right? You're like, okay, that's fundamental business, right? When it comes to KPIs and retention and lead quality and things like that. You know, referrals is a big part of this report, you know, how beneficial they are, how critical they are to a profitable gym. So let's cover that. And then when I want to get into like a couple things that maybe shocked you a little bit or surprised you. So, what are the fundamentals that most boutiques need to be focusing on at this point?

So it's it's funny you use the word fundamentals because that is one of the takeaways of this report. Uh but let me start by saying in 2022, when we conducted this report, there were only 9.2% of the studios we surveyed had a profit margin of 20% or more, 9.2. And in this report, that number increased to 17%. So almost doubled the number of studios achieving 20% profitability. And as you know, because I I listened to all your your podcasts, and when you and Alex do a deep dive into the publicly traded companies, you're looking at profitability, right? Everyone selling their studio needs to have a minimum, well, to maximize their return on the sale, they want to have a minimum 20% profit, but profitability, but preferably 30 and 40 percent. So we set a go a target, how many studios are achieving 20% profit margin in 17.2%. So that number isn't high by objective measures, but it's almost double where we were two years ago. So that's a good that's good news for for the industry. Now, in terms of your your question, what are those profitable studios doing? They are implementing, they are rigorously and consistently implementing proven business methods. And what are those proven business methods? We call it FER. They are finding new leads, 50 new leads per month consistently. They are enrolling those new leads into members. How? They're converting Lee to first-time visitor at a 30% conversion rate, and then they're converting that first-time visitor to next purchase, however, you want to define next purchase, they're converting that at a 30% rate. And then the R, they are retaining, they're retaining those new members by minimizing churn to less than 5% and by delivering such an impactful client experience that LTV is two years or more. The last, and as a result of that, these profitable studios have between 100 and 250 recurring uh auto-pay clients. And I'm using that term very significantly. Doesn't matter if it's a membership or class pack or a 10-pack, the key for us in this question was recurring. The fundamentals are finding new leads, enrolling those new leads into membership, and retaining those leads with uh an excellent client experience. And the good news about that isn't that formula hasn't changed since the beginning of time.

Oh, blocking and tackling. Yeah.

Blocking and tackling. And it's even better news for studio owners who may be frustrated, who may not, who may feel like they don't know what the path to success is. Well, there's the formula, there's the blueprint, and I'll take it a step further. As you mentioned, referrals was one of our key takeaways that profitable studios are relying on referrals as their most effective lead-in tactic. That means you can build a profitable studio without having to pay an agency or engage in paid ads, and the whole paid ads world now is changing anyway. As I know you know, SEO is going out and what's the new term? AEO optimizing for all the various AI search engines. And so it takes a lot of money and skill and knowledge and expertise to win at that game. And you don't have to do that to build a profitable studio. You just just, in quotes, air quotes, just need to do the basics over and over and over again. And for the people who are listening who run gyms and have clients and they're training their clients in weight loss, it's the same formula you tell your client for weight loss that applies to your business. Simple, basic, boring, consistent, day in, day in, day in, day in. There's no there's no magic bullet. Even in the world of OZIP, there's no magic bullet. There is no OZIP of building a profitable fitness business. It's proven methods, rigorously implemented day in and day out. Find, enroll, retain. And retain, by the way, it's not as easy as it sounds. Retain means your classes are on fire. Your front desk associates are greeting everyone with a smile every single day. They're leaving their personal problems at home for the four to six hours they're on shift. The instructor is is is teaching an amazing class or session or uh training session. They're acknowledging the members and guests by name, they're following up afterwards, how are you feeling, what's working, what's not. Delivering a fire experience isn't easy, but it's also not complicated. And there's no magic to it. So that's what this survey revealed. Profitable studios are succeeding in doing the basics. Love it.

Love it. I can't say I'm shocked, right? Can't say I'm surprised. So speaking of surprises, what did surprise you, Julian? What was some of the things that you're like, whew, there's one thing.

There's one thing that surprised me because I I had never considered it. In fact, let me show you. Can I share my screen? You should be able to think I think this is worth people see. It is takeaway number six. So literally the second to last slide. This surprised me. There is a direct correlation between studios that invested in having a manager. And by manager, I mean a full-time manager whose primary responsibility is running the day-to-day operations of the studio. I do not mean a teacher who does some administrative services on the side. That's not a manager. The studios that have a full-time manager, as you can see clearly, have a total, have a higher annual revenue and a higher profit margin.

Interesting. Which is counterproductive, right? Because a good general manager or a good manager is going to be, it's going to run you, right? If you want to get a good one and keep them, uh it's going to run you so much.

It directly counterintuitive.

Counterintuitive, yeah.

It definitely relates to the find, enroll, retain. Because we just said the formula to find, enroll, and retain, the formula is simple. The execution, we all know, anyone who's tried to give up sugar, to give up drinking, or whatever their vice is, to decide to walk every day, we know the formula is easy. Speaking personally, I usually fall off the no sugar wagon after the fourth or fifth or sixth day. So the formula is a good thing. Say again?

It's bourbon for me, Julian.

Okay, so we all have something, right? So knowing what the formula is and then implementing the formula are two different things. The good news is the formula for success is fairly uncomplicated. Implementing that formula is where there is where the challenge becomes. And so the reason this takeaway to me directly relates to the takeaway of find and roll retain, someone has to manage that process. Somebody has to manage the SOPs to go out and fill your top of funnel. Someone has to manage the process of converting and nurturing that lead through the funnel. Someone has to make sure that the front desk people, if you have a front desk, are greeting your new people with enthusiasm. Someone has to make sure that your instructors are teaching the class, are teaching your format, and then not bringing the format from the other gym or studio where they may work. They're not bringing that other value system or brand into your gym. Someone has to oversee all of that. That is the job of a full-time manager. And if you're the owner and you're doing those things, and you're responsible for managing the instructor schedules and the shift changes and finding new clients and talking to your business partner, your investor, your landlord. One person one person can't do all of that at a high enough level to generate substantial revenue. So let me let me unpack that for a second. There are a lot of studios in the survey that are single location, owner occupied, where the owner is teaching more than half the classes, and they're profitable. That works. But what this chart says is the studios with the highest annual revenue. So the studios that we are aware of, the studios that completed this survey that are owner-occupied have a ceiling on their revenue. Not saying that's a bad thing. If you're in a tertiary market and your total revenue is $300,000 and $150,000 or $100,000 to $150 of that is going in your pocket and you're doing most of the teaching and you live an hour outside of Knoxville, that's a good life. I'm not judging that. Because it's almost impossible for one person to teach all the classes, manage the find, enroll, retain process, and sell enough to have a high gross annual revenue.

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Investing. You want to consider investing in managing a gym.

The structure, the plans, the SOPs, all that stuff. I mean, that's tends to be the type of thing that you guys help with, right? Is like the actual systems behind it. Is that correct?

Yes. We have a group coaching program called Studio Operations Optimization, and it's it's soup to nuts starting with mission, vision, values, and then helping you build each of the playbooks for each aspect of operations. Yes.

Yeah, that's incredible value. I mean, that's something that I tried to figure out on my own, messed it up, and then I got you know someone who had done it before me.

And there's no reason to. Yeah, there's no reason to do that anymore. Yeah, there's no reason to. Not at all. It's just time and money. Let me, if I may, can I show you our scorecard? I think your audience might like to see what does a profitable studio look like. Let me show you all modalities anywhere in the world. All right, so it's 12 KPIs. Profitable studio all modalities. They are generating less than half a million in revenue with a profit margin of 10 to 19%. They are generating 2 to 2.5 visits per week. They tend to have one location, they have about a hundred, between 100 and 249 clients per month. Their average revenue per member is between 100 and 249. They pay their front desk between 16 and $20 an hour. They pay their instructors $26,000 to $50 an hour. They pay their managers $50,000 to $75,000 annually. They're spending uh less than $2,500 a month on marketing. Their most effective lead gen tactic is referrals, and they're minimizing their churn to 5%. That's it. That's the snapshot for what Profitable Studio, any modality, anywhere in the country is doing.

Beautiful. Beautiful. Well, Julian, yeah, thanks for putting all this all together. It's it's really nice uh as an operator or a former operator to see all this stuff in a certain spot and kind of give the the framework to shoot for, right? The KPIs, the goal for each particular category. Uh, it's super interesting.

Can I leave you with this slide?

Yeah, yes, go for it.

Might be my favorite slide.

Okay.

So we just talked about the average profitable studio in our survey is generating less than half a million in revenue. So let's just call that half a million, half a million dollars. If you're at 10% profitability, that is a $50,000 profit off of half a million, right? Simple math. If you want to go from 10% to 20% profitability, assuming your business is still half a million, we're only talking about an extra half a million, an extra $50,000. An extra $50,000 is the difference between $10 and 20%. So this slide breaks down how you get from 10 to 20% profitability in 12 months. $50,000 is $4,167 a month. If you are charging $175, we just pick that number to be average across the country. If your membership is $175, you only need two net new members per month at $175 per month recurring for 12 consecutive months. And in the 13th month, you will have increased your profitability, your profit margin by $50,000. And the reason this along with the FER slide are my favorite is because it's telling you that you don't have to do something fancy and exotic to build a profitable business. You have to go out and find two net new members per month, one every other week. Love it.

So, Julian, you if people want to get this full report, uh what's what's where do we go for that?

BFSReportSingular.com. BFSReport.com. I'm sure there'll be a link wherever they download this fine podcast, they can go there. If they're a studio owner, they can receive a free, a complimentary copy of the report by completing the assessment. And then we'll send them both uh a scorecard comparing their six KPIs to the baseline, and then they will also receive access to the full report. And if they are a vendor, investor, member of the media, we'll share with you a promo code that will allow them to purchase the promo purchase the report at a reduced rate because they're a friend of uh Future of Fitness podcasts.

Awesome. Awesome. Well I appreciate that. All right. Well, that is a wrap. Julian Barnes, thanks for sharing everything. Thanks for putting that report together, and uh thank you for joining me on this very special episode.

Thanks for the time, Eric. It's always fun hanging out with you.