Influx Metrics: Improving the MLV:CAM Ratio, part 1
You can design and create, and build the most wonderful place in the world. But it takes people to make the dream a reality – Walt Disney
Influx Metric #7: Increasing the MLV:CAM ratio
This is the next article in our series of ‘Influx Metrics’. The series explores the important health and fitness business metrics. The previous article introduced the MLV:CAM ratio, and this article expands on this, with the aim of improving your marketing. You can read the previous articles in our series here:
- Average Revenue per Member
- Customer Lifetime
- Member Lifetime Value
- Cost to Acquire Member
- MLV:CAM Ratio
In these articles we walked through an example fitness business, where our cost to acquire members (CAM) was found to be $450. (see this link here for how to calculate CAM). The problem with only using this result is that it’s an average of all the marketing techniques you use, and so gives no information on how the different marketing techniques may differ.
For example, imagine you only have implemented two marketing techniques: a billboard and a referral program. Your CAM is an average of both of these techniques, and so does not tell you whether one is more worth while than the other.
It makes more sense to look at which marketing techniques you should aim to improve or increase, and which you should consider stopping.
Here’s how we do it…
Step 1: Collect data on where your members come from
Do you know exactly where your current members heard about you? If you answered ‘no’, then I recommend you start collecting this crucial piece of information immediately! How many businesses collect it is in a sign-up or waiver form with a question such as “How did you hear about us?”.
Once you have this information, you should review it often. For example at least every quarter, but more often if you are just starting out or experimenting with your marketing techniques.
Depending on the size of your gym, look at either the most recent members that have joined (for example, the last 20), or if you are a larger gym then select a sample of the members that have recently joined.
Step 2: Quantify where members come from
Next we record this information, and start to allocate members to different groups, depending on where they heard about you.
Over the last month, 20 members have joined. You asked them on a waiver form how they heard about you, and these are the results:
- 1 saw your full page adds in the local newspaper
- 5 are friends of current members and were referred through the Bring a Friend workout
- 4 were walking past and saw your signage
- 5 heard you do a radio interview you did on how to stay fit
- 1 saw a billboard advert you had in town
- 4 were at the park and noticed a free group workout you were taking there
Step 3: Calculate the CAM for each marketing technique
Let’s assume you spent $9,000 on marketing activities last month, which we will break down in the table below.
From these previous articles we know the overall CAM is $450 (e.g. the average across all marketing techniques; see here: CAM), the MLV is $4,500 (e.g. the value to the club over the lifetime of the member; see here: MLV), and therefore the MLV:CAM ratio is 10:1 ($4,500:$450 = 10:1; see here: MLV:CAM ratio).
CAM = $450 ($9,000 spent on marketing / 20 new members)
MLV = $4,500 (value to the club over the lifetime of the member)
MLV:CAM Ratio = 10:1
In this example, the news is very good: for every $1 we are spending on marketing, we are getting $10 back in revenue!
However, not all marketing techniques are created equal. It may be that some marketing techniques are responsible for the acquisition of all new members, while other techniques are responsible for none.
So what we can do is break down each marketing technique, and calculate the individual CAM. All we need to know is the cost of that technique, and the number of members acquired through that technique. (I’ve evenly distributed the fixed personnel cost, however you can allocate this differently based on your actual businesses costs):
|Technique||Cost for technique||Fixed marketing cost||Members acquired||CAM|
|Advert in newspaper||$500||$1,000||1||$1,500|
|Referral from current member||$500||$1,000||5||$300|
|Heard radio interview||$0 (or close to)||$1,000||5||$200|
|Saw group workout at park||$0 (or close to)||$1,000||4||$250|
Now we have more useful information to assess the various marketing techniques (the CAM).
Looking at this data, the radio interview, referral program, and group workouts at local parks are things you would likely consider increasing or improving.
If your MLV was $4,500 then all of these marketing efforts appear reasonable! In reality you are much more likely to find that some of your marketing techniques differ significantly (some are great, while some are not so).
Typically resources (e.g. people and time) are not unlimited, and so you should focus your effort on what is working, rather than trying 10 different techniques at the same time.
In the next article, we’ll cover one final consideration before you increase or decrease your effort/resource on different marketing techniques.