Late in 2023, I was interviewed for a show on the BBC about the growth of indoor climbing. Hannah, the host asked me "What will be the next thing that will grow the industry?" I suspect she thought I would talk about tech, or climbing boards, or private equity or something. I said one word "Sales." And I hold to that. Our industry is very behind in this area. If owners/operators can start to take strategic control of their revenue vs. what I call a "open the doors, turn on the lights and hope for the best" approach, our industry will grow.
So let's talk about the 3 levers briefly. This is a wildly simplified concept but hopefully makes a pretty multi-faceted and complex topic more digestible and actionable. In today's blog, we will be focused on the third lever:
Increase pure volume of customers, transactions or units sold
Increasing the average transaction amount
Increasing the lifetime value of your customers/members
Lever 3 - Increase Lifetime Value: The Holy Grail
Imagine: you have a performing top of funnel with lots of qualified new customers and lots of new members (AKA increasing pure volume, lever #1). You are doing an excellent job of offering those customers and members the right thing at the right time in addition to their membership (AKA increasing the average transaction amount, level #2). This would be a very sweet spot to be in, and many operators and owners would love to be in this position. If you can get there, you are well positioned to start improving the average lifetime value (LTV)e of your customers/members. Which is truly the ultimate goal.
The lifetime value of your customer is the average amount any customer group (members, youth team kids, day pass users, etc.) will spend with your business over the course of their time with you. The number I recommend focusing on is the LTV of your members.
Why is increasing LTV so important?:
1 - Getting new members costs on average 3-5x more than keeping your existing ones
2 - The customers you already have are the most highly qualified for additional sales opportunities
3- Increasing the LTV of your customers or members literally means you could have fewer total customers and make as much or more money.
How to Calculate LTV
For now, let's look at what is called a Historical LTV model which uses past data to determine the LTV of your customers. There are also predictive models but those require machine learning/Ai, etc.
In order to calculate your LTV, you first have to figure out your average customer value. Again, let's look at members. In order to get this information, you will need to be able to take a snapshot of a particular timeframe in your climbing gym software. (Most of them don't have any version of a good way to calculate LTV, to see more about what softwares I recommend and why, read this blog.)
Customer Value = Average Purchase Value x Average Number of Purchases
- Take a snapshot of the previous 12months, look at all members that were an active member at any point during that period
- Look at all of their transactions & average the amount and number of purchases per member per month (you can now see why increasing the average transaction amount is good practice!)
See below example:
Average number of transactions per member each. month = 3, Average amount of transaction = $100. Customer value = $300 (per month)
Customer Lifetime Value = Customer Value x Average Customer Lifespan
- Determine the average lifespan of your memberships during that same time frame. Let's say it was 9 months.
See below example:
Customer Value of $300 x Customer lifespan of 9 months = LTV of $2,700
Why LTV Matters so Much
Using the top number of $2700, just think of what types of decision making this unlocks for you. I'll give you just one example from a recent client:
In working through sales & revenue SWOT analysis with this client, we learned that their #1 highest membership conversion product was member guest passes (side note: I have found this to be the case nearly 100% of the time). Their current policy for member guest passes was extremely limited. They allowed each member to bring 1 guest per month, and that's it.
I suggested that is this was their highest conversion product (data was suggesting that member guests converted to members more than FIFTY PERCENT of the time) that maybe they should allow as many member guests as a member wanted to bring, so long as it was their first visit. There was a good amount of pushback on how this could affect day pass revenue. Fair enough point. But let's look at the LTV above and using a day pass price of $22 and 100 member guests
Scenario assumes you have 1000 members and they go nuts and bring 10 member guests each
Number of Member Guests | Conversion Rate | Members | LTV | Total Value Potential |
100 | 50% | 50 | $2700 | $135,000 |
Number of New day passes given out with new policy | Day Pass price | Total Opportunity Cost | ||
90 | $22 | $1,980 |
The math here is pretty easy. If I could write a $1980 check and get $135,000 back, I would only have one question: Who do I make the check out to? What's even better in this scenario is it's not even cash out, just lost revenue opportunity of $1,980. Knowing your LTV makes these types of decisions around cost of customer acquisition strategies considerably easier.
Knowing the LTV of your various customer types also helps you direct your resources to where they will have the highest impact (your highest value customers), and on and on. It's a very important metric to know and to influence.
How to Influence LTV
1 - More transactions per customer
2 - Increasing the average transaction amount
3 - Increasing the lifespan of your customers
In short, you want to be offering more things your customers are dying to have which are of true value to them, you want to engage your members and keep them happy and around for a long time. Some key considerations are:
1 - Do you know what your customers and members want? And are you willing and able to deliver on it?
2 - Do you have good sales training, tactics, and staff to execute on conversion, upsells and more?
3 - Do you have any process by which you reduce churn of members? Do you have any organized strategy for engaging and retaining members?
Rise Above collaborates with clients to enhance their capacity to strategically manage their revenue. This skill is crucial for the development and prosperity of any climbing gym. Let's discuss how we can empower you to take control.