A while back, I surveyed a number of yoga studios nationally and asked if they knew what their retention rates were. Retention
is normally thought of as the percentage of people who continue to come on a regular basis after their first few months. Most studio owners reported extremely high retention rates, somewhere in the order of 70% to 80%. Problem is…they were wrong.
As studio owners, we like to think what we do is so needed, with such a great impact, that nearly everyone who walks through our doors will become lifelong members of our communities. So we tend to remember all those who keep coming, but forget about all those who gave it a go and then bailed soon after.
It’s human nature to remember things this way—the old fish story phenomenon—which is why so many studio owners have so much trouble when they learn the truth about their own (often abysmal) retention rates. But, it’s necessary medicine in order to stay healthy.
Let’s look at a case study from a recent client. A few months back, I got a call from a fellow studio owner asking if I was interested in either buying him out or investing in his studio in an effort to keep it afloat. Unfortunately, these calls are not a rarity for me. So I asked if he’d mind sharing some information with me first.
He revealed his basic stats on visits, pricing, revenue, attendance trends, new student tallies, monthly expenses and a variety of other data. It seemed he was bringing a fair number of new students in every month, but his business was still hurting. I asked him if he knew what his retention rate was, and here’s where it got really interesting.
He told me that it was actually great, up around 70%. “Wow!” I said. “That’s tremendous for this business.” Something was off, though. If that was his true retention rate, there’s no way he’d be in the trouble he was in.
“Tell me,” I asked, “how did you calculate it?”
Being meticulous about management, he ran a tight ship and used Mindbody’s online management system to run his business and also to calculate retention. As soon as he told me this, I knew where the problem lie.
“Are you using the default setting to calculate retention with Mindbody?”
I asked. The answer was yes. So, I told him he needed to change the settings to get the real information that he needed.
The default setting only shows near-term retention—the percentage of people who came in over the last few months and are still coming in. This is generally the same window we think about, as studio owners, when we are asked to guess at our studio’s retention. Looking only at this time frame though is a massive mistake. It can provide a false sense of success and security to studio owners who are in reality in deep trouble.
The real mission-critical stat for retention is annual retention. Annual retention statistics tell us how many new students we need to bring in over the course of a full year to:
(1) make up for the ones we lose, and
(2) grow our student bases
larger on a year-over-year basis. The number that really matters is annual retention, not near-term retention. The fitness industry has known this for decades and in fact lives and dies largely by this single bit of information. So, let’s see how this unfolded with our friendly studio owner.
When I asked him to change the retention setting to make the period run from January 1, to December 31, the report revealed a radically different picture. While his near-term retention was up around 70%, his annual retention was only 18%. Yikers! That means in any given year, only 18% of his students remain. Put another way, he loses 82% of his students every year. And truth be told, from what I’ve seen, that is not so unusual. We’ll get into why in the next installment.
So, if he brought in 1,000 new students in January, only 180 would still be regulars by the following January. That means he needs to continually find a way to generate over 800 new students a year just to stop from shrinking—that’s not even considering his desire for growth.
Seeing his report from the viewpoint of annual retention was a massive eye-opener. It finally explained why he was having so much trouble. It didn’t get him out of that trouble, but at least it armed him with the information to better understand his challenge, diagnose his problems and focus his energy on fixing them.
FYI: If you were shocked at the 18% annual retention number, I’d strongly suggest you run the same report for your studio, either through Mindbody
, if you use their product, or do it by hand or by spreadsheet. The challenging reality is that while many studios report stellar short-term retention rates, a huge percentage of those will discover extremely low long-term retention rates.
That leaves us with two critical questions, of course: Why is annual retention often so low, and what do we do about it? Stayed tuned for next month’s column for the answers.