You may be familiar with the “leaky bucket theory” taught in some business schools. Say you have a bucket of water, but the bucket has a few holes in it. To keep the bucket full, you need to increase the flow of water or plug up the holes.
The leaky bucket theory is a perfect analogy for the underlying dynamics of customer retention. To keep your customer base stable or growing, you have to increase acquisition (the flow of water into the bucket) or prevent attrition (plug up the holes). Water, of course, isn’t an infinite resource. So, you need to plug the holes. And some holes are bigger than others.
Member attrition is otherwise known as “customer churn,” and health club owners understand this concept as well as anybody. And they also know that acquisition is more expensive than retention. This is true in any type of consumer business. Acquiring a new customer is five times more expensive than retaining an existing one, says a survey by Invesp Consulting and Forbes Insight.
Data compiled by IHRSA show that a health club member who doesn’t renew a membership can cost a club $674 in annual revenue. That’s an expensive leak. IHRSA research has found that club operators spend an average of $118.65 in marketing and sales costs for each new member. Refilling the bucket is costly.
But retention is about much more than simply maintaining a membership benchmark. Retention is also about maximizing revenue of each member. According to the Invesp/Forbes survey, increasing customer retention by 5% increases profits by 25%-95% percent. The success rate of selling to a customer you already have is 60%-70%, while the success rate of selling to a new customer is only 5%-20%
It’s time you got a bigger bucket.