Upgrade Your Business IQ With Microeconomics
Nobody is impressed by your boastful vanity metrics.
I’m really enjoying being a civilian again.
Not going to lie, the first few weeks of being a gym member, and not an owner were awkward af.
But now I’ve settled into my new role and I’m absolutely loving it.
However…the amount of insight I’ve gathered from talking with other members (as a member) has been eye-opening.
As an owner, I would always be out on the floor schmoozin’ with members to gather intel and identify opportunities to improve client experience.
But I’ve never received such honest feedback in 10+ years as an owner as I have in the past 6+ weeks as a member.
All that being said, if you’re an owner, and you think you know the hearts and souls of your members, you’re missing out on a lot of imperative data.
How do you extract it as an owner? I’m not entirely sure you can.
Yet, I bet one of you has come up with a pretty solid system to access this information beyond surveys and meetings.
If so, shoot me an email - I’d love to hear your strategy.
Much love,
Stu
Today’s Rundown
✔️ Fitness giants are exchanging legal blows this Christmas
✔️ Why need ‘first right of refusal’ in your lease
✔️ A quick lesson in microeconomics
Lawsuits For Christmas
The fitness powerhouses are going fisticuffs, so grab your gourmet popcorn tin from Aunt Sally.
Peloton declares no more free rides for fitness rivals Echelon and NordicTrack maker iFit Health who are accused of copying Peloton's technology.
The tech in question is the "control station" and the related leaderboard that helps users compare their performance during live classes – which Peloton received the patent for only just last week.
Peloton's complaint against Echelon's and iFit's bikes, treadmills, ellipticals, and other machines infringe four patents — including the new patent — that cover the same leaderboard function and other technology, such as the ability to adjust workouts based on performance automatically.
In the lawsuit, Peloton states that "rather than develop new technology, Echelon and iFit chose to simply appropriate Peloton's intellectual property and flood the market with cheap, copycat products,”
...which may be a little bit like the pot calling the kettle black because Peloton is also being gifted a lawsuit this Christmas season for copycating.
Last Monday, Lululemon filed a lawsuit against Peloton, accusing it of patent infringement over the designs of a new line of leggings and sports bras.
You may recall that Peloton and Lululemon had a co-branding relationship, which they supposedly ended amicably earlier this year.
But just months after the dissolved partnership, when Pelotons new apparel brand was introduced in September, Lululemon claimed Peloton's apparel line had "copycat products," including five Peloton-branded women's bras and legging products which Lululemon claims are infringing on six of their patents.
While Lululemon is staying firm, stating, "unlike innovators such as Lululemon, Peloton did not spend the time, effort and expense to create an original product line," Peloton says its merchandise is complaint and "has clear and obvious differences that allow the products to be easily distinguished" from Lululemon's products.
MY TAKE
The battles are the bloodiest at the top of the food chain. Watching these powerhouse fitness businesses go after one another for copyright and patent infringements makes me grateful to play in the smaller pond.
But regardless of who wins or loses in these lawsuits, the truth is this: Nothing is original, and your best idea will be the foreground for someone's new idea.
By now, you probably know that one of my favorite lines in business is "Good artists borrow, great artists steal," which Pablo Picasso is attributed to saying first. Hell, I even made an entire 45-minute movie on the topic.
If you want to be an industry leader, it means you're going to have to do something that nobody else is doing. Plain and simple.
As microgym owners, we are all constantly trying to be unique in the market; however, very few of us will ever succeed at that. But if you do, guess what? Everyone else is going to look at you and do it too.
If you genuinely create something unique, maybe by identifying a more effective way of doing something, creating a new product or service, innovating a new way to use an existing product, or adapting how your users experience your service...if what you make is successful, you can guarantee people will jump in line to steal your thing.
But the thing about stealing is; generally, those who steal are the players in the market that nobody even acknowledges anyway. They're irrelevant.
And while I don't know the numbers that Echelon and iFit are putting up, I can't imagine they compare to Pelotons. I mean, honestly, who the hell has ever heard of those companies in comparison to a brand powerhouse like Peloton?
As Floyd Mayweather would say, "Elephants don't pay ants any attention."
But regarding the Peloton vs. Echelon and iFit, technology nuances are such that I think it will be difficult for anyone in the digital fitness space to claim exclusive IP rights to anything. These companies have to rush their tech out the door to generate revenue and stop burning cash, and the patent department doesn't exactly move quickly.
With Lululemon vs. Peloton, it's easy to see that their partnership did not dissolve well (even if both companies claim it did). During the brand collab, I am sure Peloton learned a thing or two about creating technical fabrics that sell, and it'll be up to the courts to see if they did more "stealing" or simply "took inspiration."
Now, if you've been following my content for any period of time, you know how I feel about this stealing silliness.
First, accept that anything new you come up with that is successful will be "stolen."
Second, when you're searching for inspiration, steal from several sources, so you're never pinged as a copycat...and you'll actually create something unique.
Third, sit back and watch as the fit tech companies all start rolling out similar products, making the technology cost less, and eventually, you'll see these ultra-premium software experiences trickle their way into the independent microgym scene.
And lastly, if you're worried that you have created something very unique and want to protect it, make sure to consult with a patent lawyer or trademark attorney (I recommend Rachel Brenke) to ensure your assets are secure.
As more people unsubscribe from digital products and begin heading back into the gym IRL, and more fitness competitors saturate the digital market, I think we will continue to see kicking, screaming, and throwing tantrums from fitness companies who will file lawsuits more in desperation to keep their market share or blockade other top players in the fitness tech space than for the actual utility of the lawsuit in and of itself.
Oh, and keep in mind that we see this happening at the microgym level every day.
We see microgym owners who have come up with a unique way to do something, or a slogan, a tagline, a piece of equipment, and it gets stolen or ripped off regularly.
It's not always fair. Sometimes your competitors play dirty. But this is the game that we sign up for.
How will you play?
Why You Need Right of First Refusal In Your Lease.
Always give yourself options.
If you're going to be signing a new lease or renegotiating your current one, listen up, you may want to read this.
Essentially, the Right of First Refusal (ROFR) is a clause you can negotiate into your lease so that your landlord (LL) allows you first to match an offer received for adjacent leasing units or building purchases.
If your current LL owns adjacent properties to the one you lease (or plan to lease), ROFR will give you first dibs later down the road if you need to expand or swap for a larger unit. And if your aspirations are high enough and you would love to make a purchase offer on the building you currently lease, ROFR would give you the right to match any offer made.
But there’s a catch…
While ROFR definitely gives tenants a fighting chance to expand their business without having to relocate entirely, there are realities that you must be aware of:
- Your LL still has the right to market his other units. And he could receive an offer sooner than you're ready to upgrade your space. This is why timing is everything.
- If your LL receives an offer to lease a unit you desire to upgrade into, you will also have to match that offer with the same or better terms.
- When it comes to wanting to buy your building, ROFR gets you a seat at the table, but you will again have to match or beat the offer from the third party, essentially creating a bidding war.
When installing this clause into your lease, my number one suggestion is to create a specific timeline that allows you ample time to crunch your numbers, do your due diligence, and determine whether you want to lease the adjacent unit or make an offer on the property.
Don't set yourself up for failure by getting an email from the LL on Monday that an offer has been made, and they want an answer by Friday.
The Gym Real Estate Company broke this down in further detail last month; check it out.
A Lesson In Microeconomics.
ARPC is going to be your new favorite business metric.
The newest course within Microgym University looks at Pricing Models + Psychology.
Vanity metrics such as Total Monthly Revenue, Total Members, and Profit Margins are undoubtedly important; however, they often steal the spotlight and limit microgym owners from truly understanding pricing models and the associated phycology.
In addition, I have found there has been little to no effort to educate microgym owners about the microeconomics of their business - so together, let's change that.
Since most microgyms charge weekly or monthly, mircogym owners rarely look at Average Revenue Per Person Per Class (ARPC) and Average Revenue Per Class (ARC) data points.
Hell, there are even microgyms that don't require class signup or even have a set class cap! Idiocy IMO, because that's like a stadium not knowing how many seats it has to sell or an airline not understanding how many people can fit on the plane.
For microgym owners, it is critical to remember that the most urgent limitation in group fitness is purely physical - the size of your space and how many customers it allows you to serve at a time.
So, here is a brief crash course in understanding two fundamental microeconomic terms:
Average Revenue Per Person Per Class (ARPC)
Average Revenue Per Class (ARC)
How to Find Your ARPC
1. Compile a list of every person with an active membership who can attend class.
2. Determine how much each individual person pays per month for group class (do not add additional services or retail). (A)
3. Determine how many times, on average, each individual person attends classes each month. (B)
4. Divide A / B. That will give you the ARPC for each individual person.
5. Rinse and repeat across your entire list to calculate the Average Revenue Per Person Per Class.
How to Find Your ARC
1. Take the average ARPC you just calculated and multiply it by your class cap.
ARPC x Class Cap = ARC.
Great, now what do I do with that information?
While I can't give you a specific answer since I don't know anything about YOUR business (however, we can fix that!), here are some knowledge nuggets when it comes to looking at these microeconomics:
If your ARPC is under $10, you're going to need to fix that unless you're a volume-based model.
If you're not hitting your Total Monthly Revenue (TMR) goals, then your ARC is probably to blame...which means your pricing is to blame.
If you use frequency-based pricing, you'll probably find that your lower frequency options provide higher ARPC...and I'm a huge fan of frequency-based pricing, as you can see here.
If you only run with an 'Unlimited Only' type membership model, you'll have a very consistent Average Client Value (ACV) but an inconsistent ARPC...since there are no guardrails to their attendance.
I hope you enjoyed this very abbreviated lesson in microeconomics.
And if this kind of stuff is not in your entrepreneurial wheelhouse, don't worry; I've made it stupidly easy to understand inside of Microgym University. So, get enrolled! For less than you spend on your protein powder, you can have the knowledge to finally pair your hard work with smart work.
