Ascend Strength & Conditioning Business Plan — How a Studio Actually Makes Money

A studio sells recurring membership against a fixed cost base. Lifetime value is the monthly fee divided by churn — which is why churn is the whole model.

How a Studio Actually Makes Money

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3.1 The unit economics
3.2 Capacity

3.1 The unit economics

Figure 8. Lifetime value against acquisition cost.

Metric	Year 1	Year 2	Year 3	Year 4	Year 5	What it means
Monthly churn	8.5%	7.0%	5.8%	5.0%	4.5%	Share of members leaving each month
Average tenure, months	11.8	14.3	17.2	20.0	22.2	The inverse of churn; how long a member stays
Average revenue per member, R	1 090	1 160	1 240	1 310	1 380	Monthly subscription, excluding personal training
Gross margin earned	27.7%	55.7%	57.1%	62.8%	65.0%	The margin the business actually earns in that year
Monthly contribution per member, R	302	646	708	823	897	Average revenue multiplied by the margin earned
Lifetime value, R	3 552	9 230	12 208	16 454	19 933	Gross-margin contribution over the member’s tenure
Cost to acquire a member, R	1 750	1 750	1 750	1 750	1 750	Marketing and promotion per new member signed
Lifetime value to acquisition cost	2.0x	5.3x	7.0x	9.4x	11.4x	Above 3x is generally considered healthy
Acquisition payback, months	5.8	2.7	2.5	2.1	2.0	How long a new member takes to repay their acquisition cost

The ratio is thin in Year 1 and strong by Year 5, and the reason matters

Lifetime value is average revenue multiplied by gross margin divided by churn, so it moves with the margin actually earned rather than with a steady-state assumption. In Year 1 the studio earns a 27.7 per cent gross margin on R1 090 a month at 8.5 per cent churn, which gives a lifetime value of R3 552 against an acquisition cost of R1 750 — a ratio of 2.0 times and a payback of 5.8 months. Applying the mature 63.5 per cent margin to Year 1 would show 4.7 times and 2.4 months, which the business does not yet earn. By Year 5, at a 65.0 per cent margin on R1 380 at 4.5 per cent churn, lifetime value is R19 933 and the ratio 11.4 times. The correction changes nothing about the maturity case and a great deal about how the first year should be judged: Year 1 acquisition is close to marginal, and it is the margin ramp rather than cheaper marketing that fixes it.

A ratio of eleven times lifetime value to acquisition cost, with payback inside two months, indicates that the constraint on this business at maturity is not the economics of acquisition. It is lead flow and physical capacity. That has a practical implication management should act on: while the ratio remains above roughly five times — which it does from Year 2 — the business should be spending more on acquisition, not less, until either the studio fills or the cost per member rises materially.

3.2 Capacity

Figure 9. Weekly places offered against places taken.

	Year 1	Year 2	Year 3	Year 4	Year 5
Studio spaces	2	2	3	3	3
Classes a day	7	7	7	7	7
Weekly places offered	1 344	1 344	2 016	2 016	2 016
Timetable capacity, members	409	409	613	613	613
Closing members	339	409	587	613	613
Capacity utilisation	82.9%	100.0%	95.8%	100.0%	100.0%
Coaches	5	6	9	9	9

Figure 10. Members against timetable capacity, and the churn path.

Figure 11. Revenue that does not require another member.

Three studio spaces running seven classes a day, six days a week, at sixteen places a class provide approximately 2 016 weekly places. At 70 per cent average class occupancy and 2.3 visits per member per week, the timetable supports approximately 613 members. The studio reaches that ceiling in Year 4, which is why the plan slows member growth thereafter and shifts emphasis to retention, personal training and corporate contracts rather than to further recruitment.

Previous section2. Market and Positioning

Next section4. Churn and the Retention Engine