MINDBODY PODCAST

The BOLD Show | Episode 17 | Generating Revenue without Increasing Customers

Summary

Your revenue can grow, even if even if your number of customers doesn’t. In this episode of the BOLD Show, host Mike Arce talks with Tom Hatten, CEO of Mountainside Fitness about how they generated over $750,000 in additional revenue without adding more members.

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[00:00:00] In this episode, I'm here with Tom Hatten, the founder, and CEO of Mountainside Fitness. Tom founded his business in 1991, and there are now 16 locations with 84,000 paying members. He's been featured in Club Industry, the Phoenix Business Journal, Club Solutions Magazine, and many more. And in this episode, we cover how he set up his pricing and processes to generate $750,000 more per month without adding additional members.

[00:00:29] Growing a small business isn't easy. To be successful, we know three things for sure: You have to work hard. You have to be bold. And you must constantly learn. We're gathering some of the best minds in the business world to share their ideas and strategies with you, so you can grow your business easier, be more profitable, and have a lot more fun being a business owner. We’re on a mission to connect the world of wellness. And this is the MINDBODY BOLD Show.

[00:01:05] [Mike Arce] Alright, guys. So I am here with Mr. Tom Hatten, the founder, and CEO of the gym that I actually go to Mountainside Fitness. Tom, welcome to the MINDBODY BOLD Show.

[Tom Hatten] Thanks for having me.

[Mike Arce] Are you ready to be BOLD?

[Tom Hatten] I'm ready.

[Mike Arce] Alright. So there are a lot of things I want to talk to you about because I've had a chance to sit down with you before. You are a wealth of knowledge. You've had a tremendous amount of coaching, and great networks, and you have had mentors really guide you along your path. You've been at this game, now, for how long?

[Tom Hatten] 27 years.

[Mike Arce] 27 years. Learned a lot along the way, and you’ve had a lot of failures along the way, but you've persevered through. And you have built, probably, the most successful fitness franchise out here in Arizona, at least what I see. Because it's everywhere and you've grown really, really fast. So we're going to talk about some of the things that you look at as a CEO. 

[00:01:55] The numbers, the metrics. We're also going to talk about some of the biggest life lessons that you've learned. And we're going to talk about [not just] how you look at a member in regards to what you initially want to deliver to them as a service, but how you can continue to deliver value to them and increase the revenue to your business, along the way. Is that cool?

[Tom Hatten] You bet.

[Mike Arce] Alright. So, first, you've been running this fitness business now for 27 years. You have 84,000 paying members. How many locations do you have?

[Tom Hatten] 16

[Mike Arce] 16. So what are the numbers on that? I know you just opened up a few, so some of them have less than others, right?

[Tom Hatten] Correct.

[Mike Arce] Okay. So with the exception of the ones that just opened within the last six months or a year, what does the average center hold?

[Tom Hatten] About 5,500 members.

[Mike Arce] 5,500 members. And what's the average square footage?

[Tom Hatten] About 40,000 feet.

[Mike Arce] 40,000 feet. OK. Now, when you first started, it wasn't a 40,000-foot gym, was it?

[Tom Hatten] No.

[Mike Arce] OK.

[Tom Hatten] 5,000 feet

[Mike Arce] 5,000 feet. So a little smaller. A lot smaller. And so, let's talk about what made you start this business. And was it Mountainside Fitness when you first started?

[00:03:05] [Tom Hatten] No, that's a great question. It was actually Mountainside Gym. And the reason we called it Mountainside was because the first gym was located in Mountainside Plaza. Yeah. And it was a small one. It was 5,000 feet.

[00:03:17] [Mike Arce] OK. You started it and how many gyms did you own before this?

[Tom Hatten] None.

[Mike Arce] No experience.

[Tom Hatten] None.

[Mike Arce] OK, so a lot of people watching and listening can relate. And now they go, “OK, cool. This guy's done it.” Maybe we can do it, too. So you started with no experience, but you've had mentors along the way? Correct? What would you say some of the best mentors have taught you along the way? Biggest lessons? 

[00:03:41] [Tom Hatten]  I think, one of the biggest lessons I learned about 10 years ago, which was to focus on revenue inside the building. So, growing the revenue and maximizing the revenue inside your box. Don't look at growth with more boxes to increase revenue. Make sure that you've done everything you can inside the box you have now. OK. And then move on.

[00:03:58] [Mike Arce] So, with that model, it's like getting people in with the burger and selling the fries.

[Tom Hatten] Absolutely.

[Mike Arce] In order to sell more to the people that you know want more of this stuff. Right.

So give me an example of what’s your burger, in this analogy. And what are the fries? And the shake? What are the other things that you can sell to them?

[00:04:15]  [Tom Hatten] Well, certainly the burger is the actual fitness center, to come on in. So then you start to look at the fries and the shake, whether it is childcare. Certainly, executive lockers. How we sell in our pro shop. Meaning, not only clothes, but the cafes with shakes and stuff like that—literally shakes. And then we go on to personal training. So we want to have different items inside the building to attract everybody to do something else, other than just paying a membership. And then it creates more loyalty to the to the brand, anyways.

[00:04:42] [Mike Arce]  Now I think your average membership is, like, around $44, you had mentioned? Right. But you said that, excluding the personal training, your average member actually pays $53. Right.

Right, and so that's a $9 a month difference—positive difference—per member, times 84,000 members. You're looking at three-quarters of a million dollars more per month without adding any more members, just using what you already have.

[00:05:09] [Tom Hatten] You bet. We look at an interesting metric. We did this starting a long time ago, which is, how low can we have our ratio of membership to total gross revenue. So in some fitness centers, their total gross revenue, the membership side of that can be as high as 80%. We want it low. We want in the 55 and the 60%, because that takes less pressure on just generating memberships to create your revenue. We start to look inside the box to say how can we add more value to it? And that's one of the big things that has made us successful over the years. Saying, “We can do this inside the box, and not have to worry about a member coming in.”

[00:05:43] [Mike Arce] Right, right. Now a lot of fitness studio owners and small business owners, in general—I don't care if it's a salon, or a tanning salon, a hair salon, fitness, massage. I think a lot of business owners that are really just starting out, first 5 or 10 years in, they have hesitations with upselling their existing customers. They almost feel like it's greedy. It's asking for too much. Why do you think that is? 

[00:06:08] [Tom Hatten] I think it can be feeling like you’re invasive, right, or less sincere to what that person wants. I think it's a real skill level to say, “OK, I'm going to upsell you, because we're going to create value with that upsell.” And these are all the different things that can help create value. If you understand that as a sales person, and you sell it sincerely, it takes a little bit of that feeling away. That “I'm just pushing you into something.” Rather than guiding you into something else that will help you in your fitness goals.

[00:06:33] [Mike Arce] Right. You know, the funny thing is, too, there is a ton of marketing research out there that shows that if your customer can buy two or more things from you outside of the original purchase, they are more likely to become a loyal member. So the funny thing is, by selling them more things, you get to keep them for longer.

[Tom Hatten] Yes.

[Mike Arce] And the person that you keep for longer is the person that buys more things. Isn’t that like a perfect cycle?

[00:06:56] [Tom Hatten] It is a perfect cycle. Exactly true. We want to create loyalty to all the things that we offer inside the building. And make sure that we have done the best that we can in those offerings. Don't just have it there. If you're going to have it there, make it really good in each segment that we do.

[00:07:11] [Mike Arce] Now, you have certain metrics you look at, as a CEO, in order to make really tough decisions within the business, that’s sometimes even let people down.

[Tom Hatten] Right.

[Mike Arce] In one case, you had a basketball court, a full basketball court, in pretty much every center. Right.

Right. And you noticed, through the numbers and through trends, which is, I believe, two things CEOs should always be paying attention to. That it would be a better decision to cut the full court into a half court to open up some other spaces, and also change the demographic a little bit of your member.

[Tom Hatten] Yes.

[Mike Arce] So tell me more about that, and what you noticed, and what changes you've made, and what you've seen.

[00:07:51] [Tom Hatten] Well, when we started to see, starting probably about three or maybe four years ago, a shift in the functional fitness inside a health club. So it's from the static weight, stack equipment to just the free weights—those really were your two worlds. The functional areas, whether it's the box jumps, it's the balls, pull-ups, sleds—you bet—all those types of things, on top of more Core Fit, or Cross Fit-type mentality. And the way we deliver workouts of the day. So that's where the world was heading. We really decided to say, OK, what was more—I’m trying to think of the word—progressive?

[00:08:28] Keeping the basketball court a full court? Or cut it in half and open up the space, for another 20 or 100 feet to do more functional training? When we made that decision, it was hard because we knew we would anger some of the members. We did, but keeping the half court helped save that. But the excitement and the growth inside Mountainside because of that area was tenfold. And the ironic part is, in that growth, 60% of that area is used by women.

[00:08:56] [Mike Arce] Really?

[Tom Hatten] Yeah.

[Mike Arce] So I'm assuming you probably got more families in, as opposed to with basketball. When I went in there, it seemed like the demographic was a younger crowd.

Yeah, right. Probably less family oriented crowd. OK. So now you lost probably a few members from it, but in the net of it all—I last talked to you 11 months ago. You had 70,000 members. Now, you have 84,000 members. So even though you may have lost certain members, you've actually gained net more members.

[00:09:27] [Tom Hatten] Oh absolutely. And you know, I think we did a really good job of being out in front of the changes to the members. Because, we do have a few clubs that have full courts, still. And we would actually map it out and say, “OK, if you decide to leave us, to go to another company or club that has a full court, let me just show you what the distance is, right here.” And then they go, “Wow, we didn't realize that.” And then they would just go to the other Mountainside that has the full court. So I think we got in front of that one a little bit. But sometimes you gotta, you know, clip a weed to grow a lawn, you know. And that's kind of the way we looked at it.

[00:09:58][Mike Arce]  I've noticed a lot of the best CEOs and business owners do that. Where they have to make tough decisions that unfortunately are going to let down, sometimes, a good percentage of their customers. But it's in full effort, in order to create or to fulfill the vision of what type of business you want to run, and to please the majority of members, and grow the business better. And I think a lot of business owners that aren't really at that level, they're always trying to find a way to please everyone. And you can't.

[Tom Hatten] Right.

[Mike Arce] I think—I can’t remember who said it—but they said that, if you try to please everyone, the only person that will be un-pleased is yourself.

[Tom Hatten] Right.

[Mike Arce] So, now you've had a few failures along the way. What are a couple of the failures that you feel comfortable talking about, that you've learned from? And what did you learn from them?

[00:10:46] [Tom Hatten] Well, I think early on in my career, I didn't understand, you know—I had never had really any formal business training. I came out of college at the beginning of my junior year and hadn’t gotten into the business side yet. So I was really learning on the job. And I think, early on, not understanding, you know, the balance sheet and the income statement and some of the line items and what they were saying. I always believed numbers talk to you. You just have to make sure you're listening. So early on, I didn't really understand that as much. I understood people. I certainly understood fitness. But understanding the numbers took a little bit longer. And what that was meaning on both sides. So that was, I think, that slowed our growth down a little bit.

And then the second one was growing faster than our capabilities were. So the opportunities were there. And being an entrepreneur, sometimes it's a curse that you always want to take advantage of the opportunities. I think we would have been a little bit smarter of a company to not do those opportunities, and just concentrate on the brand. How we can make sure we're doing the best we can, and then let the brand grow. We caught ourselves. I think those are the two big lessons that, over my career, have stuck with me.

[00:11:53] [Mike Arce] Now there's something that I've also noticed is a trend with people: to have as many employees. How many employees do you average?

[Tom Hatten] 1,200

[Mike Arce] 1,200 employees.

[Tom Hatten] Right.

[Mike Arce] So when you have that many employees—first off, when you have three employees, it's hard to really manage all the different characters already. Even with just three different personalities, different goals, different skill sets and life experiences. When you have 1,200, it means you've probably gotten pretty good at that part. At least, well enough to be able to manage that. So, let's talk about people for a second. What are some of the biggest lessons you've learned in regards to people and developing a great culture?

Every time I go into the gym, people are really nice. They're friendly. They work hard and it seems like everybody owns their role in the business. I literally watch people looking at the monitors and walking over and picking stuff up on the way and you're not there. So what are some of the biggest lessons you learned in regard to people in culture development?

[00:12:49] [Tom Hatten] I think that was the one thing we really nailed coming out of the gate. It was just really a—I was so raw in coming in that it was hard for me to expect anybody to do a whole lot more because I was learning, too. So I felt like we all just needed to learn together. And that putting ourselves out in front would help lead the way until experience followed. And I think that's always stuck with us. You know, people. We’re a collective—84,000 members and 16 locations, we’re a collective of all the 1,200 people that are currently working for us, that believe in the same things, and it makes it easier for them to do their jobs. I don't think we put a pressure-packed environment in front of them. I put a fun environment in front of them and try to make sure that they enjoy their jobs and understand what our goal is as a company. And certainly, to make sure everybody feels comfortable when they walk in the club. That's the number one thing.

[00:13:40] [Mike Arce] Now when you have this many employees, you've had a lot of awesome experiences where you've gotten to hire people. Which is great. There’s nothing more fun than hiring people. Given that putting a handout and shaking their hand and saying, “Welcome aboard.” You've probably had to fire quite a few people, as well.

[Tom Hatten] You bet. Absolutely.

[Mike Arce] Some small businesses are really quick to hire. And then they take, sometimes, too long to fire. What are some of the things that you look at, as far as metrics, or signs, to where it's time to let it go and let this person move away from the brand? Right. 

[00:14:15] [Tom Hatten] Well, I'll look at, first, is just, their engagement. You can kinda tell sometimes, depending, it doesn't matter what their department is, what is their level of engagement? At some point, it was probably here, and now it might be down here. So the first question is: Why? Is it something that we're not communicating to you? Is there something happening in your own personal life that is affecting that? Let's try to understand why, and correct it. Because I need you here. I think if, as we've grown as a company, we've really tried to make sure that the expectations of the job are very clear when you come on. So even though I might have fired somebody, truly they have fired themselves. It would be my job to make sure that they understood why, along the way, and said, OK, we're just not getting there and we just need to move on. And I just think that's made those days a little bit easier because it was clear to the individual that will be leaving.

[00:15:03] [Mike Arce] Now what about the leaders in your organization? You probably have, I would say 50 people in leadership positions, maybe more.

[Tom Hatten] I say that's probably accurate: 50 people in leadership.

[Mike Arce] So those people, are they measured, or do you have certain metrics that they're responsible for? And they're clear on what those are as well? [00:15:20][17.3]
[00:15:21] [Tom Hatten] Absolutely. It depends on the part, for example, a club manager is certainly going to manage the top line revenue inside their club, and we want them to grow the revenue. But a close second is how the club looks and feels. So even though this particular manager can be really killing it as far as how we're growing the memberships. And the place is dirty and not getting repairs, or we have equipment down and they're not communicating, they're not a good manager for me. They need to do both, and I think that's part of the expectation level because we are so hand-in-hand into our brand. 

[00:15:53] [Mike Arce] Do you like to promote leadership from within? Or do you like external?

[00:15:57] [Tom Hatten] I'm big huge fan of promoting within. Yeah, I think once they and I—going back to my roots, again. I didn't know anything starting in, along the way. And you can't teach good personalities to people that care. I think that's just, you're just born with it. And when I, when we identify somebody that has those characteristics that wants to grow inside the company and learn, we open up the floodgates and say, “OK, let's just see where you can go.” And we've had probably our greatest successes with people coming up the ranks. Absolutely. 

[00:16:27] [Mike Arce] So with small businesses, I've noticed a lot of them. If you're in massage, I'm talking about the beginning, right. People that are starting first 5 years, maybe 10 years in business. If you're a massage therapist, you think the answer is get better at massage and be the best massage. If I can learn 12 different types of massage: I know hot stone. I know Swedish. And if I know more than everyone else I’m the obvious choice. Same thing with the hairstylist. Same thing with the personal trainer. If I know how to help this guy and this guy and this guy and this guy and this guy, I've got to be the obvious choice, right? But then we look at it in some of the people that are way far ahead of the game, go: There's people that know a fifth of what you know, in a whole, but are crushing you. Because they have a really good attention to marketing and sales, and focusing on maybe one or two really great things. So for you, what's your attention to marketing and sales? And what's your one or two things that you really like the community to know about your company. 

[00:17:25]  [Tom Hatten] Well, I think it's really good. Pick five things and do them really well. OK. Like you just said. Instead of 15, and announce those, but not do any of them really well, right? So we look at that very hard, and say this is who we are and we understand who we are. So how do we explain that to the world in three words? You know, and I think it's really important for us to be able to do that. And we look at, first of all, at the progressive nature of the club. What are we doing? Or do you get the advantage of a studio atmosphere inside a Mountainside, as well? Do you get the flexibility of childcare, that you might not get and the amenities and the childcare? Certainly in the locker rooms—does it feel like a country club or a boys’ locker rooms? Alright, we want to make sure it feels more like a country club, and really nice. That you feel like what you're getting for your money is certainly there and the value. And then from there the equipment and how we lay it all out and make sure the environment is comfortable for everybody. And we just try. And certainly, then, we wrap it all in with being friendly and push that all out there and all of our marketing campaigns in one facet or another depending on who we're going after.

[Mike Arce] How many avenues of marketing would you say you have in order to get your message out?

[Tom Hatten] It's funny. More now than we used to, ever. And we spend less now than we used to.

[00:18:39] We're more efficient now. And the digital world changed the game. You know, we do very little print marketing. We do some billboard advertising, but most of our marketing now is done in the digital world.

[Mike Arce] Such as?

[00:18:52] [Tom Hatten]  Well, certainly you could talk about email campaigns. And different things where we GPS located you. If you bought a tennis racket, we know you like tennis or fitness, and we will find you and we will deliver an ad to you. And it gets scarier from that. We can geolocate a lot of different ways that are just amazing these days. And then you'll have Facebook campaigns, and stuff like that, that just further the community feel about the site. And we put those all together in very strategic ways to make sure that we're effective in our marketing campaigns. And we don’t spend as much as we used to. Locations help.

[00:19:26] [Mike Arce] Now, even though you don't spend as much as you used to, you still spend a decent amount? Right. And that marketing doesn't make sales. Marketing generates opportunities for your sales team to make sales. Right. I think a lot of people missed the boat on that. They think they need to sell their marketing, but really, the only thing you need to sell is just: Come in. That's it. Come in and check it out. Right. The more people you can get in—of the right nature—the more you can get in the better. But when it comes to your sales team, what kind of emphasis do you have on sales in your organization? In regards to like how often do you follow up? And is there a process, or does everybody kind of wing it? Is there training involved?

[00:20:07] [Tom Hatten]  Well, yeah. We always think that marketing is going to create opportunities. That's it's job to do. We want to create the interest levels when it comes in. How do we serve that interest level when you walk in the building? Do I attack you? Absolutely not. We don't want to do that. We want to listen, listen, listen. Let you do the talking. I'm going to do the listening. And I'm going to try to answer your specific questions along the way. We definitely do a lot of training. We call it Mountainside 101, and we like to cycle all of our salespeople through those multiple times a year.

[Mike Arce] So there's a training program for your sales group before they can start selling.

[Tom Hatten] Absolutely. They have to go through Mountainside University to do that.

[00:20:41] And so they understand the basics of what we're expecting in a sales presentation, which has very little sales and a lot of listening. We’ll explain what our numbers are, and those kind of things, at the end. But certainly, we just want to understand what you want. What Mike wants when he walks in the building. And talk about that and show you what we offer in that mentality. 

[00:20:59] [Mike Arce] You say very little sales and a lot of listening, but the funny thing is, when I hear that, I hear: A lot of sales and very little talking. Right. Because the I think what most people do, is they think they're doing a lot of sales, but they're really just doing a lot of talking. And they're actually doing this much or no selling, because they're un-selling it all. Because you can't learn and talk at the same time. You can't. You already know what's going in here. But if you can ask the right questions, then you can extract the right information. You could tailor the few things that you do say to actually mean something to that individual. And that is 100% selling to me. 

[00:21:37] [Tom Hatten] You're exactly right on the money on it. You know, our salespeople have an opportunity to get to know somebody on a tour. And that's the way we look at it. So, if I can bond with you in a 5, 10 minute tour—we come from the same place, our kids are the same age, or man, I tore my ankle playing basketball just like you did—now all of a sudden there's just a different mentality. The guard’s down. Now I’m going to listen differently. I'm going to remember. Mike when he comes back in if he's on a five-day guest pass. And the sale becomes easy at that point, especially, with the amenities and things that we offer. But we bonded and that matters to the loyalty, and the joining. 

[00:22:11] [Mike Arce] So for the people out there that just started their business, say within the last few years, and they're not as profitable as they need to be. Some of them may not be profitable at all. What are one or two things that you think? Focus on this right now. You're in the beginning of it all. Focus on this and, I know, probably depends on what they need. Everyone's got their weaknesses, but what are the one or two things in the very early stages that somebody needs to get really great at? 

[00:22:36] [Tom Hatten] Well, I think that's an interesting question because it can be in so many different ways, depending on that person. I always just think it's important to know who you are. And I mean that as a business. And once you really understand that, not as much concern is put on what the competition's doing. It’s going: OK, if I'm X, am I doing everything I can to make sure that X stands out? Are we clean enough? Are we having the right amount of offerings? Is our pricing model accurate to what we deliver? And some of those type of things. Do we have enough staff? Can I service you, the way that you would like when you come in the building? Am I too worried about having extra staff on, and that's affecting the way the business grows? I mean, there's a lot of different—I call them levers. OK. Are we making sure they're all in the same spot where they're supposed to be? 

[00:23:23] [Mike Arce] That's awesome. Well, Tom, I know you're a super busy guy and I 100% appreciate you coming down and sharing this with us. You've probably been one of the more successful people in regards to total members that have paid to have your service than anybody we've had on the show. And so everything you’ve said means a lot. For everybody listening, for everybody watching, thanks so much and we will see you next week.

[00:23:48] Thank you so much for joining us today. If you like this episode, then subscribe to our podcast on iTunes, Google Play, or Stitcher, and to our YouTube channel, to never miss an episode. You can get all the links by going to BOLDShow.com.

[00:24:02] Thanks. And see you next time.

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