1.

Introduction

Equinox Fitness is an American luxury fitness company which operates several separate fitness brands:

Equinox, PURE Yoga, Blink Fitness, and SoulCycle. The CLV analysis below focuses on Equinox brand of

gym which has 84 locations across major cities in US, UK and Canada. Annual gross revenue for Equinox

Fitness is $1.4b. The gross revenue for equinox gym is $1.2b and total customer base estimated to be

500k. The average monthly cost per member is estimated at 200$.

2. Data Collection

Key metrics derived for equinox are summarized in table below. Each metric is elaborated in sections
below

Metric Value
Cost of Capital 10%
Acquisition cost 128$
Profits 312$
Retention rate 0.72

2.1 Customer Segments

Attributes Importance Ratings for Customer Segments (1-7)

<18 yrs 18-35 yrs
Membership Cost 7 6
Equipment types 6 7
Extra classes/ Facilities 7 6
Luxury Amenities 5 6
35-50yrs >50 yrs
5 6
5 4
5 5
6 7

Consumer >50yrs: This segment is becoming increasingly health conscious and fitness industry is making

changes to attract them.

Consumer <35yrs: This segment is not only looking for usage of traditional fitness equipment but also

uses extra services like pilates, yoga, dance, karate

The percentage of each segment in fitness industry is as below.

2.2 Cost of Capital

Cost of capital refers to the opportunity cost of making a specific investment. It is the rate of return that

could have been earned by putting the same money into a different investment with equal risk. Thus,

the cost of capital is the rate of return required to persuade the investor to make a given investment.

Due to lack of data, we estimate the cost of capital to be industry average of ~10%.

2.3 Customer Acquisition

Based on fitness industry research, 3% of gross revenue is spent on marketing. For equinox gym this

amounts to $36m. Apart from this equinox runs promotion to waive initiation fees of $200 resulting in

$28m cost. Total acquisition cost amounts to $64m.

Per customer acquisition cost = Total acquisition cost / number of customers = $64m/500k = $128

2.4 Profits

It’s our understanding that the extra amenities like yoga classes are provided at cost to each member,

so we calculate overall profit margin and not for individual segment.

Based on fitness industry research, the gross margin is 14% of gross revenue.

Profit/member = 0.14 * 1.2b/ 500k = $312

2.5 Customer Retention

According to the International Health, Racquet & Sportsclub Association, the average attrition rate for

gyms in the United States is about 28.0%, meaning that 28 out of 100 individuals will cancel their gym

memberships each year. Therefore, the retention rate is 72%.

3. Data Analysis

3.1 CLV
Initial CLV
Annual Exp Discount Present
Year Profilt Retention (r=72%) Profit (i=10%) Value
1 $312 1.00 $312 0.91 $284
2 $312 0.72 $225 0.83 $186
3 $312 0.52 $162 0.75 $122
4 $312 0.37 $116 0.68 $80
5 $312 0.27 $84 0.62 $52
6 $312 0.19 $60 0.56 $34
7 $312 0.14 $43 0.51 $22
$779
Acquisition Cost -$128
Total $651

3.2 Effect of cost of capital and Retention Rate

As the cost of capital increases, CLV decreases. As the rate of retention increases, CLV increases.
 Effects of Retention Rate on CLV Effects of Cost of Capital on CLV
$1,100 $800
$1,049
$1,000 $750 $750
Consumer LIfetiem Value

Consumer Lifetime Value

$915 $700
$900 $688
$650 $651
$800 $800
$600
$700 $570
$651 $550
$600
$500
$500 $450

$400 $400
72 Percent 80 Percent 85 Percent 90 Percent 5 percent 8 percent 10 percent 15 percent
Retention Rate Cost of Capital Rate

4. Strategy Recommendation

Equinox could increase CLV of customers by increasing retention rate. The difference in the CLV

between a retention rate of 72% and 90% is $398. Equinox could initiate several options to increase the

retention rate such as:

 Promotional discounts on classes, training sessions and membership renewal fees

 Increase customer engagement by analytics reporting on their gym usage and providing

suggestions on how to achieve their fitness goal.

 Invest in adding extra amenities in the facility like entertainment features and providing options

to bundle various services

 Goodies giveaway on anniversaries and achievement of personal goal.

Whichever combination of options used for increasing retention rate should not exceed the net value

gained for target retention rate.

 APPENDIX:
References:

 https://www.ibisworld.com/industry-trends/market-research-reports/arts-entertainment-
recreation/gym-health-fitness-clubs.html
 https://www.equinox.com/