Run the five retention habits and expect the first-month rise

1. The problem: a leaky bucket

The belief used to be that you could make up for one customer leaving by selling two more. It worked, until it didn't.

A program that coached gym owners got its members new customers faster and more easily than before. But the gyms lost customers as fast as they gained them, and a business whose customers walk in one door and out the other is hardly a business. That made two problems. The average owner in the small-gym market made $30,000 a year, so every dollar mattered; and if their businesses went under, the program would go under too.

The arithmetic given: at 15 percent churn month over month, a gym owner loses 83 percent of their members in a year. So a gym with 250 members on January 1 would need 208 new clients by December 31 just to stay the same size. With 12.5 percent margins, falling behind by even two customers a month would lose the gym. And owners did.

Flag: the yearly loss. Twelve months at 15 percent a month compound to about 86 percent lost, not 83; eleven months give 83. The 208 new clients is 83 percent of 250. The figures on this page are the ones given. This page does not settle which reading is right.

This is called a leaky-bucket business, and it is a frightening way to live: if you fall behind at all, the business dies.

2. How the habits were found: ask experts, keep what they share

The method comes from consulting work, where a team had to learn more about a complex problem, in six months, than people who had worked on it for their whole careers, and then come up with solutions those people all believed in. The team kept being brought back, so something about the method worked. It runs in three steps:

1. Ask experts, more than one, about the problem.
2. Get all of their answers.
3. Find the common threads, and solve the problem with them.

Why it works. Talking to people who already know your problem gets you solutions faster than working it all out alone. Everyone puts their own spin on things, so talking to as many as you can helps strip out bias and shows you the core problem. Then go through all the notes and do a common-factors analysis, which is a fancy way of saying: find what they have in common.

The tricky part. Say every expert lists 5 factors behind your problem. Lay all the experts' factors over each other, and if the same 2 come up every time, solve for those.

How it was applied:

• Every gym owner with under 3 percent churn month over month, for the last 6 months, was researched. They were the experts at keeping members.
• Each one was interviewed about everything they did to reduce churn.
• Five common factors came out. They became the five habits below.

3. The five habits

1. Track attendance. Members who came three times a week or more stayed; those who came less than twice a week, or twice a week or less (it is given both ways), left. Talk to them when their attendance drops to two sessions a week and you could rescue them. The week-by-week pattern, and a flag on where the lower line sits, are in section 9 of SOP 73 — Feature-downsell customers before they cancel.
2. Reach out twice a week. Praising customers for turning up and for their progress goes a long way. So does solving the little problems they have. Do both.
3. Send handwritten cards. Send one when they sign up, and when you ask for referrals at the three-, six- and twelve-month milestones. Holiday and birthday cards are liked too; that is up to you. Any time is a good time for a handwritten card, so long as you make it yourself.
4. Hold member events. Schedule regular events on an internal calendar; they should run regularly for you and feel random to members. Every 21, 42 or 63 days is a good cadence. Send handwritten invitations, as in habit 3. You cut churn and get referrals: a win on both counts.
5. Hold an exit interview. If a person says they want to leave, talk to them before they do. Set the expectation at onboarding and treat their cancellation notice as the signal to book the interview. Done right, about half of phone and email cancellations are said to be saved; realistically, assuming half show up, churn would drop 25 percent and lifetime value rise 33 percent. Running the call is SOP 132 — Run the cancellation call.

Why the habits work is not known; it is said plainly that they do work. The same is said of the nine-step retention checklist that came later (SOP 129, section 1), which is said to rest on hard data rather than subjective data.

4. What to expect in the first three months

When all five habits were put in place across the gyms, churn went like this:

• Month 1: up by 50 percent. Alarming, and explained below.
• Month 2: down by 50 percent.
• Month 3: down by another 50 percent.

Why it rises first. Churn going up straight away raises eyebrows. The name given to it is shaking the three. First, there are the people who would have canceled anyway. Second, some people have already stopped using the service but are still being billed automatically; once you remind them it exists, they cancel. It all ends well: the owners made more money.

As more gyms got comfortable with that first-month rise, their numbers looked like this:

Month	Churn	Change given
1	10% to 15%	up 50%
2	15% to 7%	down about 50%
3	7% to 3%	down about 50%

The arithmetic: 10 to 15 is a rise of 50 percent; 15 to 7 is a fall of about 53 percent; 7 to 3 is a fall of about 57 percent.

Tell owners in advance. Gym owners were told to expect churn to rise at first, and that as long as they did the work, it would then fall month after month.

What the drop is worth. A cut in churn from 9 percent to 3 percent is given as a 3.3 times rise in lifetime value. The devil is in the details. No business with churn under 3 percent has yet been seen that does not make great money.

Flag: 3 times or 3.3 times. A customer's lifetime runs as one over churn, so going from 9 percent to 3 percent makes it 3 times as long; 3.3 times is what a cut from 10 percent to 3 percent gives. This page does not settle which reading is right.

5. What this page does not decide for you

• What the three are. The first-month rise is called shaking the three, and the groups given are people who would have canceled anyway, and people still being billed after they stopped using the service. Not established on this page what the third is.
• How to choose between 21, 42 and 63 days for member events. Not established on this page.
• Which habit does the most. Why the habits work is not known, and no habit is ranked above another. Not established on this page.
• Whether the pattern holds outside gyms. The month-by-month figures are from gyms. Not established on this page.

6. The checklist

Part	What you do
Find the habits	Ask several experts; get all their answers; keep the factors they share
Who the experts were	Owners with under 3 percent monthly churn for the last 6 months
Habit 1	Track attendance; reach out when it drops to two sessions a week (SOP 73, section 9)
Habit 2	Reach out twice a week: praise participation and progress; solve little problems
Habit 3	Handwritten cards at sign-up and at the three-, six- and twelve-month referral asks
Habit 4	Member events on an internal calendar, regular to you and random to them; every 21, 42 or 63 days; handwritten invitations
Habit 5	An exit interview; at onboarding, set the expectation; the notice is the trigger (SOP 132)
Month 1	Expect churn to rise, by 50 percent in the first set of figures; warn people in advance
Months 2 and 3	Churn falls, as long as the work gets done

7. What this page does not cover

Finding what your best customers do differently is SOP 129 — Derive the activation point. Asking customers what to keep and what to cut is SOP 131 — Run the keep-one and remove-one survey. The cancellation terms around the exit interview are SOP 76 — Design cancellation terms and the waived-fee offer. SOP 139 — Onboard customers to the activation point covers onboarding; SOP 140 — Incentivize activation and time unlocks past churn points covers incentives; SOP 141 — Connect members to each other covers community linking; and SOP 143 — Build the four-milestone customer journey covers the customer journey. Scoring every account red, yellow or green each week, and what each color sets off, is SOP 273, sections 3 to 6.