Gym Membership Drop
FlexFit Gyms is a mid-sized U.S. fitness chain with ~200 locations and a recurring revenue model. Their three main plans — Basic, Premium, and Family — account for the bulk of monthly revenue.
The CFO has flagged a ~15% decline in monthly recurring revenue in the most recent month, despite no changes in pricing, hours, or reported store downtime. Marketing spend remained flat, and no major new competitors launched nearby.
The CEO has asked McKinsey to help diagnose the issue and chart a path to recovery. Before diving into the numbers, she wants your perspective on how the team should approach the problem.
Case Exhibit
To diagnose the revenue decline at FlexFit, we can break the analysis into four broad, mutually exclusive categories:
I. Customer Base
- Membership churn: Are current members canceling at higher rates?
- New acquisition: Has the rate of new signups slowed?
- Member segment shifts: Are members downgrading to cheaper plans?
II. Pricing & Product Mix
- Plan mix: Shift from higher-priced tiers (e.g., Premium → Basic)
- Promotional activity: Are discounts lowering average revenue per user (ARPU)?
- Unused add-ons or upsells: Is auxiliary revenue down?
III. Operational Execution
- Service consistency: Class availability, trainer quality, cleanliness
- Customer experience: App bugs, billing issues, service complaints
- Local execution: Are certain gyms underperforming or mismanaged?
IV. External Environment
- Competitor pressure: New gyms, boutique studios, at-home fitness
- Economic factors: Budget cuts, inflation, discretionary spending shifts
- Behavioral trends: Return-to-office or seasonality affecting usage
This framework ensures full coverage of volume, pricing, internal, and external factors — allowing us to isolate the root cause of the revenue drop.
