Inside FIIT: The #1 Fitness App, with Finance Director Kerry McClelland
"Online fitness is a huge and fast-growing industry. And in a period where gyms and fitness classes are closed, that growth has been even greater."
In the second episode of CFO Yeah!, we spoke with Kerry McClelland, Director of Finance at Fiit. Fiit is the most popular fitness app in the app stores, and has been featured in Forbes, Cosmopolitan, Women’s Health, and plenty more.
Kerry talked about identifying the right data and metrics to promote growth, what’s different about running finance in startups, and why she’s so excited for the company’s future.
Below you’ll find a few highlights in Kerry’s own words, including:
Why they got rid of free plans
The first steps she took to build the finance function
The differences between capital markets and startups
How finance can add maximum value to the business
FIIT’s recent move to cross-functional team structures
The full interview contains so much more. Listen to the podcast at the links above.
How free plans were actually hurting the business
We had a free version of the app which gave users access to a limited selection of 75 classes, and we had a premium version which included our full suite of over 600 classes, 20 training plans, the ability to connect your monitors and see your live stats and take part in the live leaderboard group classes.
It was really an opportunity to give people a chance to experience Fiit before committing to a premium subscription. And that worked quite well initially.
But in January 2020, we introduced a 14-day free trial of Premium, which was actually an even better introduction to Fiit because it gave everybody the full experience. Since launching that free trial in January, we've seen an average conversion rate of around 60%, which is really excellent.
Our data was showing us that, on average, our active premium members were doing three classes a week, which is about 12 classes a month. But those people with the free version of the app were using it pretty infrequently. So we drew the conclusion that the free version of the app wasn't actually working to help us fulfill our mission, which is to keep people engaged and get them to form habits. The free version of that product without the interactivity, without the stats tracking, without the content and the structured plans, it just wasn't doing that. It wasn't delivering on that mission.
You can do a lot of speculating, but ultimately it was a data decision. You could see how engaged our premium users were. And it became an easier decision the more data that we had and the more digging we did into the numbers and the data.
Building a lean finance function
When I joined Fiit, I was the first person that they employed within the finance function. And we still use external accountants to do our day-to-day bookkeeping.
The first role that I brought in was a finance manager who operates in more of a financial controller capacity - a really nice fit for me, a non-qualified accountant. Lawrence joined the business in May.
And so having him take ownership of the financial controller role has freed up so much of my time to be able to focus on the fundraising side and on the FP&A. There's been a huge amount of change, as you can imagine, in the business and the industry over the last six to nine months.
One of the key metrics for us is MRR (monthly recurring revenue). We have the three different subscription types; monthly, quarterly and annually. So there's a huge amount of work that goes into correctly deferring all that revenue and all the fees and the discounts associated with those subscriptions to make sure they’re accurately reflected, and we're really understanding how we're growing.
And then a lot of the unit economics that come off the back of that. We spend a lot of time looking at our churn and really trying to get under the skin of the lifetime value of our customers, and the cost to acquire them.
These are fairly new concepts for me, moving from a debt world into a SaaS business model. These metrics, they're not complicated on the surface. You look at the calculations - they're pretty straightforward. But the more you dig into them, the more complexity you find.
For example, we've seen a huge shift to people taking annual subscriptions, which has obviously had a huge impact on bringing our overall churn down. And that's really useful, for sure, to see and to understand as a business. But what's also really interesting is to look at that churn on a more granular level. How many of our monthly subscribers are churning month over month? How many of our quarterly subscribers are churning at the end of every quarter? So not just looking at how many churn per month, but how many of our users churn when they have the opportunity to churn.
Moving from capital markets to a subscription startup
Nothing can really prepare you for joining a startup - particularly a company that's rapidly scaling. When I joined Fiit, they'd just closed their Series A and were on a really great trajectory. Things were changing very, very fast.
So coming in and really building something from the ground up, the scope of your remit is absolutely huge, which is thrilling but also slightly terrifying. It covers the accounting side, the fundraising side, and a lot of the FP&A is obviously essential to the role.
That was probably the biggest challenge. Rather than any one specific task, it was more the scale of the task at hand that was quite terrifying.
And nothing in the startup world ever goes exactly to plan. So I think there's a really deep need for agile forecasting and scenario planning. From day one, I spent a lot of time on that, building a really comprehensive model. But at the same time, not being too precious over it and being able to flex that to respond to changes in the business and the wider market.
And also staying on top of financing options - whether that be debt or equity - and managing those relationships and advising on the optimal approach. So that's been a huge piece of work over the last 18 months - giving investors, the funding partners and the wider leadership team the confidence that the numbers that they're seeing are in fact the numbers, and that we run a tight ship and are adequately minimizing our financial risk.
Adding maximum value to the business
Done properly, the finance team really should help ensure that data is at the heart of the company’s decision making. So that's something that I worked on quite early on - improving the data that we had access to.
Both access to that data and also the quality of the analysis that was going on into our KPIs and our unit economics. I make sure that the leadership team are really well-briefed on the impact of their strategic initiatives, on cash and unit economics and also understanding the wider context of how some of these decisions are likely to impact securing ongoing capital for the business.
When I came as a Finance Director, I had to work really closely with our CEO on securing the additional capital that was required to keep moving the business forward, while also maximizing value for our existing stakeholders.
I rebuilt our business model. And actually, the most complicated part of that was really building an effective way to track and to measure your unit economics - things like churn and lifetime value. These things are more of an art than a science. A lot of the factors that you use to generate these figures can be interpreted in different ways, and it's really trying to get the most value out of the information that you can extract from that data.
And a lot of the time, it isn't just taking those calculations at surface level, it's really digging down below the surface and looking at differences and trends. For example, typically you'll calculate a churn percentage, whether that be 5% or 7%, and by having a singular percentage, you're kind of implying that your churn is linear.
But what we find - particularly in the fitness space - is our churn might be slightly steeper in the first few months, as people may try it for the first time and it's not for them, but we have a really strong tail. Once we have retained people for a period of time, we have this really strong cohort of what we call core users that don't ever churn; they're kind of addicted.
Creating cross-functional business teams
Our goal as a business is to be able to operate in squads. To have specific squads working on tackling key initiatives for our business - whether that be growth or subscriber engagement - and having that squad made up of people from all over the business, different departments.
We've recently reached a size - just over 60 employees - where we can start to do that. So fairly recently, we've implemented proper squad structures for the first time.
We have a squad tackling growth, and a squad continuing to drive our user engagement and activity. And those squads are made up of people from production, from sales and marketing, from the engineering team. And they'll also have representation from finance.
And I think it's so great to see that collaboration and see people from all across the business coming together to tackle a problem as a whole. It brings so many different perspectives. I'm really excited about that. People are motivated and excited to be part of those squads and tackling those big issues. II think it's going to be great for the business.
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