Have you ever noticed how easy it can be to see what someone else is doing wrong? But then when we hold up the mirror to ourselves, seeing our own issues clearly is like looking into a thick fog. Small business owners in general tend to face this challenge regularly – they know that they're not making as much money as they want to, but they don't know why. This month, we'll look at ways that you can “clear the fog” and get more clarity about challenges in your own business and what to do about them.
I was recently working with a client, Barbara, who complained that each month she was losing money in her business. She knew this because while she had the same minimal amount in her bank account, her credit card balance kept getting higher each month. Now you might be saying “That's just like me, ” or you may be thinking “I keep way better track of things than that…” In either case, there is usually room for improvement. Consider the following (I'll use the term “program” to include drop-ins, class-cards, unlimiteds, workshops, etc. – basically any “yoga service” you get paid for). Here are some key questions to ask yourself:
- “Which program, product or service do I earn the most money on each month?”
- “Which program, product or servicedo I make the least money on each month?”
- “Which is second most profitable? Third?”
If you can quickly answer these questions, great – you're ready to move to the next step. If not, these are critical questions to answer. If you're thinking that you don't like working with numbers and this just doesn't sound like it matters, consider this.
Imagine your car is making a funny noise and you bring it in to your mechanic. He stands 10 feet away (with the hood closed) and listens to your car rattle and chug, then proclaims “It sure sounds like it has a problem, but for the life of me, I can't tell what to do about it. ” Sounds ridiculous, right? You expect the mechanic to open the hood, maybe hook up some diagnostic equipment and poke around until he can figure out what's wrong. The same is true in business. Just as your mechanic can't fix the problem without first looking to see what's broken, you can't get a business (studio or other) to make more money until you know which areas are working (making money) and which are not.
So how do you actually do this? Here's how. First, get together whatever records you have of who bought what during the past three months (not who took what class, but who paid money for a program or service). Next, you're going to create a table that shows where you made money and where you didn't. Look at the sample table below to see where each number came from as you follow the steps – just do it with one row first (the idea is the same for all the rows). Then, do it for your own studio. Here's how it works:
March Program or service # Sold (# of Students, clients, etc. during month) Price Amount paid back to teachers Gross Profit per item Monthly Gross profit for program
Drop-ins 96 $17 $7 $10 $960
10-class card 22 $150 $70 $80 $1,760
20-class card 18 $290 $140 $150 $2,700
1-mo unlimited 29 $160 $56 $104 $3,016
Partner Yoga workshop 8 $70 $35 $35 $280
Intro to Yoga workshop 15 $50 $25 $25 $375
Yoga privates 14 $80 $25 $55 $770
Gross Total/mo. $9,861
NOTE: If this table didn’t get formatted right or looks confusing, please see: www.centeredbusiness.com/newsletter5-07.htm
- 1. Write down the name of each program or service. (e. g. “Drop-ins”, “10-class card”, etc. )
- 2. Looking at just the records from last month, next to each one, write down how many people paid for that program or service. I'll use the “Drop-ins” row as an example. There were 96 people who paid as drop-ins during this month (March in the example).
- 3. For each product or service, write down the price of that item. In the example, the drop-in price is $17.
- 4. If you pay teachers per head, write down how much of the price you end up paying back to the teachers (use an average based on 2-3 classes per week for unlimited programs). In the example, teachers are paid $7 per head.
- 5. Subtract what you pay teachers from the total price for each item. This is called “Gross Profit” per item. In the example, this is $17 minus $7 which equals $10 as “Gross profit. ”
- 6. Multiply the number sold by the price, and write this in the next column. This is your monthly gross profit for that item. In the example, this is 96 drop-ins times $10 gross profit for each one resulting $960 of gross profit for drop-ins during March.
- 7. Add up all the numbers in the “Monthly Gross Profit” column and you have your total gross profit for the whole month. This is the amount you have available to pay your expenses (rent, utilities, staff, etc), as well as yourself. In the example, this studio had $9,861 to pay their other expenses during March.
- 8. Do this same process to create a similar table for the remaining two months.
Now that you've done all this, who cares? Let's look and see. Now we can answer questions like “Which program was most profitable for this studio during this month?” The answer is clearly their 1-month unlimited (not a surprise – this is true for most studios that do 1-month unlimiteds with auto-renew). Now here's a surprise. This studio owner intuitively felt she made a lot of money on drop-ins because there were so many of them each month. In reality, it just takes lots of time processing drop-ins, but it's really her lowest profit program.
Now that you know, how can you do it better? This is the key. Using the example, there are two key changes to make. This studio owner needs to shift people away from drop-ins and direct them toward the 1-month unlimited. She'll do this by: a) Raising the drop-in rate to $20 and b) offering a “special” for first-time unlimited program subscribers to get 50% off their first month of unlimited (remember, it automatically renews each month).
So how did it work? The result was that profit for 1-month unlimiteds jumped to over $4,500 per month (while profit from drop-ins dropped by just $400 per month).
It was a total win-win situation. Students who were afraid to commit to a regular yoga practice became more committed by buying 1-month unlimited programs (and are now enjoying more benefits from yoga in their life).
This studio is now making an extra $1000 a month in profit. The key was simply to sit down for an hour with a pencil, paper and calculator. This is the power of financial evaluation. So, when are you going to do this for your own studio? I know you're busy, but how many other things that you “need” to do can have this kind of impact on your business? My challenge to you is for you to make a commitment to do this sometime within the next 24 hours. Set the time aside and just do it (Don't worry, it doesn't need to be perfect). Just do it!
I look forward to your new success.
Coach Al Lipper
Business Coach for Yoga Studios
Telephone: (805) 544-3938
Coach Al Lipper of ‘Destiny: Success’ helps Yoga studio business owners smoothly run and expand their yoga studio business. He helps stressed and overwhelmed yoga studio business owners who spend most their time wrapped up in daily business tasks, who can't handle any more clients, or who can't make any more money out of the yoga studio.
Coach Al helps clients find new yoga business strategies which result in generating more clients, increased profits, and more free time for the business owner. The amount invested was small compared to the results. Contact him today to discuss your yoga studio challenges at (805) 544-3938 or visit http://www.CenteredBusiness.com.