Are you a personal trainer or a fitness professional with a dream of one day opening your own gym or studio?
Well I remember being there, but fast forward many years and I bought, built, and sold five studios of my own.
I’ve had partnerships, solo ventures, I’ve used financing, I’ve self financed.
And I have helped dozens of other trainers on four different continents open their first, next, 5th or 10th locations.
So I’ve been building this kind of A-Z series on the steps to take and how to layout your plan successfully, really helping people acknowledge some of the key areas that are generally skipped or misunderstood in this process.
Heck I remember when I first got this crazy notion.
I remember the look of the real estate agent showing me the 15,000 square foot building and he plans I had for the grand temple of iron!
Little did I know my savings of $27,000 was not going to finance the million dollar project!
I remember being deflated when next we looked at the beat up 2000 square foot dance studio, and because it was the only option we could afford felt we had to proceed.
Little did I know at the time the bullet I dodged.
We went on to build a business that would do more than $1,000,000 in personal training revenue in it’s first 18 months of operation (this from a trainer who previously struggled to generate $50-70k annually on my own.)
I sold that business three years ago, but it’s still operating today, nearly 14 years after it began with the humble beginnings of that beat up dance studio filled with hopes and dreams.
If that sounds at all like you, I hope these videos help you do it faster than I did, and skip so many mistakes that cost me tens of thousands of dollars!
Part 1: Visualizing Your Dream and Finding and Validating A Good Location
Part 2: Projecting Your Operating Costs, Setting Pricing, and How-to Plan to Be Profitable On Day 1
Part 3: Renovation Costs, Total Opening Costs, Financing, and Negotiating Your Lease
If you found any of this helpful I hope you’ll subscribe! (Just click here to subscribe www.youtube.com/mrfitnessmarketing)
Do you find your financial numbers confusing? Are you afraid to or not sure what you should be looking for?
Your income or profit and loss statement and your balance sheet are key roadmaps into how well you’re business is doing, what is and isn’t working, and even how you’re likely going to do going forward.
I don’t know about you but even having went to school for business I still found deciphering my business financial statements to be confusing, in fact for the longest time I never looked at them.
And for most of that time I still continued to struggle.
I’m guessing if that was true for me it might be true for many of you.
I’m truly committed to help you grow a bigger, better, more profitable business and in turn allow you to help even more people. (Once a trainer, always a trainer, I truly believe together we can change the world.)
So it would be a tall task I think to fully break this down in one short article (and likely rather dull, long, boring and confusing.)
So today I just wanted to get you aware of and thinking about some key areas of you Profit & Loss/Income statement.
First, if you’ve never even seen one of these that’s the first problem we should deal with.
If you have a shoebox full of receipts and statements you deliver to your account 1-2 times a year, you’re really shooting yourself in the foot.
I can’t urge you enough to make sure you have a bookkeeper you work with on a monthly basis, make sure they’re doing a bank reconciliation (I think it would be rare to find one these days that doesn’t but you might as well get familiar with the term.)
Essentially this means they’re going through your bank statement and identifying, recording and classifying every transaction; so you’re left with information that follows your actual bank account.
I say follows because what you see in your account will NOT correlate to your statements on any given day, cashflow and what has already processed are very different things.
But let’s focus on some key information in your profit & loss/income statement that can help you right away today.
First the obvious stuff.
The big numbers at the top, the good stuff AKA revenue.
In addition to the obvious of how many dollars/month your business is currently generating you may wish to look at this in a couple of different ways.
- Do you have multiple services or products? If so you might want to look at each in terms of what percentage of revenue does it account for? Let me give you an example, if 80% of your revenue comes from your group program, and only 20% comes from your one-on-one training program, which one would you most likely want to spend most of your marketing dollars on?
- Another way you may want to consider your revenue is to divide it by the total square feet of your business effectively giving you revenue per square foot. This can be useful in understanding the pricing of your service, or as you get fuller what opportunities may exist and even how it evolves and changes through quarter after quarter based on heavy promotion etc.
Those pesky expenses.
Of course inverse to revenue is all the costs to run the business, and more importantly what’s left AKA profit or income (we hope there’s something left anyways.)
Either way revenue minus expenses gives us a dollar amount for profit and loss, divide this number by the total revenue and now have our gross profit margin (gross because we haven’t considered taxes, but we’ll leave that out of the discussion today.)
These few numbers alone can be very helpful in understanding how healthy your business is or how it’s performing, but let me give you a couple more specific things I always teach my entrepreneurs that I think can have a really big impact in your decision making.
The first is: percentage of revenue attributed to payroll.
Within your expense categories you should find entries for payroll/wages, possibly subcontract expenses, and if your provide benefits for your employees at shared cost don’t forget to add that in as well as what you pay yourself.
The later can be a bit confusing as for tax purposes you may pay yourself primarily via dividend which will not show on your income statement, this is recorded on your balance sheet.
For our review purposes it’s still important to add it in because we need to think of our company as a living breathing entity that must support itself, and of course you need to know that the resources you’re using to support yourself can continue.
Once you have a total of expenses related to paying others (and yourself) divide this total amount by total revenue, this gives you percentage of revenue attributed to payroll.
Is it over 40%? If so I’ve got good news and bad news. The good news is, if you’re presently struggling, you’ve found one of your biggest problems, the bad news is I can tell you from seeing hundreds of fitness businesses that this isn’t going to be sustainable long term with much hope for real profitability. We’ve got to get revenue up, or payroll down if this is where you’re at.
35-40% This is a common area to find yourself if your business is new or within a heavy period of growth and expansion.
25-35% This is the sweet spot operating zone, at 25% congratulations, you are part of the 1% of very efficient fitness businesses, at 30% you are doing great and should work to maintain this long term, at 30-35% you’re doing great, you’re healthy and can continue to strive to find new opportunity!
This metric can be really beneficial when it comes to hiring, and deciding what you might be able to afford a specific employee(s) or even how you need to set certain goals for new positions in an effort to ensure payroll that may initially increase, over time, ends back up in target ranges.
Ex. Let’s say your payroll is at 30% and is a total of $10,000. This tells us total revenue is a little over $30,000. For easy numbers we could speculate that if payroll was at $11,500 we’d now be at about 35% of total revenue; still within our ideal operating parameters. So this gives you budget of about $1500/month to expand your team.
Can you spend more? Sure but now you can be aware that long term that may create additional stress if that hire doesn’t quickly impact your total revenue in a positive way.
I’ll leave you with one more.
Marketing or advertising dollars.
If you divide the total for marketing and advertising against total revenue now we get a percentage of revenue spent on marketing.
I can tell you that my recommendation to all of my clients is to work to grow comfortable with spending at least 8% of total revenue on marketing and most of my most successful clients spend much more.
You can also quickly evaluate the effectiveness of your marketing and begin to understand the implications of different seasons (like January vs July.)
If you divide your total marketing spend by your total number of new leads for that month we have a basic idea of cost/lead.
You can do the same thing with total new sales for the month, total marketing divided by new sales gives you cost/customer.
Now in theory we can calculate what we need to spend to reach certain growth targets, we can also measure the effectiveness of present and future campaigns by comparing current cost per lead and cost per customer to the previous quarter, promotion, month or benchmark.
Do you see how all of this can really help you make much clearer and better decisions regarding what to do next to achieve your next goal or milestone in your business?
If you’re going to win this game you cannot avoid or be afraid of your financials.
P.S. If you’ve watched my 4 Pillars of a Successful Fitness Business video then what you’ve just learned is most of the KPIs (Key Performance Indicators) for Pillar #4.
I’d sure love to help you with your business and can teach you the basic KPIs we use in the other areas to help your whole team become better aligned behind your goal and on the path to bigger growth!
If you ever want to know if coaching with me could be a good fit for you please reach out via a reply, direct message or the contact form on my website at www.cabelmceldery.com
How did you do this year? Did your business live up to your expectations?
Do you know your margin?
Did your personal income grow?
Is it where you want it to be?
It’s my experience that when asked these kinds of questions most fitness professionals don’t know the answer, except for the part about personal income.
And that’s usually a no.
As we get set for the New Year it’s now a great time to look back at the year. (And again in January once your 4th quarter financials are complete.)
Set(# of set sales appointments/month)
Show (Average % of sales appointments that show up)
Close (total long term program sales/month)
Average Sale Amount
Average Monthly/Quarterly total EFT Sales. (The sum of the monthly payments of the packages sold)
These are all metrics that give you the basic “today” health of your business.
How did this year compare to last?
When you’ve been in the fitness business as long as I have you know that each year is a little different, that our business is seasonal, but it’s never quite the same year to year.
I’ve found it really helpful to look at the averages of the above metrics and see how consistent you are/were from one year to the next. If it’s your first year in business it sets the stage for the next year.
If you’ve been following along with my philosophies for running a fitness business you can compare the above to you marketing calendar and draw some conclusions about what things worked best and should probably be repeated, and what areas can be improved in the coming year.
Most importantly these numbers give you a framework to set goals and make the “day to day” plan for activities to keep driving your fitness business forward.
Next if you compare the total transactions of your billing pool (EFT) at the end of each month or quarter to the total number of long term packages sold (closes) you can get a basic sense of what your client attrition looks like.
The longer you are in business the greater the likelihood you will have some steady amount of attrition, it’s just the way it goes. (And if you don’t you’re not charging enough for your services.)
Next is the Income Statement or Profit & Loss Statement.
Here you see the real bottom line, what was the gross margin for your business?
After expenses what was left?
Many fitness entrepreneurs can be a little surprised to see how low the percentage is when they first begin paying attention.
Have a look at what percentage of revenue was spent on payroll, marketing, and supplies. These can all be expense categories that if not monitored can quickly erode your margin and any real profit.
Though you may be able to drastically effect them one month at a time I’ve found that in most cases it take planning and commitment long term to have a lasting effect.
Also known as goals.
We all know January through March is one of the hottest times for fitness, are you ready to maximize it?
Set some goals for next year.
You no may have an idea of what your attrition looks like, how will you out pace it?
Can you market harder and get more leads and clients? (HINT: Divide total sales/quarter by total money spent on marketing to get your marketing cost per customer. Do the same with total leads to figure out your cost per lead, then use this to set your new marketing budget based on the number of new customers you’d like.)
Looking at these few pieces of data will raise other questions.
What are the reasons for cancellation for those that do cancel or not renew?
Why isn’t my closing % higher? (Build your sales language.)
Why isn’t my show % higher? (Not enough follow up prior to appointment.)
How can I keep payroll under 40% (for one-on-one businesses) or 25% for group training businesses?
A lot of people are intimidated by looking at the numbers of their business, but don’t be, it’s much like getting a report card back in grade school.
As you begin to gain an understanding of what they mean it gets easier to see them improve, and each time they do you are rewarded with a change in lifestyle!
I know these things can be intimidating, I hope this has given you food for thought.
Don’t let fear of something you’re not confident in stop you from building the business and lifestyle you deserve, this is one of the biggest areas I spend coaching other fitness professionals just like you. My shameless plug for coaching, if I can help you I’d like to, learn more at www.7figuremastermind.com