The Seven Most Important KPIS for a Profitable Boutique Fitness Studio

Boutique fitness is notorious for only focusing on the top line- or money in part of the financial equation. How many members do you have? How many leads came in last month? How much money did you make in sales? All of those are important- crucial even- but what would you rather own?

• Studio A with $500,000 in gross revenue and $450,000 in expenses

• Studio B with $200,000 in gross revenue and $50,000 in expenses

Personally, I'd rather have the studio with a higher net profit at the end of the month. I've been a boutique fitness business coach for years, and I've lost count of the times I've asked, "what was your net profit last year?" and heard crickets on the other end. If that's you, I want you to know that it's not your fault, and you're not stuck like this. Most coaching programs focus only on the incoming figures and the marketing. It isn't easy to develop your education on the whole business picture if you didn't come into business ownership with an accounting or finance background. So let's dive into it. This isn't accounting 101; we won't cover every report or calculation that your business may use, and it's not a replacement for a competent accountant or bookkeeper. However, this article will help you examine the health of your business on a daily, weekly, and monthly basis. In other words, here are the numbers you absolutely need to know to be a successful gym or boutique studio owner.

Get Familiar With Your Numbers

Each of these reports or calculations is important on its own, but none of them give you the whole picture. As you read, think about each item as a piece of the puzzle rather than the key to profitability. Instead of focusing on memorizing a list of crucial figures, let this be your sign that it's time to get cozy with your numbers. If you're one of my clients, you've heard it before, but you cannot grow what you do not measure. With my first business, I would wake up and immediately pull up my bank account balances, projected revenue, and sales reports so I knew where my studio stood before I even got out of bed. At the end of the workday, I would reconcile my books so that my statements were ready to start again tomorrow. I'm not saying that you need to start and end your day with your numbers- once a week would still be great, but you should be knowledgeable of your income statement, bank account balances, and sales reports to have an accurate picture of your business's health.

Gross Income

Let's start with what you likely already look at, your sales or gross revenue. We want your top line to be as high as possible because it gives you more room to spend while still earning. But you've likely discovered that gross revenue is not how much money you get to keep at the end of the month. Also, be careful that you're not relying solely on your booking software to tell you what you earned each month. Fitness software companies are infamous for inaccurate reporting, and, at the end of the day, it's what's in your bank account that matters. Use your accounting software or sales reports directly from your merchant instead of depending on your point of sale software.

Net Income/ Profit

Also known as how much you have left over after paying your expenses. Your top-line sales income might be sky-high, but if there's nothing left over after you pay your bills, your business isn't profitable, nor is it sustainable long-term. You can improve your bottom line in two ways; either by increasing the revenue coming in or by decreasing your cash flow going out. Instead of focusing solely on making more sales, remember to audit your expenses, too. Ideally, you're doing both each month to maximize the amount you have in your bank account at the end of the period. 

Expenses

As a boutique fitness business coach, I regularly ask my clients for their break-even point. What I'm actually asking is, "how much does it cost you to run your business each month?" I primarily use this figure to tell me how many memberships studios need to sell to cover their expenses solely using recurring revenue. Using your income statement, check your expenses monthly by going line by line to ensure you have an accurate estimation of your studio's true costs. Studio owners often have a break-even figure in mind from years ago that is nowhere near the current monthly payout. By checking your expenses monthly, you'll also notice if something looks off and can react quickly to fraud, chargebacks, and mistakes.

Profit Margin

We're going to get a bit complicated but stay with me because profit margins are essential to understanding your business long-term. The formula is (Net Income/Sales)*100. Net income is also your profit calculation (Total Revenue - Total Expenses). Expressed as a profit margin formula, you can determine how much of your revenue you get to keep as profit. Or, put another way, it presents what percentage of your sales turned into profit during the period. Because of the nature of our industry, it's difficult to gauge a "normal" profit margin for small studios. However, in the 2017 IHRSA Profiles of Success Analysis, researchers found fitness-only clubs averaged a 20% profit margin. The higher your percentage, the better your business turns sales into profits. 

Your Budget
Is there a less appealing word than "budget?" Even reading it might make you want to run for the door. I'm not saying I love budgeting, but do you know what I do like? Paying myself what my time is worth and my clients doing the same. If you're spending your entire expense allowance on Amazon each month, that's hard to do. What is your budget for studio supplies? Teacher payroll? Events? If you're not sure, it's time to create one. You can click here to download a portion of the sheets I use with my clients, or you can make your own. If opting for the latter, remember to include your regular variable expenses, including:

• Advertising

• Bank Fees

• Dues & Subscriptions

• Debt Repayment

• Events

• Insurance

• Payroll

• Studio Supplies

• Training/Professional Fees

• Travel/Meals

Software Reports

Switching gears slightly, there are three figures that every studio owner should track: your retention rate, lead-to-client conversion rate, and average client value. Let's look at each of them.

What Is Your Member Retention Rate?

What percentage of your clients are staying year-over-year? If you use fitDEGREE, then your software will tell you both the monthly retention rate and average life span of your memberships, but you'll need to do some calculating if you use other programs. The formula is (Total Memberships-Cancelations)/Total Memberships. So if you had 100 members and three clients canceled, your member retention rate for the month is 97%. The average client lifespan is 4.7 years. Where do you stack up?

Lead-to-Client Conversion Rate

If you work with me, you know I'll ask about your conversions every meeting. How many of your clients purchased a long-term package after their intro session? If you don't track at all, that figure is probably below ten percent, which means that only ten percent of the clients who inquire at your studio stay to become members. My clients average around 75 percent, which means that for every ten leads, 7.5 go on to become members as opposed to just one if your conversion rate is ten percent. Improving your sales process is the fastest way to boost your revenue, but let's start by tracking how many of your leads you're converting at this moment. You can't grow what you don't measure!

Average Client Value (ACV)

How much do your clients spend in your studio each month on average? This is another report that fitDEGREE clients don't need to calculate, but if your software doesn't have it, all you need to do is Membership Revenue/Total Number of Members. The Global Health and Fitness Association reported that the boutique fitness industry's ten-year average monthly membership is $90, although that figure decreased slightly during the pandemic. Depending on your location, modality, and target client, your ACV may be drastically different than the nation's average. Still, we want to see it increasing each year as you refine your prices. You can use this figure to:

• Set accurate financial projections

• Calculate the number of clients you need in each class to be profitable

• Determine exactly many clients you need to pay your monthly operating costs

Put it into Practice.

Now that you know what you need, it's time to make it part of your routine. My favorite way to make it a habit is to set a recurring appointment with yourself on your phone to check your most important reports. Turn off distractions, pull out a checklist and dedicate yourself to knowing your numbers. If you're in charge of your own reconciliations, pick a day every week or every month to rebalance your books. If you have an accountant or bookkeeper, make sure that you're receiving a reconciled profit and loss statement every month and set time aside to study it. Like you may tell your clients when they start a new fitness program, getting started is hard, but keeping at it is where the change happens.

It's only February; you have the entire year ahead of you to make your numbers an integral part of your business strategy. If you're ready to dive in and make 2022 your year for profitability, join us on March 3rd at 9:30 PST for the Limitless Numbers to Know Workshop. You'll leave with the reports you need to do the work for you- just plug in your numbers and set aside time to check in. Numbers to Know is free for Limitless clients and $49 for non-clients.

Here's to your financial success.

Disclaimer: I am affiliated with fitDEGREE, in fact, I write their blogs twice a month. I will never recommend a product or service that I don’t truly believe in.