267. Which KPIs to track in your Pilates studio, with Josh Richardson and Raphael Bender

PE Which KPIs you should track in your Pilates studio - Josh Richardson

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dson Business KPIs-auphonic: [: 00:00:00

So a lot has happened since. Um, but I think a lot of what we spoke about still holds true as well. So hopefully we'll be able to, uh, elaborate on a few of those things today. Hmm. And so just for context, for those of you who haven't listened to that previous episode, well first you should go back and listen to that previous episode.

is, Josh is my CFO, my chief [: 00:01:00

Um, but I think the most valuable function without a doubt that you, you, you provide for me is you. Give me strategic advice, um, based on our numbers and, and, uh, I know our numbers now pretty well because of your, you know, what the work that you've done. Uh, and, but that's, uh, that's not your day job though.

Your day job is, you have an accounting firm where you service Pilate Studios. How many Pilates studios have you got in your books these days? Great. I would, I would say we've got between 50 and 60, I would say Pilates group, fitness studios, yoga studios in, in that area. Um, we obviously, we, we help out other industries as well, but, um, the fitness industry is one of our main niches that we service.

ou've got the financials for [: 00:02:00

Uh, and, uh, you, we are gonna go through now the insights that you've gleaned so that, dear listener, if you're a Pilate studio owner or an aspiring Pilate studio owner, you can be one of the top performing studios and you can make that 250,000 or $300,000 a year profit net profit that, uh, the best studios are making.

So, Josh, couple of years ago we talked here and we talked about the basic kind of, I think there were like four or five building blocks of, of building a, a really successful studio. And they were, number one, choose the right neighborhood where people wanna do Pilates and can afford to do Pilates. And probably where there are other Pilates studios as well.

ere's a market. For Pilates. [: 00:03:00

So, uh, that being like the rent not exceeding, like I think we said like 10% of your projected revenue. And you must, oh, only if you wanna make money, dear listener, you must be able to have 12 reformers in, in the room or more. 12 minimum. 12 or 16. Uh, and then what else did we say? Uh, set your prices so that your average price per session, the what people actually pay you.

. Is what we said. Mm. And [: 00:04:00

Did I, what did I miss there? Yeah, no, I think, I think you've covered everything. Oh, thanks to the last two years of inflation, let's increase that average price per class to 25. Okay. And I've, I've, I've used these, I've used, I've used that numbers here, those numbers here. But, um, yeah, I think we've covered everything in terms of what to consider when you are.

Moving into setting up a new Pilate studio or a group fitness studio. Um, and all of those still hold true today. So these numbers that I'm using as benchmarks, we, we invest in a program, it's called benchmarking.com, that will actually give you benchmark data for any industry you want, um, in Australia, and you can get, um, international numbers as well.

our client's financials. And [: 00:05:00

What's normal for a Pilates studio? So maybe I'll give a bit of an insight into that. Now, so when we start looking at some other items to be aware of, now that the, your studio's up and running where there's some KPIs we should be looking at, um, what's our starting point as normal. Okay. So let's, so in turn, okay, but really high level.

age or do you mean best case [: 00:06:00

No, no. Well, if, if you think 600, if you've got a 12 bed reformer studio, um, I'm gonna get, you can play along at home with your calculator, but if you just take your $600,000 a year and divide that by your 12 months gets you $50,000 a month. Now, if you've got 12 beds in your studio, you divide that by 12 and you're getting a revenue of 4,166 per month per reformer, and then per reformer.

t's, uh, okay, so I wanna go [: 00:07:00

Mm-hmm. If we divide that by a $25 per session mm-hmm. It means that bed has to be used 166 times in the month to hit your revenue target. Now, if you've only got a hundred sessions on the timetable, there's no way you're gonna hit that revenue target. If you've got 166 sessions on the timetable for the month, you're at a hundred percent capacity.

And if you've got 200 sessions on the timetable, you're at 80, 80% capacity or something like that. And 80% capacity is really where we wanna be for a, you know, a consistently performing Pilate studio. So that, that's a bit of a drilling into the revenue numbers. Right. That's normal or average, so, so the average Pilate studio with 12 to.

reformers [: 00:08:00

Yeah. Yeah, correct. So if my revenue is 600,000 a year, my expenses, including rent, wages, and all the other overheads is about 450,000 a year, or about 37 and a half grand a month. Now, if you're an owner that is teaching classes, doing admin, you should be paid an hourly rate. For that, for that time. And, um, otherwise, if you're doing the work and not getting paid, it sort of fudges the numbers a little bit.

so you're gonna get a better [: 00:09:00

The same as what you would pay someone else if you weren't teaching the classes. And that comes outta the profit. That's part of the expense of running the business, correct? Yep. So after paying yourself, there should be 12 and a half grand left at, at, on the bottom line in the net profit line or in the, you should have 12 and a half thousand more, uh, dollars of cash in the bank at the end of the month if you're an average.

definition of normal I guess [: 00:10:00

And it probably is on a bell curve with most studios clustered around normal. And then the further away you get from that in either direction, the fewer studios, you know, there are doing like 300,000 a year would be very rare. And yeah, 800,000 a year would be very rare, but you know, somewhere in like 500 to 700 would be pretty common, right?

ey and has a great impact on [: 00:11:00

So how do this, so what we're gonna talk about today are gonna be Josh's, I can't remember what it was, seven step process. I can't remember how many steps there are, but about Seven Step and Seven's a good number to say in a, in a, in a title of a, of a podcast, um, Josh's seven step process to, to build an exceptional Pilates business, and exceptional meaning very high revenue and very, very high profit.

Spot on. So, and I would consider that, and we've used this number in the past, is a studio making a quarter of a million a year in profit is a high performing studio. And I have studios that are doing better than that, but really the top, the top 15%, uh, at that level, uh, going back to your bell curve analogy, and like really the, the steps to get there are pretty consistent as well.

It's, [: 00:12:00

Mm-hmm. And so it's interesting, uh, that you, you mentioned at the, in the, the, the normal, the average party studio is making 25% net margins, so 50,000 a month revenue, 12 and profit. So 12 divided by 50,000 is 0.25, so that's 25% net profit. Whereas those top studios are doing like 750,000 with 250,000 profits.

the beauty of the, the model [: 00:13:00

So, um, yeah, that's why I like the model. And you'll recall in the last podcast we had the Pilates studio feasibility, uh, sort of working sheet, and that's still available to download. I think I, I checked the, checked the podcast link, so that's still there. But I'll just, um, invite anyone to use that and actually see if your metrics stack up in the feasibility study.

day, this is how you build a [: 00:14:00

Like this is nitty gritty stuff, and the only reason this wouldn't work is if you didn't do it. Spot on. Um, I think we've set the scene now, haven't we? Let's, uh, should we, should we get into it? All right. So Josh, like, well, firstly, just a quick update. Like, so last time we talked was two years ago, inflation's happened, you know, post COVID, semi recession has happened, you know, what's changed in, and also Pils is exploding now, you know?

Mm-hmm. So what's, what's changed, uh, that's relevant to our conversation today, if anything? Yeah. So, yeah, you mentioned that there, the competition factor has increased because Yeah. There's, there's more and more studios opening up and, uh. You wouldn't believe it. Someone showed me a map of Melbourne the other day, and on that map had all the class pass yoga and Pilates studios that sort of pin, you know, flagged.

ee the map in Melbourne. You [: 00:15:00

Uh, the good operators are still doing well, but they're definitely having to work harder for that sale and for the retention. And they're constantly evolving their product to make it, you know, engaging for their clients. So that's one thing that's happened. The other thing that's happened, so two years ago we were on the back of all the COVID-19 stimulus payments, the eco, it's what we call a very frothy economy.

health and fitness, beauty, [: 00:16:00

Take out travel because we weren't allowed to travel. So a huge portion of that discretionary spend was going into health and fitness. Uh, so we had a market where everyone wanted, uh, our product. Two years down the track travel has come back into the mix. People can travel again and they're spending money on that, and there's less money to spend on health and health and fitness.

But the other thing that's happened is people have spent all those household savings and just before Christmas, seven months ago, the household saving balance got to zero. People then lived on credit for about two or three months, and in about March or April, we, in my view, hit the, the eye of the storm, the eye of the economic storm, in that people have run outta money.

e months is people have been [: 00:17:00

So things that, things are harder out there is probably the, the moral of the story, but it's forcing the good operators to evolve, adapt, and be more engaging for their clients. And guess what? They're still doing well, there's still a market. People are still making money. Yeah, I think that's, I mean, we've been through several, you know, different ups and downs in the market and breathe education and, and also when we had a studio, breathe wellbeing for a decade.

you know, disappear off the [: 00:18:00

And so it, it, what ends up happening is just like the, the businesses, the bottom 10%, you know, disappear and the top 10% accelerate. It's actually good for, because the, the, you know, the competition thins out basically. Yeah. That's the, the market forces at work and, and what I keep telling my clients, as hard as it is right now, the skies will be blue very soon and you'll have, uh, you know, a period of really healthy trading ahead.

So work on the KPIs, work on your business model and, and the robustness of your business. And the upside is coming, uh, as with any market cycle, right? So it's a lot of positive there. Um. Right. I think you touched on something there, I've forgotten, but Yeah, but that, that's the state of the economy. It's changed.

for globally really, is that [: 00:19:00

People are spending more, you know, you see the inflation numbers are are sticky and higher. It's like, well, no one's spending money apparently. So where's that coming from? There is a segment of the economy that is spending money, and generally speaking, this is gonna be your 45 and older demographic. They don't have.

Mortgages or debt and hence have not been exposed to increasing interest rates. And in fact, they've got savings and investments. So they've benefited from higher interest rates and they've got more to spend. So that segment of the market, um, are spending more and more and is creating this economic growth.

below, they have a mortgage. [: 00:20:00

A membership or classes. Mm-hmm. So yeah, there's, there's the people exposed to that 50 and above, or 45 and above segment. I, I'm noticing it across the board is doing a lot better right now. Hmm. It's interesting you mentioned that because I, I think just anecdotally we've noticed that with our, our students at Breathe Education as well is there's a, there's skewing bit older these days.

l of the business. You know, [: 00:21:00

And it's kind of like a, well, let me count the, the, the steps here. 1, 2, 3, 4, 5, 6. You go seven, there's seven steps. Um, seven step, a process of acquiring, monetizing, and retaining. Clients, which are the three key functions that you have to have to have a successful business. So, uh, and, and so this basically, assuming that you've already done the things that we had in our fir we talked about in our first episode, you know, you've got 12 plus reformers, you've got a good location, you're not spending excessively on your rent, et cetera.

at do I start working on now?[: 00:22:00

So I have A-A-K-P-I system, um, and I'll definitely make this available to the listeners as well. If they just, um, send me an email that will be in the link. But it starts off with our first visit, tracking our first visits. So on this. It's a KPI spreadsheet. We have a monthly tab that we fill in, a data tab that the client will go and fill in for me each each month.

It then converts that to a annual trend. So it's sometimes with KPIs we can get really hung up on how we did for the month without looking about at how that fits into the trend over three months or six months. Um, so we start off with how many first visits are we getting That then rolls down and that's, that's, that's a function of your marketing and sales area.

So this month, how many new [: 00:23:00

So how many classes are on offer and what is my attendance rate? Then we go down to number of cancellations, which will give you your churn rate. Uh, and I'll give you the exact numbers that you should be aiming for as we work through it. And then we track your number of active members and obviously active members times monthly membership gives us our annual revenue.

So, so we can track that and then find, there's a few, there's one other sort of on a side note, KPI that I track, and that is your labor cost as a percentage of your revenue. Mm-hmm. So are you understaffed? Are you overstaffed? Are you taking too many classes yourself? So that's, that's the last one that I track.

se it in breathe as well. We [: 00:24:00

Right? Well, how much did you spend on marketing? How many first visits did you have last month? Of those first visits that came, how many of them bought a pack? Of the people that bought a pack, how many of them came to class? You know how many of them canceled? How many of 'em remained active? Right? And that tells you how much, how many bums you've got on your reformers.

And so when you go back through that process, you can identify where the problem is, right? So rather than just going, I need more clients, it's like, yeah, well, specifically what stage in the process isn't working? Or we specifically, what stage in the process is the primary constraint, right? So if we go to step number one, okay, how many first visits did you have?

if the answer is like four, [: 00:25:00

Increasing the number of first visits and does your system work with that increased volume? And as we've noticed at Breathe as well, it's like something will always break and that that's a good thing. So you fix one problem and then the next, you know, you fix your first visit problem and then you realize that your new signups is sitting at 10%.

while and then it will break [: 00:26:00

Right? And so, you know, just as a, just as a measure, dear listener of why this is so freaking important and powerful to build your business, right? If you're looking around at your class and your class is half empty and your bank balance is mostly empty, and you think like, why, why? You know, why, why don't I have more clients?

Well, if you just go to what you know, right? Which most of us are guilty of just like doing what we are already comfortable doing, and you, you teach more and better Pilates classes and give more and better customer service. Like, that's not gonna solve the problem if the problem is that you don't have enough new people coming into the business.

And so if you, if you, you, [: 00:27:00

And so Exactly. Yeah. And so if you are busy, which as a studio owner, my bet is you are busy as if you are really busy, all of the, all of the hours and your studio's not making much money. I'm sorry to say this to you listener, but you're working on the wrong stuff. And so this process that we are going through here, this is how to work on the right stuff, right?

So if you're teaching 30 classes and they're all a, a third fall and you're not making any money. It's like, yeah, that's 'cause you shouldn't be teaching that many classes. You should be focusing on how many first visits you're getting and how many of them are signing up. All right, so what's, so what is the metric?

are people who take up your [: 00:28:00

It's people that have signed up to a intro offer or a trial offer and paid a price for that. So we never give away free things. So make sure your trial offer has a price and I'll, I'll get to why that's important as well when, when we get to the next metric. But the number is 51st visits per month. Is what you should be aiming for.

we could, we could, I mean, [: 00:29:00

It's like bit under two a day, you know, spot on. Yeah, spot on. Uh, often people will just organically get. 15 to 20 a month without doing anything just by word of mouth. Um, and o often people, when I first start working with them, that's about the number they're at. We're getting, oh, we we're doing about 15 trials a month and we're not doing really any sales.

We're doing a few Instagram posts when they put a strategy in place. And by that I mean working with a professional marketing person or upskilling yourself to, you know, do Facebook ads and, and have a posting schedule and have a real structured marketing plan. Usually within three to six months, you should start to get traction and hit that 45 to 55 new visits or first visits per month.

I think, uh, one of the most [: 00:30:00

Um, or think making the mistake of thinking that posting on social media is marketing. Mm-hmm. And posting like videos of classes is great, but it's not the same thing as putting an ad on Facebook or on Google that is targeted and has an offer behind it. Click here to get started. Two week intro, $50. You know, so

rage month, then you need to [: 00:31:00

And it can be a bit of an adjustment as well, especially on the admin function of your business. All of a sudden you're trying to onboard double the amount of new people. Right? Um, so what I would warn against is. Going too hard, too early and putting all this money and activity into your marketing and sales function, and all of a sudden you're at 61st visits, but your systems can't cope with it and your staff can't cope with it.

use you've got all these new [: 00:32:00

Yeah, yeah. Spot on. So you just, just, so sorry. So just focus on each, each one of these, you know, first visits, sign up classes, attendance, cancellations, active members, labor costs. So just focus on each one of these in turn until it's no longer the biggest constraint. Right? So we don't want to take, uh, first visits from like.

Virtually none to infinity. We want to take it to, from being the, the main reason why you don't have enough money to not being the main reason why you don't have enough money. And as soon as something else becomes the main reason, we stop working on the signups and we start working on the next, whatever the next thing is that, that is the main constraint.

going to find that marketing [: 00:33:00

How can you help me, uh, meet with two or three different people? Do the research yourself and select someone who's gonna help you do that. Um, and it's, it's gonna be over six months. Be be prepared to make the investment. Now and get the returns in six months time. It's probably the, the biggest thing I see is people make the investment on hiring a, a marketing professional to help them or investing in themselves and they're like, nothing's happening.

ing on your list is signups, [: 00:34:00

So we wanna be out of those 50. We need 25 people in the month to be buying a pack or a membership. So we're converting 50% of the new people that have come through. Some studios do much better than that. Some studio, if you're, if you're operating at sort of 30% and below, there's something broken in the customer experience from when they first walk through your doors to when they sign up.

Uh, and that's the next constraint we work on. And there's all sorts of things you can be doing to improve that conversion percentage. Um, going back to the reason why we charge for a trial or an intro is you're immediately gonna clear out the tire kickers and the riff-raff, the people there for a free run.

ust move on. So you're gonna [: 00:35:00

Which is, yeah, not much. So those ClassPass people, basically, they're just taking up space in your classes and they're paying, paying you less than a regular client is paying you and they're way less likely to convert into a regular client. So it's like, yeah. Everything about it is worse than just putting up a Google ad and getting your own new client rather than getting Glass Pass.

ecause they have had a great [: 00:36:00

And, you know, I've got a client that's been operating for 18 years and they'll get people coming back after five years of not being there. Uh, it's so always make sure you're leaving these people with the best sort of experience possible because you're planting the seed for a long-term relationship.

And that, and the, what you said there, that also ensures the highest possible conversion during the trial period. Right. And it's, it's things like, uh, onboarding. So, you know, getting, having that new person, educating them on how to use this facility and how to get them, which classes to go to and how early to arrive and do they need to bring a towel and where do they get changed and all of that kind of stuff.

ting them on the next steps, [: 00:37:00

I mean, we've, I don't know if you've got this data, Josh, but back when I had a studio, we found that people who attended three or more sessions in their intro period were way more likely to convert, you know, to a pack or a membership than people who just attended one or two sessions. Um, so just encouraging them to con, to, to, to consume right.

Yeah. Uh, and I think, yeah, there's some, some, so many things you can do to improve that conversion rate. Another one is, so people always rock up, what, one minute before the class, right? So if you've, if you've got four new people in your class and they all rock up a minute before, how is your trainer or or front desk person going to give them a proper overview of the studio?

me to the class, here's what [: 00:38:00

Uh, by the way, here's, you know, the toilets are here, the, you know, the entry's here, and your, your trainer is gonna be doing this during the class. And it just, it's that step-by-step process of the customer experience that you're gonna try and improve to increase the percentage of them having a good experience and therefore signing up later.

Right. And it's also making promises and keeping them right. If you, if you send them out this video and say, okay, what's gonna happen when you arrive is this, and then when they arrive, that's what happens. Then they start to trust you, that you know, what you say is what you do. Uh, and the more times you can do that, the more they'll trust you.

So, um, exactly right. Alright, so there's, there's a choreography of, of bringing people into the, the studio and actually. Uh, onboarding them, having them consume the classes, you know, recommending which classes they should do, how many classes they should do based on their goal and their, their fitness and whatever.

And [: 00:39:00

How hard is that class from your experience? Okay, well I reckon you should come on Tuesdays and Thursdays and see Mary. 'cause she's great and she's really good beginners, you know, and, and that'll get you where to what you, where, where you want to go. You know, like, just something as simple as that is, is gonna make a really big difference for a lot of people in their confidence and, and their, how regular they are, uh, attending the studio.

g. Yeah, absolutely. That's, [: 00:40:00

So the joining fee might be 50 bucks or a hundred dollars that, that, that gets waived if you sign up before the end of the trial. So that's another incentive of value that they're gonna get to convert. I love it. And, uh, dear listener, you, you can basically have that membership fee and you never charge anyone that membership fee ever for the lifetime of your business.

And the membership fee might, you can, it's basically an imaginary membership fee because as long as you sign up during your trial, you don't pay it. Yeah. And look, back in the day, a membership fee was sort of justified because you had to fill out the, you know, the admin had to fill out the forms and set up the direct debit and give them their gym card and all that kind of stuff.

k really exists anymore. But [: 00:41:00

And then also emails that say, Hey, and by the way, during your intro. You know, week or fortnight or whatever, two weeks, you know, there's this special offer, no joining fee when you, you know, sign up for the x, y, Z for the silver membership or whatever, or a free extra class on your first 10 pack. Um, you know, when you, when you enroll before the, of your trial, and then remind them of that.

u know, if you've, if you're [: 00:42:00

Yeah. And it can all be set up through your management software, like MINDBODY or, or whatever you're using. It's just the, the email, um. Chain that is automated. It's all automated. So in terms of investment on the owner's time to manage this process, if you've got an automated onboarding, you know, new client experience all set up, you've done the one video that you can use over and over again that that'll take you five minutes.

You've got the automated text or, or, um, email, I would suggest it's always worth doing a personalized phone call during their trial. And it's great if the owner does this because you're gonna get great insights into what your studio is like. People will tell you over the phone what they're not enjoying and what they are enjoying.

you can use that really as, [: 00:43:00

% [: 00:44:00

You go, you add five new clients a month at four grand each for, you know, lifetime value. So like, this is not small, you know, small stuff that we're talking about here. Like if you can just get a few percentage points increase in your conversion rate from first visits to, to buying a pack or membership, you know, this is, this is a lot of money we're talking about over the lifetime of that, of that client.

So, you know, and let alone if you can go from 40% to 80%, which is what the best businesses are doing, right? Yeah. And the, the best thing about doing, if you increase the conversion to 80%, well no longer do you have a need to get 50 new people through the door each month. You can actually spend less time and effort and money on getting new people through.

ur, your new membership rate [: 00:45:00

Right. You just really need to orchestrate that experience during the intro period. So at the end of that intro, they're like, holy cow, this is amazing. Where do I sign up? Mm-hmm. Exactly. Alright. Alright. Shall we go on to, so, okay, we've got the members now, they've, they've walked through the door, they've signed up, they're now participating in classes on a regular basis.

embers and how many of those [: 00:46:00

Yeah. Bums on seats, I call it. So if we go, um, on average you have 50, I'm gonna say 50 sessions per week. I'm just gonna times that by four to get you your 200 sessions per month. You, you let's, you do lunar months, you do lunar months. What about 4.3? Three for four? Yeah. We'll go four. Yeah. Okay. Well, let's do it.

. Now, [: 00:47:00

e sessions. So you don't need: 2000

Uh, now why the 80%? Why, why don't we go for a hundred percent utilization? Uh, it's, yeah. You tell me, RAF, I don't, I don't know. You help me out as, because you, 'cause you like leaving money on the table.

u've got jam packed classes, [: 00:48:00

Um, for a studio to aim for. If you are below 80%, you, there's two reasons for that. Either you need to adjust your timetable and remove the classes that are losers, cut the losers, and adjust your timetable on an ongoing basis every four weeks. Or you're a new studio that has created the capacity and you're trying to fill the capacity up so, you know, build it and they'll come.

d, yeah. I mean, I would add [: 00:49:00

And 'cause that's gonna be seasonal as well, you know, as in the colder months, you know, some people won't come in the early mornings or the late evenings, you know, different days will, you know, be seasonal. But, uh, even if you're a new studio, like if you're just building from scratch, like, I think, yeah, I agree.

There's a minimum sort of effective timetable that you need. Like I think if you have 20 classes a week. You know, you've got enough that you've got something before work, something at lunchtime, something after work every day. You've got something on a Saturday morning, so there's, there's none. There's none of the major times that you're not covering.

, if you have [: 00:50:00

You know, like if you go from having five classes a week and you try and sign people up, no one's gonna sign up because I'd be like, oh, I can't come. There's no times it sued me. But once you get up to about 20, you basically, that that objection disappears and people stop you. People stop having a problem with it.

And so any more than 20 is a complete waste of money if they're not full. So you should, that's where the pruning comes in handy, right? You, you keep adding as you need to. Right? So you, so you should have a, a minimum of about 20 classes a week. Even if they're not full, you should have a minimum of 20. But once you've got 20, don't add the 21st one until those first 20 are 80% full or 85% full, and then add the 21st one, you know, take it back down.

n the schedule and you're at [: 00:51:00

Uh, that always seems to work so overflow, just it changes their schedule accordingly. And so this should be a monthly discipline that you, as a studio owner do, or studio manager, studio owner with a studio manager do. And that should basically be, you know, first of every month or the 30th of every month, you sit down and you look at, okay, every class, class by class, what was the average capacity utilization for that class?

ilable next to it, we'll put [: 00:52:00

So you're constantly optimizing for the times that people actually tell you with their vote, with their feet. And they're bums on reformers that you, that they actually wanna attend. Uh, and that way you maximize the convenience for your clients and you mini you maximize the efficiency of your schedule so that you're putting the minimum number of classes on at the times that are suitable for people.

So you get the maximum of people in those minimum number of classes. Spot on. So there we go. Uh, capacity utilization, 80%. Obviously there's some variability there depending on your studio and, and what you're trying to achieve. But look, I've got studios that have 80 classes on the schedule per. Per week.

at having to either add, add [: 00:53:00

It's like, okay, we've Sally's class on Tuesday at, you know, 4:00 PM he's only got average of 20% full. It's like, well obviously that's gotta go right? But Sally's a lovely person and she really likes working here. And the two clients that do show up for that class, they really like it. Well, they love Sally.

y that is profitable for you [: 00:54:00

So Josh, how would you, you know, how would you, how do you advise your clients to approach that conversation? Because if it just so happens that, you know, Sally needs, you know, a certain income level or whatever, and we're saying, oh, by the way, Sally, we're cutting two of your classes. 'cause no one's coming to them.

Like, you know, how, how do you advise your clients to sort of approach that? Okay, so this probably goes into a whole nother podcast that we will do in a fu in the future, which is your trainer KPIs. So this should not be a surprise to Sally that her classes are underperforming and, and, and should be fully aware of everything she needs to do to improve.

in for next week. Okay. Uh, [: 00:55:00

And it's the only reason they're at your studio is because they love that class. Yep. Um, nine times out of 10, I can tell you this with absolute certainty, they will be upset. They might write you an email saying how disappointed they are, but they will find another class that works for their schedule.

And most of the time they go, actually, I really like this other trainer, and I'm, this is great. This is awesome. And or, or Sally's got another time slot that they'll fit into. Yeah. So nine times outta 10 that happens? Yeah. The other 10% of the time they'll leave, they'll leave your gym and they'll find somewhere else.

But guess what? They're gonna have to. Find there's a new trainer anyway. Yeah. Um, so, and that's the whole reason where we work on getting the new clients in through the top is because you're always gonna lose some out of the bottom. Yeah. Um, there's always gonna be that churn of clients that you are no longer a good fit for.

Uh, [: 00:56:00

That is what you are paying her for. And, uh, if the class is not full, she ain't doing her job, and therefore the class gets cut. And that's just how we play the game, because otherwise we go outta business. Spot on. Alright, so we should aim for 80% capacity utilization and that should be a, a metric for the studio as a whole.

g out the ones that are less [: 00:57:00

And also that's a KPI for the trainers, right? So every trainer should be at 80%, and if they're not, then why are they working here? That sounds harsh, but it's like, it's true, right? I mean, how can you have a business that's at 80% if you, one of your trainers isn't doing 80%, you know, if they're doing 60% well someone else has to do a hundred percent to make up for it, right?

The great thing about KPIs and tracking numbers is it's black and white and it takes all the emotion out of it as well. So yes, it is sort of harsh and it's hard to have that conversation. But as the, as the owner, um, you, you can use those metrics to just say, Hey, this is your number, this is what we need.

Right? And so, you know, as, [: 00:58:00

I'm looking forward to the next convo. It's like, this shouldn't come as a surprise to Sally, like you say, and you would, you don't, the first thing you do isn't fire her. The first thing you do is go, oh, Sally, you know, normally your numbers are great, but last month your numbers were down a bit on the Wednesday class, you know.

And because I've been auditing your class and because we've been doing one-on-ones every week and we've been talking about the attendance and the looking at the feedback, we know what it, what you need to do to improve those numbers. And I'll be coaching you on that. And we have a plan for how you're gonna change your behavior and, you know, do more reach outs to clients or finish with a stretch more often or whatever it is so that you fill those classes.

ell, it's the cancellations, [: 00:59:00

Uh, a studio or gym that's doing under 7% is a high performer. So you are, you are really well run Group Fitness or Pilate Studios that has 200 members or regular pack purchases and that are losing 14 of those 14 7%. Uh, that's normal. That's normal churn rate for people moving or injury or pregnancy or all that kind of stuff.

Based on the last 10 years of me tracking these kind of numbers, that it seems to be what it is. I, I, I'm curious about this because this is something I always struggled to track when I was, you know, when I had a studio. 'cause in a gym it's pretty easy to track. Everyone's on a membership at a gym, right?

rs at the start of the month [: 01:00:00

Uh, so now I know MINDBODY does this, and if you're not using mindbody, I'm, I'm pretty sure you'd be able to talk to your software provider to give, to set you up with this visibility. But you should be able to pull up your active members mm-hmm. Number so by, yeah. So active members is someone that has a valid pack or, or a ongoing membership.

r. It's not how many members [: 01:01:00

It's of the hundred people who were active members on the first of the month of that group, how many. Are no longer active members. So you might've had a hundred at the start of the month and then you got an extra 30 and then 20 canceled. Right. So now you're actually still ahead by 10. Right. But you actually have a 20% churn.

You got a big problem. Yep. And that's what we would see. Uh, I won't mention names, but your big chain group fitness. Studios that are in the media a bit lately, you're looking at a churn rate of plus 20% there. Because they, what they do, they get people in really cheap on free trials. They convert them to members on like really low membership price for the first three month, and then it goes high.

ust churning through members [: 01:02:00

It's, it's just a whole, it's working hard, not smart. The best studios, oh, sorry. Go ahead. Oh, so the best studios are under that 5%, you know, three, four, 5%. And that's, that's where you should be aiming for, right? And I mean, just dear listener, this is not, I mean, you think like, you know, 5% compared to 7% compared to 10%, what's, you know, what's the big deal?

But this, these numbers are inversely, uh, correlated with price or with the, the lifetime value of that customer, right? So if you've got someone who's paying you a hundred dollars a month, right? And you've got 10% churn, say, okay, that per how long, how, what's the lifetime value of that person? That means like every month they've got a 10% chance of leaving.

is a hundred dollars a month [: 01:03:00

They're gonna stay 20 months. So you've doubled the value of that client by going from a 10% churn to a 5% churn. Your clients are worth twice as much. Twice as much double. Right. It's like imagine getting double the number of new clients every month. Right. That's the same effect on your bottom line that you'll have from going from 10% churn to 5% churn.

kay. So what are the things, [: 01:04:00

Um, for me, the main thing is engagement of your. Client base, are they getting sick? Are you just doing the same class day in, day out that they get sick of after three to six months and leave? Or are you constantly evolving your product to suit the needs of your members? I would say, I mean, I agree with you on the, on the attendance and engagement bit, and I think, uh, there, there are a few things that you can do as a studio owner and as an instructor.

And this is why it Sally's job to have a full class. Correct. 'cause a lot of these things come down to what happens in, in, in and around the class is of course the classes have gotta, there's gotta be experience and results, right? So that it's gotta be fun and they've gotta actually like get stronger and more mobile and have more energy in all of those, you know, things that they want.

nection, feeling welcome and [: 01:05:00

And so people get distracted very easily and if you monitor their attendance right on a weekly basis, and I, you know, some softwares do this, others probably don't. But if you know, okay, Sally comes three times a week, three times a week, three times a week, two times a week. Two times a week, once a week, none, none cancel, right?

Whereas if you see Sally comes three times a week, three times a week, three times a week, two times a week, you reach out by text and go, Hey Sally, I missed you in class tonight. Where are you? I hope to see you on Friday. Is everything okay? Bam. Sally comes three times a week again next week, and you're off.

ake a big difference by just [: 01:06:00

And I'm, oh, thanks for reaching out. And I've, I'll definitely be there on Monday, I promise. Right. And, and, and that's a person that you just saved from, you know, from cancellation in, in a month when they haven't been using their membership for two weeks. Mm. And like this going into what are our expectations of our trainers?

The churn rate is directly impacted by that work that the trainer is doing. It's not all up to you as the owner. It, you know, the trainers will know who their regulars are and be able to, in your one-on-one every week, you'll be able to get their feedback about who is potentially becoming disengaged and you can action that.

ment of your members. Right? [: 01:07:00

The other, the other things that you can do are, uh, onboarding is massive, right? So, I mean, I've had, you know, back in the day when I didn't know, I've had people cancel and then say to me, I, um, I'm like, why are you canceling? They're like, well, they're like, oh, I wanna go to this other place, up the road that does, you know, uh, small group training like we do small group training.

They're like, oh, I never knew, you know, and it's 'cause I didn't onboard that person properly. And they're like, oh, I wanna pay more money for better service. They don't do it here, so I'm going up the road. It's like, yeah, we do it, but I just didn't tell you. So. Or maybe they've been coming to the classes and they didn't know that you had free parking around the back, or they didn't know that they could get changed, you know, on the premises or, you know, whatever it is.

of their membership or pack. [: 01:08:00

Um, you know, those kinds of things. Working up to like, uh, you know, a certain exercise in class and having, you know, people like show off how they can do it and stuff. Like, all of those types of things are really, really good. Basically, things that bring people together and make them feel part of, of something.

And, and that's not just about working out, it's about community and, and connection with other people. That is incredibly powerful way, you know, like little personalized cards you can give people or, you know, like having, you know, drinks. At Christmas or whatever it might be. You know, like these types of things are really, really, you know, a little barbecue, bring your family.

ing people because they, the [: 01:09:00

Yeah, yeah, exactly. And I think as well, you know, they develop a relationship with you as the owner, as part of the onboarding process and the initial welcome and your check-ins through from time to time they develop a relationship with their trainers because their trainers have KPIs around creating that.

Relationship as well. And then they have the relationship with the other members. Right? So there's three, three things working together that creates the whole community and the, the engagement in your studio. Right? And I think just as a sort of a sidebar on this, we're talking about group reformer studios here, obviously, but in, you know, I help a lot of people, uh, and I know you've got a few people on your books, Josh, that do smaller businesses like a home-based business where they have three or four or five.

You know, [: 01:10:00

They say, you know, you sign up for a specific session each week, like Wednesdays at 4:00 PM or whatever it might be. And so you have a stable group of people who all come at that same time and they get to know each other and they sweat together and they shake together and they laugh together and they cry together.

in those groups a lot of the [: 01:11:00

And so those smaller businesses with more, uh, stable group, uh, groups I find often have very, very high retention. Yeah. Yeah. Yeah, exactly. Agreed. All right. And so, um, we've worked through most of our items here and we've just come down to the last one, which you said, which was labor cost as a percentage of revenue.

That sounds scary, right? So that is, I mean, labor's our most expensive line item. So if we, if we are looking at managing and controlling our costs, we start with the highest ticket items and work our way down from there. And really, in a Pilates studio, what's the most variable? What do you have the most control over?

%. [: 01:12:00

If you are lower than that, you probably haven't got enough classes on the schedule or you are paying below average. Generally speaking, right? So 30%. So you know, basically a third of your revenue should be, well, no, more than a third should be labor cost. And uh, you know, that works out on a, not just a per class basis.

t or something, then that's, [: 01:13:00

Right. And you should be paying roundabout $60 for that trainer. Yep, spot on. And so, dear listener, if you're a trainer, if you're a trainer and you're still listening to this, congratulations, you must wanna open a studio real bad. Um, but if, if you're, if you're listening to this and you're a trainer, or if you're just wonder about how much should I pay?

It's like, well, yeah, you shouldn't pay more than 30% of the, the rev average revenue from your class. And so if we're making $200 from that class at 80% capacity, well the capacity of that class is gonna be maybe two 40. And so that means you've got 10 people in there at 24 bucks. Or, you know, something of that order of magnitude.

ructor, you can't escape the [: 01:14:00

Well, if, if it's consistently that month, on month, you're not making profit, because on top of that, you've got rent overheads and, and all that, all those other expenses. So yeah, you, you'll run outta money basically if it's too high for too long. So you need to make changes. And that, that's where I think going into the trainer expectations and KPIs is, is the next logical step.

e the math simple, right? So [: 01:15:00

I, I think I should pay them $40. Okay? So I start paying them $40 instructor's happy. Now bear in mind, dear listener, if you've got a class that's generated a hundred dollars, you should cut that class off the timetable like. Yesterday, but just to keep the math nice and simple, right? Let's just say that you are paying instructor $30 and then you wanna pay 'em $40.

and in profit, right? So it's: 2020

an hour [: 01:16:00

They, you can, therefore, the $40 you're paying the trainer fits within the metric we're looking for. So, increased prices, you know, if your costs go up, what ha what are, what are the telcos do and what are the insurance companies do they pass it on to the customer? So, and that's something that's happened a lot in the last two years is there's huge pressure on wages.

classes a [: 01:17:00

Your labor as a percentage of revenue will be higher, but if it doesn't come back down within six weeks or two months, you need to look at trimming some classes. Right. And back to what we said at the start, that you really must calculate your own teaching hours as part of the labor cost, right? So if you are teaching 20 classes a week, you have to calculate that you are being paid as if you would pay someone else to replace you, you know, for those class before those classes.

expense in that calculation [: 01:18:00

So that's everything. That's, that's, uh, studio KPIs, talked about things to consider before you're setting up the studio. And of course, all of this relies on having accurate data. So having a good, soft internal software management system, um, having your books on Xero and kept up to date is basically, it should only take you 10 to 15 minutes at the end of the month to extract those numbers, put it into this spreadsheet, and then you'll spend an hour going through it with yourself or with an advisor.

Um, I mean, I, I, I, look, I work with some clients on a monthly basis and some on a quarterly basis. You know, after you've been doing it for a year or so, it's, it's okay. Go quarterly, uh, sort know what you're looking, how.

r the month ahead or for the [: 01:19:00

And so, you know, thing number one that you should do is put together some kind of process for tracking these numbers. First visits, signups, and the conversion. Like the percentage of signups from first visits, how many classes you've got on, and the capacity utilization of each class and overall, uh, cancellations each month and active members at the start and end of the month.

ng software or QuickBooks or [: 01:20:00

Butter, bing, butter boom. You can say these numbers easy. Um, but even if you don't have that software set up, dear listener, like, just go and run a report in Moments or Mind body or whatever. You know, studio management software you use and you just, like, you've gotta find these numbers. And, and if you, if you don't have a, you know, an automated way of doing it, you're just gonna have to do it the old fashioned way because otherwise you, you, you're flying blind with, with no instruments.

eting and then how to recoup [: 01:21:00

So it's not an expense, it's an investment and it actually makes you money because one of the things I hear people fair fairly often is like, oh, I tried marketing but I couldn't afford it, so I stopped. And that tells me that they're doing it wrong 'cause they're not doing the math. So, yeah. How do you think about the, the, the economics of marketing.

Yeah. Okay. So the first thing is, one of the biggest issues I see is people going into a new business with not enough working capital behind them to start with. And as I mentioned, any good marketing strategy might take three to six months to really gain traction. So you might, you may well be losing money on ad spend in the first couple of months, so make sure you're going into this with enough cash behind you.

ndard intro offer? Let's say [: 01:22:00

evenue, I'm prepared to spend: 2000

s well is how quick it is to [: 01:23:00

or: 2000

seconds after they click on [: 01:24:00

Like a minute later. So it, I, I think a metric that, well, a metric that we use at Breathe is we have to recoup, you know, double or we really, really aim to recoup double our ad spend, you know, on day one from that person, because that then allows us to one, cover the cost of the ad that we just paid for to get that person in, and then that allows us to take another dollar and go get another customer.

So that way your advertising doesn't become an expense, it becomes actually an investment. Like it's basically a machine where you put in a dollar at the top and $2 come out the bottom right, you take the, you take the $2 and put it back in the top and $4 come out the bottom. And so you just keep doing that as, as long as more people are still searching on Google, you keep putting more dollars in the top of the machine.

comes back with a, a friend, [: 01:25:00

'cause it might be that you have like 30 people click on your ad and only two of them bypass. So it's cost you $15 per pass to sell a $40 pass, which is still making double your money back on day one, right? But if you've got 80 people clicking on your ad and two bypass, what's costing you $40 per person to sell one a $40 pass, right?

r initial purchase, like the [: 01:26:00

Yeah, I agree. And then once, once you get that right, you're up and running, you, your marketing function is paying for itself, right? Free clients. Yeah. And guess what? You're running an 80% capacity utilization internally, so it's not actually costing you any extra to service that client while they're on their trial or what, or when they become a member.

So it's really just at the top of the funnel that we're worried about. Right. And if that person stays with you, they're worth if, if you've got a, you know, 10% churn and you know, or whatever, 80 bucks a or 80 bucks a week. I can't remember what we said the price was anyway, but they're worth 4,000, 4,000 bucks a year.

ood deal. Mm-hmm. That's it. [: 01:27:00

Take notes. Implement the stuff we talked about. I promise you, this shit really works like it, but just listening to it and punching the air doesn't make it work. You have to go and do it. You have to get an accounting software, you know, do your reports on your attendance, track your numbers. Look at the thing that is broken in that process, right?

And when you're tracking your numbers and you think, huh, my class is empty, you look through this process, okay, are we getting 51st visits? Yes. Okay, great. That's not broken. We don't need to fix it. We don't need to do more marketing. Or maybe we are not getting 51st visits, we're only getting 20. Ah, well, don't worry about any other step in the process.

st visits, [: 01:28:00

So then we implement onboarding and all of the things we talked about to get that up to 50% minimum. But you, I reckon you do way better than 50%. And part of that comes with the pricing, like you said, of your first visit, right? So you said if it's free, you get tire kickers, right? But there's a continuum, right?

So free, you get maximal tire kickers. If your first visit, if your intro pack was a thousand dollars, you're gonna have like a hundred percent sign up rate from that, right? 'cause someone who's prepared to pay a thousand dollars to try it is super committed, right? But the thing is, no one's gonna try it for a thousand dollars.

bucks to try it is fairly [: 01:29:00

Um, and then yeah, tracking your attendance, pruning the classes to maintain your profitability so you're not spending money on classes that aren't generating revenue. Uh, and you know, so you just go through this funnel in the sequence that we've talked about it and just fix each thing. And don't try and fix everything all at once.

'cause that's impossible. Just focus on fixing the one thing that is the, the biggest constraint. Or the constraint that's at the earliest part in the funnel, right? Because if you, if you're only getting ten first visits a month, it doesn't matter what your signup percentage is, 'cause you've got bugger all people coming in the door, right?

o add to that, Josh? I think [: 01:30:00

It's gonna have my Growth IQ branding all over it. But that's, uh, that's my, my branding that it, it looks beautiful. Anyway, but if you just email me at, uh, jRichardson@growthiq.com au, I'll send you that template version and you're more than welcome to have a play around with it. And if you want more help with it, we can take that further offline and, and have a chat in more detail.

But I think having a template or setting up one up yourself is, is a great starting point. Awesome. Josh. Uh, this is so, so great. I mean, I wish I'd had this advice when I started my studio. I just didn't know shit about shit. And, uh, I've made pretty much every single one of these mistakes multiple times, so.

o how lucky you're, it's all [: 01:31:00

So it's, yeah, I, I, yeah, I could spend all day doing this kind of stuff. Yeah. I look forward to our next one. Thanks, Josh. This has been awesome. Oh, thanks. See you later.