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

If you're a Pilates Studio owner doing at least $25,000 a month and you're feeling the strain of growth or possibly the strain of lack of growth, this is for you. I work one-on-one with a small number of Studio owners to help them build scalable systems, aligned teams and a business that grows smoothly and doesn't rely on them being the hero every day. If that sounds like what you need, click the link in the show notes that will take you to a short video explaining exactly how I work and if it's a fit under the video, you can fill out an application and book a call. Welcome to Pilates Elephants. I'm here with Josh Richardson. Hey Josh. G'day Raf, how are you? It's good to be back. It's so great to be here with you. I can't believe Elas Convoy on Pilates Elephants was two years ago. Yeah, and I actually went back and had a little listen to that episode. In August 2022, so a lot has happened since, but I think a lot of what we spoke about still holds true as well. Hopefully we'll be able to elaborate on a few of those things today. 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. I think it's number 98. The title of the episode is How to Make $250,000 a year from your Pilates Studio. Josh is, how I know Josh is Josh is my CFO, my chief financial officer, I guess. You're my financial advisor, strategy advisor in my business. Your company does our accounting, your bookkeeping, but I think the most valuable function without a doubt that you provide for me is you give me a strategic advice based on our numbers and I know our numbers now pretty well because of your, you know, the work that you've done. But that's not your day job though. Your day job is you have an accounting firm where you service Pilates Studios. How many Pilates Studios have we got in your books these days? I would say we've got between 50 and 60, I would say Pilates Group Fitness Studio, Zyoga Studios in that area. Obviously we help out other industries as well, but the fitness industry is one of our main niches that we service. And because of that, you've got the financials for probably a larger number than that of Pilates Studios. And you know from a financial perspective, what looks, what a good studio, what a high-performing studio looks like and what a mediocre one and what a terrible one looks like. And we're going to go through now the insights that you've cleaned so that, dear, listen up, if you're a Pilates Studio owner or an aspiring Pilates 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 the best studios are making. So Josh, a couple of years ago we talked here and we talked about the basic kind of, I think you're like four or five building blocks of building a really successful studio and they were number one, choose the right neighborhood where people want to do Pilates and can afford to do Pilates and probably where there are other Pilates studios as well. Because then you know that there's a market for Pilates. Number two, know your numbers, like have some kind of financial model, financial plan, get some advice from someone who can build a spreadsheet competently and interpret it and who doesn't have emotional involvement in your decisions. Number three, make sure that your rent and your premises are on point. So 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 want to make money, dear listener, you must be able to have 12 reformers in the room or more 12 minimum, 12 for 16. And then what else do we say? Set your prices so that your average price per session, what people actually pay you. So if we include like all the free trials that you give away and the discounted membership so you have like the average price that people pay you is minimum of like $22 a session is what we said. And then yeah, finally, I think the last one was I'm blanking on it, but it can't have been that important. So yeah, did I, what did I miss there? Yeah, 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 used these, I've used that numbers here, those numbers here. But I think we've covered everything in terms of what to consider when you're moving into setting up a new Palade studio or a group fitness studio. 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 in Australia and you can get international numbers as well. So we've, so I've got access to those numbers, but also I've got access to our clients, financials and I sort of, I'll work interchangeably between those two, but basically across our client base is pretty consistent with the benchmark data. Now a question I get asked all the time, one of the first things a client will say to me is, am I doing okay? What's normal for a Palade 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 studio is up and running, we have this in KPIs we should be looking at. What's our starting point as normal? Okay. So let's, so in turn, okay, but really high level. So revenue, I would say at a 12 or 14 bed reformer Palade studio would be about $600,000 a year or $50,000 a month. Now, when you say normal, do you mean average or do you mean best case scenario? So that's average. Right. Because I was going to say 600 doesn't sound maxed out to me. No, no, well, if you think 600, if you've got a 12 bed reformer studio, I'm going to 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. Now if you divide, how many classes do you run in the month? And let's say you're running 50 a week or 200 a month. So go and look at your schedule, how many am I running a month? It'll be 217, 217 a month. Okay. So I want to go back to the point where we're getting our revenue per bed at 4,166. If we divide that by a $25 per session, it means that bed has to be used 166 times in the month to hit your revenue target. Now if you've only got 100 sessions on the timetable, there's no way you're going to hit that revenue target. If you've got 166 sessions on the timetable for the month, you're at 100% capacity. If you've got 200 sessions on the timetable, you're at 80% capacity or something like that. And 80% capacity is really where we want to be for a consistently performing Polaris Studio. So that's a bit of a drilling into the revenue numbers. That's normal. So the average Polaris Studio with 12 reformers should be doing 50 grand a month in revenue. That's how much you get paid from the customers. And how much of that should be profit? Right. So the profit that will fall out of the end of that is about 12.5,000, which equates to about $150,000 a year profit. And that is not including if the owner is teaching classes, the owner should be getting paid to teach those classes separately to the profit. Yeah. Yeah, correct. 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 37.5 grand a month. Now if you're an owner that is teaching classes, doing admin, you should be paid an hourly rate for that time. And otherwise, if you're doing the work and not getting paid, it sort of fudges the numbers a little bit. So you're going to get a bit of profit, but you're actually doing all this work that's not being paid. So you're not getting a clear picture of how well your studio is performing. Right. So 50 grand a month revenue, 12.5 profit, but that profit, you have to take out of that. Like if you're the owner and you're teaching classes, you have to pay yourself for those classes the same as what you would pay someone else if you weren't teaching the classes. And that comes out of the profit. That's part of the expense of running the business. Correct. Yep, so after paying yourself this. would be 12.5 grand left on the bottom line in the net profit line or in the, you should have 12.5 thousand more dollars of cash in the bank at the end of the month if you're an average Pilates studio really globally. I would say definitely for Australia, US, it works out pretty similar. Yeah, they're good. Great. Right, so that's normal. Now, if kind of the definition of normal, I guess is like, you know, 50% do worse than that and 50% do best than that, better than that, right? 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, they're doing like 300,000 a year would be very rare and 800,000 a year would be very rare. But you know, somewhere in like 500 to 700 would be pretty common, right? Correct. So if I want to, if I'm normal, great, if I'm or if I'm below normal or if I'm above normal and if I want to be well above normal, you know, because I'm, I'm guessing, dear listener, that if you started a Pilates studio, you didn't want to start a normal Pilates studio. You wanted to start an exceptional Pilates studio and you just didn't want to have an average business. You want to have a fucking awesome business that makes heaps of money and has a great impact on a large number of people, their both your employees and your clients. So how do this, so what we're going to talk about today are going to 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 is a good number to say in a title of a podcast. Josh's seven step process to, to build an exceptional Pilates business and by 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 15% are at that level going back to your bill curve analogy and like really the steps to get there are pretty consistent as well. It's yes, there's slight variations between different studios, but these seven KPIs that we'll look at will get you there over a period of time that may be six months, one year, 18 months, as long as you stay consistent and work through and sort of target the areas that need your attention, you definitely get there. And so it's interesting that you mentioned at them in the normal, the average Pilates studio is making 25% net margin. So 50,000 a month revenue, 12,500 profit, so 12,500 divided by 50,000 is 0.25, so it's 25% net profit. Whereas those top studios are doing like 750,000 with 250,000 profit. So that's a 33% margin. So they've got a significantly higher margin. So a larger percentage of the revenue stays in your pocket as the owner. Correct. And that's that's the beauty of the model of the studio is that a lot of your costs are going to be fixed like rent. If you're paying 60 grand a year rent, you're paying that if you've got one client or a thousand clients, it doesn't matter. So yeah, that's why I like the model and you recall in the last podcast, we had the Pilates studio feasibility sort of working sheet. And that's still available to download, I think. I checked the check the podcast link. So that's still there. But I'll just invite anyone to use that and actually see if your metrics stack up in the feasibility study. And dear, listen up, like I hope you're excited to dive into this stuff because this is literally the step by step process of how to build a $250,000 a year profit in your Pilates studio. So if you don't just listen to this and not a long ago, yeah, yeah, yeah, if you actually implement the things that we're going to talk through today, this is how you build a $250,000 a year profitable business. Like this is needy gritty stuff. And the only reason this wouldn't work is if you didn't do it. I think we've set the scene now. Haven't we? Should we get into it? All right. So Josh, like, well, firstly, just quick update. Like so last time we talked was two years ago, inflations happened, you know, post COVID, semi recession has happened. Yeah, what's changed in and also Pilates is exploding now, you know, so what's changed? That's relevant to our conversation today. If anything. Yeah. So yeah, you mentioned it there. The competition factor has increased because yeah, there's more and more studios opening up and 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 pinned, you know, flagged, you couldn't even see the map. In Melbourne, you could not see, you could see little dilemmas of the map. So there are, there are so much more competition out there. But what I'm noticing is the good operators are still doing well. So there's enough demand to accommodate the additional competition. 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. That's one thing that's happened. The other thing that's happened two years ago, we were on the back of all the COVID-19 stimulus payments. The, it's what we call a very frothy economy. So people had all this cash and there's a metric the RBA look at which is called household savings and they are at the highest level ever, which means people are spending money on lots of discretionary items. Being usually discretionary spend is like travel, health and fitness, beauty, wellbeing, entertainment, that kind of stuff. Take out travel because we weren't allowed to travel. So a huge portion of that discretionary spend was going into health and fitness. So we had a market where everyone wanted 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 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 eye of the storm, the eye of the economic storm in that people have run out of money. They've also maxed out their credit cards and they haven't really changed their habits yet. So what we've noticed in the last three months is people have been forced to change their spending habits and one of the easiest things to take off your monthly or weekly spend is your gym membership or your 10 pack of Pilates classes. So things that things are harder out there is probably 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 different ups and downs in the market and breathe education. And also when we had the studio, I breathe well being for a decade. And it's definitely the case that in any, when my experience anyway, in any down market, not everyone does badly. Some people do exceptionally well. And what happens in a down market is the weaker businesses go under and the strongest businesses gather up the scraps that were left over after those ones disappear off the scene. And so what ends up happening is just like the businesses, the bottom 10%, you know, disappear and the top 10% accelerate. It's actually good for because the, you know, the competition thins out basically. Yeah, that's the market forces at work. And what I keep telling my clients is hard as it is right now, the skies will be blue very soon. And you'll have 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 as with any market cycle. So it's a lot of positive there. Right. I think you touched on something there. I forgot. But yeah, but that's the state of the economy. It's changed. Probably one more thing and this probably is a good insight for anyone who's listening and trying to figure out where to direct their marketing spend right now. But and it holds true for globally really is that we've got a two-speed economy. What I mean by that is there's two parts. So the economy on paper as a whole is actually going, okay, there's inflation. People are spending more, you know, you see the inflation numbers 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 going to 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 are spending more and more and is creating this economic growth. So if you're going to angle your marketing to that segment, well done. The other segment, let's just call it 45 and below, they have a mortgage, they have kids, they're exposed to all the increasing interest rates and cost of living. They're the ones that aren't spending. So generally speaking, if you're trying to angle your marketing at that side of the market, you might get great engagement on your Instagram posts, but it's probably less likely to follow through into a purchase of a membership or classes. So the people exposed to that 50 and above or 45 and above segment, I'm noticing it across the board is doing a lot better right now. It's interesting, you mentioned that because I think just anecdotally we've noticed that without our students at breath education as well, there's a skewing a bit older these days. Yeah, interesting. All right, so let's get into Nitty Gritty. What we're going to outline here or what you're going to outline is really, it's essentially your, the sales funnel or the cash funnel of the business, where the money comes from, where the clients come from, from front to back. And it's kind of like a, let me count the steps here, one, two, three, four, five, six, two, seven, seven steps. There's a process of acquiring monetizing and retaining clients, which are those three key functions that you have to have to have a successful business. So, and so this is basically assuming that you've already done the things that we had in our, we talked about in the first episode, you know, you've got 12-class reformers, you've got a good location, you're not spending excessively on your rent, et cetera. Now, talk it, talk us through the funnel and why, like why give us an overview of this process, I guess, Josh. Okay. So, yeah, let's assume that the business is up and running, you've been going for a while, you've sort of, yeah, you're going along organically and it's like, okay, well, where do I, what do I start working on now? So I have a KPI system and I'll definitely make this available to the listeners as well if that just send me an email that will be in the link. But it starts off with our first, 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 month. It then converts that to an annual trend. So it's sometimes with KPI as we can get really hung up on how we did for the month without looking at how that fits into the trend over three months or six months. So we start off with how many first visits are we getting? That then rolls down and that's a function of your marketing and sales area. How well am I doing it, attracting people through the front door to start with? That then rolls down into your conversion rate. So this month, how many new members signed up or purchased a pack? That then, and we'll get into this in more detail, but that then rolls down into your capacity utilization in your studio. 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 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 we can track that. And then there's a few, there's one other sort of on a side note, the KPI that I track and that is your labor cost as a percentage of your revenue. So are you understaffed, are you overstaffed, are you taking too many classes yourself? That's the last one that I track. Okay. And so this process, we use it in brief as well. We call it the diagnosing constraints process. We didn't make up that name, but it's really basically, this is the life cycle of that prospects becoming a client and then retaining as a client. And so if you don't have enough bums on reformers, you look around the classes, our FAMT, it's like, well, why is that? 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 at bought a pack? How many of them came to class? You know, how many of them canceled? How many of them remained active? Right. And that tells you 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 you go to step number one, okay, how many first visits did you have? If the answer is like four, okay, well, everything else after that becomes irrelevant because it doesn't matter what percentage of those people sign up because there's bugger or people walking in the door. So we've got to start there. Exactly. And often when I start working with people, I'll show them these KPIs and they've got some sort of a system or a methodology in place for each part of that business, but it's a matter of fine tuning it. And then obviously putting some pressure on it by increasing the number of first visits and does your system work with that increased volume? And as we've noticed at brief as well, it's like something will always break and 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 are sitting at 10%. It's like, well, I've got a problem there in my conversion process. So we work through an order and something will always break and then something will stay fixed for a while and then it will break down the track. It's an ongoing process of not just recording the KPIs but like getting the actionable insights and doing something about it. Right. And so, you know, 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 classes are empty and your bank balance is mostly empty and you think like, why? Why? You don't 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're already comfortable doing and you teach more and better politeist classes and give more and better customer service, like that's not going to solve the problem if the problem is that you don't have enough new people coming into the business. And the way you get more new people coming into the business is not, I mean, of course, you have to take great place classes and that's that's kind of like a price of entry. But you need to advertise, you need to get the word out and you need to convert those people into paying customers. And so if you, if you, you, by using this process, it allows you to focus on the things that are actually going to make the difference to your revenue and profit rather than wasting time on stuff that's actually not moving the dial. And so exactly. And so if you're busy, which as a studio owner, my bet is you're busy as if you're really busy all of the, all the hours and your studio is not making much money. I'm sorry to say this dear listener, but you're working on the wrong stuff. And so this process that we're 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 third full and you're not making any money, it's like, yeah, that's because 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 is the metric? What is that? What is a good benchmark for first visits per month? And this so these are people who take up your intro offer, right? They're three classes for $30 or four classes for $50 or whatever it is that you sell. Yeah. Yeah. Spot on. So first visits is, is not people that have come and done a one off casual class. 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 get to why that's important as well when we get to the next metric. But the number is 50. First visits per month is what you should be aiming for. And I'm using our average Pilates Studio 12-14 Bed Reformer Pilates Studio as my guide there. But with my clients, I am 50 given take depending on what their ultimate goals are. And that really is a function of your marketing and sales activities. Right. And we could, we could, I mean, 50 sounds like a lot, but it's not actually that many. It's like a bit under two a day, you know. Spot on. Yeah. Spot on. And often people will just organically get 15 to 20 a month without doing anything just by word of mouth. And often people when I first start working with them, that's about the number they're at. We're going to, we're doing about 15 trials a month. And we're not doing really any sales. We're doing a few Instagram posts. my push. a strategy in place and by that I mean working with a professional marketing person or upskilling yourself to do Facebook ads 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. And I think one of the most common sort of mistakes that I see people making that inhibit or that are preventing them from from having the business of their dreams is either just not marketing. So when I say that studio owners you know what are you doing for marketing and they're like nothing or making a mistake of thinking that posting on social media is marketing 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 to week intro $50 you know so if you're not getting 50 plus new humans walking the door and buying your intro offer on the average month then you need to be doing more or better marketing. Yep and that's going to vary depending on the season but you're really between 40 40 and 60 is your number I've had a client recently that has spent the last six months going from that 20 to now in the last two months hitting 50 plus 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 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 and your clients get a little bit annoyed with it as well because you've got all these new people the influx of new people into the studio so slow and steady over a six month period is my advice there and all you get there is exposing 60 people a month to bad service that they're not going to come back and pay for yeah yeah spot on so you just like so just focus on each one of these you know first visit sign up classes attendance cancellation active members labor cost 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 first visits from like you know virtually none to infinity we want to take it to from being 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 sign-ups and we start working on the neck whatever the next thing is that is the main constraint yeah spot on and you're you're you're I suppose when you're going to find that marketing person or someone to help you with achieving that goal of it not being the main constraint your directive to them is I'm currently getting 20 new people through my doors every month I want to get 50 new people through the doors per month how can you help me meet with two or three different people do the research yourself and select someone who's going to help you do that and it's it's going to be over six months 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 marketing professional to help them or investing in themselves and a lot nothing's happening it's been three months and nothing's happening if you're doing the right thing give it six months before you start to see some traction there all right so we've got 51st visits Chiching now okay the next process the next thing on your list is sign-ups right so out of those 50 new visits 51st visits we want to be signing up or the KPIs 50% so we want to 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% below there's something broken in the customer experience from when they first walked through your doors to when they sign up 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 going back to the reason why we charge for a trial or an intro is you're immediately going to clear out the tire kickers and the riffraff the people there for a free run because all they're going to do is just move on so you're going to lose them anyway and and that's that's also the reason why I'm not a big fan of class pass because those people are bargain hunters and their their studio offers yeah just on class pass I would say if you're converting 5% of class pass people to a regular membership you're doing well which is yeah not much those class pass people basically they're just taking up space in your classes and they're paying you less than a regular client is paying you and then 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 class pass yeah solves a short term problem and and some of this is you're going to think about the bigger picture like you you may well not get a 50% conversion rate but sometimes those people will come back in three months or six months because they have had a great experience so that's why I like to look at trends of conversion instead of just the month by month data 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 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 say there that also ensures the highest possible conversion during the trial period right and it's it's things like 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 ring a towel and where do they get changed and all of that kind of stuff what's the etiquette to how do I cancel how do they book you know which classes should I do all of that kind of stuff so onboarding them in a way so they feel super clear and they know how to get the most out of the program and then educating them on the next steps you know and well then encouraging to come as many times as possible 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 are just a tell it one or two sessions so I just encouraging them to to to to to consume right yeah and I think yeah there's some so many things you can do to improve that conversion right another one is so people always rock out what one minute before the class so if you 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 something I've seen done really well is just sending them the day before so they've already booked the class sending them even half a day before is the welcome video which is yours and owner it's a pre-recorded welcome video you as an owner saying welcome to the class here's what you're going to expect by the way here's you know the toilets are here the you know the entries here and your your trainer is going to be doing this during the class and it just it's that step by step process of the customer experience that you're going to 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 send them out this video and say okay what's going to 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 and the more times you can do that the more they'll trust you so exactly right all right so there's there's the choreography of of bringing people into the the studio and actually 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 if their fitness and what events you can go more or less personalized with that you know depending on how busy your studio etc but it's like it's really it's a quick five-minute conversation after class one time you know that you can just say hey okay how many times a week do you want to come what are your goals what have you done fitness wise before how hard was that class for your experience okay well I reckon you should come on Tuesdays and Thursdays and see Mary because she's great and she's really good you know, and that'll get you where you where you want to go. go. You know, like just something as simple as that is is going to make a really big difference for a lot of people in their confidence and and their how regular they are attending the studio. And then they do know to many of your studios have like an a an incentive to buy your first pack before your intro period ends like you know for extra free class when you buy your pack before the end of the week. So that's key. So there's one of the other things you can implement is you could do something like there's a you know a initial membership fee or a joining fee that is waived if you sign up before the end of the trial. So the joining fee might be $50 or $100 gets waived if you sign up before the end of the trial. So that's another incentive or value that they're going to get to convert. I love it. And 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 play it. Yeah and look back in the day 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 given their gym card and all that kind of stuff. But thanks to technology none of that work really exists anymore. But the membership fee or the joining fee can you can say well that's to a comedy that's for the initial setup of your membership. But yeah of course never charge it. Yeah all right great. And so then you have even better if you have some kind of automated process that does all of this like you say sends them a video and email it or no sends you know sends them a video here's where the toilet say he's able to get to class etc. 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 xyz for the silver membership or whatever or a free extra class on your first ten pack you know when you when you enroll before the interview trial and then remind them of that send them another email and another email hey Josh yeah I hope you're enjoying your your trial and notice you've done three classes you've only got one class left here's how to get you know if you're if you're loving how you're feeling after doing those three classes you know quick here to get started as a special gift to you will wave your membership fee. Yeah and it can all be set up through your management software like mind-body or whatever you're using it's just the the email chain that these automate 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 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 going to get grade insights into what your studio is like people will tell you over the phone what they're not enjoying and what they are enjoying so you can use that really as as information to improve the the process. Now on average if you do all those things and you get the client sign up and they're paying they say it's it's $80 a week. On average a client will stay with a studio or a gym for a year or 52 weeks so if you go $80 a week times if 52 weeks that's $4,100 so $4,160 how long does that take in the owner maybe 10 minutes of effort what's the early rate on that a lot. If you're looking at the best ways to spend your time as an owner your return on investment is huge in that particular area and so dear listener you know if you go if you're doing your 50 sign ups 50 new clients a month or 50 you know first visit a month and you go from like a 40% sign up rate to a 50% sign up rate you go you add five new clients a month at 4 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 a membership you know this is this is a lot of money we're talking about over a 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 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 pull that back to 30 people a month if you're converting at 80% you're still getting your do you membership rate where it needs to be so yeah that's that is the next metric which a lot of work goes into it and that's probably a six month process to nail it down sometimes more sometimes less 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. Exactly. All right all right should we go on to so okay we've got the members now they've walked through the door they've signed up they're now participating in classes on a regular basis so in terms of operations the next KPI is your capacity utilization and I'll break down what that is so the number we aim for is 80% and it means that how many classes do you have on the schedule per month how many available positions are there to your members and how many of those available positions are filled filled with if we have with paying coins yeah bums on seats I call it so if we go on average you have 50 I'm going to say 50 sessions per week I'm just going to times that by four to get you 200 sessions per month let's do lunar months you do lunar months what about 4.33 for four yeah we'll go four yeah okay let's do perfect let's do perfectly if I go 50 sessions a week times your 52 weeks divided by a 12 months it's 216 sessions on average per month if you times that by your 12 beds or you can use 14 if you like you've got a total available positions of 2600 now if you go and you can get this data straight from your management software how many sessions were completed to get your 80% you would need two thousand and eighty sessions completed and that's one member coming through you know three times a week so one member might do nine of those sessions in the month or 12 of those sessions so you don't need two thousand members it's doing one session a month it's hopefully you've got a client base that's doing two to three sessions a week and then hitting that number of 80% now why the 80% why don't we go for a hundred percent utilization it's yeah you tell me you're off I don't know how many hours you because you're like leaving money on the table I like 80% I never like leaving money on the table but I like 80% because at a hundred percent you've got waiting lists you've got jam packed classes you've got this I suppose an experience that's super busy and hard to give a personalized experience what I've found is that at 80% you've you've got full classes maybe one or two on the waiting list in the busy times but in the not so busy times you've got availability of two or three classes and it's just it's a consistent um easily maintainable number for a studio to aim for if you are below 80% you there's two reasons for that either you need to adjust your time table and remove the classes that are losers cut the losers and adjust your time table 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 will come you need to put the class on for people to sign up and figure out that that's the time that they like coming oh yeah I mean I would add to that though that I think I a hundred percent agree that uh time tail scheduling or time table pruning should be or time table review should be a monthway activity and because that's going to 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 or you know be seasonal but 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 time table 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 none, there's none of the major times that you're not covering. And that's, there's no, there's no reason why someone would say like, oh, I can only come on Tuesdays and you're not open on Tuesdays or something. So you're not going to lose people to a significant degree there. If you have more than 20, if you have 25, 30, 40, all you're doing is paying extra money for those instructors to teach those classes and you're not actually going to make it, you're not actually going to get more clients. You know, like if you go from having five classes a week and you try and sign people up, no one's going to sign up because I'm like, oh, I can't come, there's no times that suit me. But once you get up to about 20, you're 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 just where the pruning comes in, you keep adding as you need to. Right. So you should have 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 exactly, exactly. And same goes for when you've got 50 classes on the schedule and you're at 85% you, you need to add two or three additional classes and I always say, bolt it on to a block that already exists. So if you've got a, if you've got a Saturday morning block of 72882992010, add the 627 or the one on the other side, that always seems to work. So overflow just changes their schedule accordingly. Yeah. 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 every month you sit down and you look at, okay, every class class by class, what was the average capacity utilization for that class? So Mondays at 7pm, that was at 85% great, we're keeping that one. You know, Mondays at 8pm are, that was at 45% that one's going. Right. And, and if there's one that's really busy and there's a spot available next to it, we'll put an extra one on there and take one of the less busy ones off somewhere else in the schedule. So you're constantly optimizing for the times that people actually tell you with their vote with their feet and their buns on reformers that you that they actually want to attend. And that way you maximize the convenience for your clients and you mean you maximize the efficiency of your schedule so that you're putting the minimum room 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. Capacity utilization, 80%, obviously there's some variability there depending on your studio and what you're trying to achieve. But look, I've got studios that have 80 classes on the schedule per per week and that's about as many timeslots as there are available in the week. When you're getting up above there, you're looking at having to either at beds or at space or at studios. Yeah. And Josh, can we just sort of divert for a moment on a little sidequest here about that scheduling discussion that you have every month? And so I think what a lot of studio owners struggle with is letting people down having the hard conversations. It's like, okay, we've sell his class on Tuesday at four pm, he's only got average of 20% full. It's like, obviously, that's got to go. Right. But Sally's a lovely person and she really likes working here and the two clients that do show up for their class, they really like it. Oh, they love Sally. Yeah, they love Sally. That's the only reason they're yours Jim is because of Sally. And so, you know, DLSNOT, you will disappoint people when you make the decisions that you need to make to have a thriving business. But being in business is not about never disappointing people. It's about serving the people who you are a good fit for in the way that is profitable for you and gives the people you're serving the result that they want. So Josh, how would you advise your clients to approach that conversation? Because if it just so happens that Sally needs a certain income level or whatever. And we're saying, oh, by the way, Sally, we're cutting two of your classes because no one's coming to them. Like, you know, how do you advise your clients to sort of approach that? Okay. So this probably goes into a whole another podcast that we will do in the future, which is your train of KPIs. So this should not be a surprise to Sally that her classes are underperforming. And it should be fully aware of everything she needs to do to improve the her numbers. And if they haven't improved within a certain time period, she will then know that the classes are going to be cut. So this isn't a surprise for Sally. So we'll talk about trainer KPIs. Well, we should schedule something in for next week. Okay. The other one, the other one that you're going to have to have a conversation with are those two clients that love coming to her classes. And it's the only reason they're at your studios because they love that class. 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 this is great. This is awesome. And all Sally's got another time slot that they'll fit into. So nine times out of 10 that happens. 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 going to have to find there's a new trainer anyway. And that's the whole reason we work on getting the new clients in through the top is because you're always going to lose some out of the bottom. There's always going to be that tune of clients that you're no longer a good fit for. But 90% of the time those clients will find a class that suits them and and be happier or as happy as they were beforehand. Yeah. And like you said about trying to KPIs, Sally will know because you've already talked about it with her every week since you've she's been employed here, that it's her job to fill that class. That is what you're paying her for. And 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 can't get a business. Yeah. It's fun. All right. So we should aim for 8% capacity utilization. And that should be a metric for the studio as a whole. And so that's your responsibility to studio owners, such manager, to prune the time table on a monthly basis and adjust in a shuffle classes around. So you bolstering those areas that are popular and adding more classes there and taking out the ones that are less popular to keep it at overall 80% capacity utilization. And also that's a KPI for the trainers. 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 one of your trainers isn't doing 80%. Yeah. If they're doing 60% or someone else has to do 100% to make up for it. Yeah. The great thing about KPI 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, you can use those metrics to just say, hey, this is your number. This is what we need. How can I help you improve that? And it makes the conversation easier instead of saying, I think that you're not doing this. So I feel that you're not doing this. They're like, well, I feel that I am. So here's the numbers. Right. And so, you know, as we'll just, you know, we've talked about in previous episode, but also, you know, we'll go through it on looking forward to the next combo. 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 fry 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 looking at the feedback, we know what you need to do to improve those numbers. And we'll be coaching you on that. And we have a plan for how you're going to change your behavior and, you know, do more reachouts to clients or finish with a stretch more often or whatever it is. So that you feel those classes, right? And so, Sally has a chance to fix it. And if she doesn't fix it, then you got the grass. All right. What's next on the list? All right. So this is the last, the last official KPI. And that is your, well, it's the cancellations, which then rolls into your churn rate or the churn by churn rate. I mean, the percentage of your client base or memberships that have canceled during the month. A studio or gym that's doing under seven percent is a high performer. So your, your really well-run group fitness or party studios that has 200 members or regular pack purchases and that are losing 14. of though 14, 10%. 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 seems to be what it is. I'm curious about this because there's something I always struggled to track when I was, you know, when I had a studio because in a gym, it's pretty easy to track. Everyone's on a membership at a gym, right? So it's just like, well, how many, if we had a hundred members at the start of the month and then seven of them canceled, that's a seven percent churn, easy, right? But just say I started with like 50 members and 50 people on 10 packs, right? And then maybe two members canceled and, you know, of the people on 10, like how do I track that with the people on 10 packs is my question. So now I know my own body does this and if you're not using my own body, I'm pretty sure you'd be able to talk to your software provider to give you to set you up with this visibility. But you should be able to pull up your active members number. So by, yeah, so active members is someone that has a valid pack or an ongoing membership. So if that 10 pack has expired or they've used it up and haven't repurchased, that's a, that's a cancellation, right? Or if they've canceled the membership, that's a cancellation. That's great. All right. And so that is, Gilles now, it's not how many members do you have today and how many canceled during the month? 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 have 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% chance. You've got a big problem. Yeah. And that's what we would see. 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 months and then it goes high. So they just lose that person straight away. So their churn rate to like north of 40% and they're just churning through members all the time. So what's the point in doing all that work, getting them in through the front door, converting them to a member, teaching them about the way you do things just to lose 40% of those. It's a whole, it's working hard, not smart. The best studios are, yeah. So the best studios are under that five percent, you know, three, four, five percent. And that's where you should be aiming for. Right. And I mean, just deal with this is not, I mean, you think like, you know, five percent, compared to seven percent, compared to 10 percent, what's, yeah, what's the big deal? But this, these numbers are inversely correlated with price, what we thought the lifetime of the customer, right. So if you've got somebody's paying you $100 a month, right. And you've got 10% churn. So okay, that purse, how long, how, what's the lifetime of that person? It means like every month they've got a 10% chance of leaving. So after 10 months, they're going to leave. Right. So the lifetime of that customer is $100 a month divided by the churn rate. Right. So 100 divided by 10% is a thousand. So that person will have $1,000 to add a 10% churn. Now if you go to a five percent churn, that person's now worth $2,000 to you. Right. They're going to stay 20 months. So you've doubled the value of that client by going from a 10% churn to a five percent churn. You're clients with twice as much twice as much double. Right. It's like, imagine getting double a number of new clients every month. Right. That's the same effect on your bottom line that you'll have from going from 10% to 5% churn. These are very major impact on the finances of your business. And all these KPIs are, you know, if you tweak them all, if you would get a 5% improvement in all of these KPIs, the cumulative effect on that of that is huge. So, okay. So what are the things? Yeah, exactly. But what are the things affecting churn rate? For me, the main thing is engagement of your client base. Are they getting, 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 attendance and engagement bit. I think there are a few things that you can do as a studio owner and as an instructor. And this is why it's said he's job-to-have-a-four class, right? Because a lot of these things come down to what happens in in and around the class is, of course, the classes have got to, there's got to be experience and results. Right. So it's going to be fun. And they've got to actually like get stronger and more mobile and have more energy and all of those things that they want. And so when I say fun, I mean, like, community connection, feeling welcome and, you know, part of something, all that stuff. And like, even if your classes are great and fun and they're getting results, people still have lives outside of Pilates. You know, kids get sick, they get a big build, you know, grandma comes to stay in whatever it is. 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, once a week, none, none, cancel. Right. Whereas if you see Sally come 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, you're all good. Right. So you can, you can really make a big difference by just picking up these, these little blips in people's attendance. And seven times out of 10, that person's like, oh no, like I just, you know, how to work do. I'll be there on Friday, no problem. But sometimes it's like, oh yeah, crap, the kids have been sick and I've been overwhelmed and blah, blah, blah. And I'm, oh, thanks for reaching out. And I've, I'll definitely be the Monday promise. Right. And that's a person that you're saved from, you know, from cancellation in a month when they haven't been using the membership for two weeks. 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. So one of the, when we get to train a KPI is one of them directly revolves around churn rate and engagement of your members. Right. Right. And it gets absolutely the trainer's job to have a full class of happy clients getting great results. All right. So we want to, we want to, you know, do stuff to minimize the churn. The other things that you can do are on boarding is massive, right? So I mean, I've had, you know, back in the day, we're not in no. I've had people cancel and then say to me, I am, I'm like, why are you canceling? They're like, well, they're like, I want to go to this other place up the road that does, you know, a small group training. Like we do small group training. They're like, oh, I never knew. You know, it's because I didn't on board that person properly. And they're like, oh, I want to 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. 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 like, you know, whatever it is, like you have the more you empower the clients to get the most out of their membership or pack, you know, the more likely they're out to stick around. And the final thing is community. Like if you can do events or things that bring clients together, like, you know, challenges, right? Challenges, seats, class, and just like love. Like leaderboards, you know, those kinds of things working up to like, 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. You know, basically things that bring people together and make them feel part of of something. And that's not just about working out. It's about community 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 barbecue, bring your family. Those types of things are really, really valuable in building community and keeping people because they, the clients then become loyal to the other clients, not just to the business. Like they don't want to go to the party to do up the road because they don't want to leave their friends Susan. Also comes to the studio. 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 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. So there's three things working together that creates the whole community and 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, and I know you've got a few people in your bookstosh that do smaller businesses like a home-based business where they have three or four or five reformers in the garage or their shared or their spare room or whatever might be. And in those types of businesses, we see, I see very, very low-churn, like very low-seal digit churn. And I attribute that essentially to the community that that people build because in those types of business where you've only got like four or five clients in each session, you people don't book casually. They say, you know, you sign up for a specific session each week, like Wednesdays at 4pm 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. They go out for coffee after class together and then they meet up before class for a juice and then they go to each others, you know, grandkids birthday on the weekend and you know, they run into each other at the supermarket and they, you know, go for a drink like and then they keep coming in large part because they build in during friendships in those groups a lot of the time. And so those smaller businesses with more stable group groups I find often have very, very high retention. Yeah, yeah, exactly. Agreed. All right. And so 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's out scary. Right. So that is, I mean, Labor's our most expensive line item. So if we're 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? It's how many classes you put on the schedule or how much you're paying your people. So why not I just try and keep your Labor as a percentage of revenue at 30%. So if you're doing 50,000 revenue per month times that by 0.3, your wages bill should be 15,000. If it's much higher than that, you've got too many classes on the schedule or you're paying above average. If you're lower than that, you probably haven't got enough classes on the schedule or you're paying below average, generally speaking. Right. So 30%. So you know, basically a third of your revenue should be no more than a third should be Labor Cost. And that works out on it, not just a per class basis. So on a per class basis, it should be less than 30%. Because you're going to have fixed cost. Right. That also going to be part of well, I guess depends on whether you have additional employees like if you have a receptionist or something, then that's going to be included in this. But if you just have instructors, trainers, then basically, you know, if you're making $200 revenue from a class, you shouldn't be paying more than $60 for that trainer, right? You should be paying around about $60 for that trainer. Yeah. Spot on. And so dear Blistner, if you're a trainer, if you're a trainer and you still listen to this, congratulations. You must want to open a studio real bad. But if you're if you're listening to this in your trainer or if you're just wondering about how much should I pay, it's like, well, you shouldn't pay more than 30% of the the revenue from your class. And so if we're making $200 from that class at 80% capacity, we'll look at capacity that class is going to be maybe 240. And so that means you've got 10 people in there at 24 bucks, who you know, something of that order of magnitude. If you want to pay $60 for a instructor, you can't escape the maths. You have to generate that level of revenue to sustain paying someone that amount. Because if you pay, well, let me ask you this Josh, what happens if I pay if my labor cost is like 40% or 45% or 50% of revenue? Why is that so bad? Or, well, if it's consistently that month on month, you're not making profit. Because on top of that, you've got rent, overheads and all that, all those other expenses. So yeah, you'll run out of money, basically. If it's too high for too long, so you need to make changes. And that's where I think going into the trainer expectations and KPIs is the next logical step. Because that underpins all of these numbers as well. Right. So if we go from say 30 labor being 30% of revenue to being 40% of revenue, right? So just so I've got a class that generates $200. Well, let's make it $100 just to make them math simple, right? So I've got a class that generates $100. And I'm paying wine stock to $30. And I think that's not fair. I think I should pay them $40. Okay. So I start paying them $40 since Drs. Happy. Now bear in mind, do listener, if you've got a class that generate $100, you should cut that class off the time table 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 want to pay them $40. So great. So now you're paying 40% of your, you know, costs as a of your revenue as a labor, right? But just so you've got that studio that was making the average studio is making 50,000 a month in revenue. Then we talked about right and start. That's making 12 and a half thousand in profit, right? So there's 25% profit, right? Well, you just went from 25% profit to 15% profit, right? So you've almost halved your profit by giving you instructors a $10 or an hour raise. So there's some things. How do you fix that or either you're going to have to increase your prices. So assuming you increase your price and you get the same number of people that price the revenue for that class will go. It should go up to 133 bucks a class. You can therefore the $40 paying the trainer fits within the metric we're looking for. So increase prices, you know, if your costs go up, what are what are the tail coes doing? 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. Trainers are coming and asking for pay rises. If you're happy to give those, that's fine, but you're going to have to increase your price and pass that on to the customer. The other instance where this might happen is if you do, let's say you're at 85% capacity and you decide to put on an extra four classes or 10 classes a week, temporarily while you fill that capacity, 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're 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, before those classes because otherwise, the numbers that you're looking at are not actually giving you a true indication of the health of your business. And it's like the you, the petrol gauge on the dashboard, the car is wrong. You know, doesn't tell you how much fuel is actually in the tank. So you've got to include your own classes as an actual labor expense in that calculation. Spot on. So that's everything. That's that's a studio KPI's 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 software, internal software management system, having your books on zero 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. I mean, I look, I work with some clients on a monthly basis and someone a quarterly basis. Then after you've been doing it for a year or so, it's it's okay to go to quarterly because you sort of know what you're looking at and you know how to work with these numbers. But yeah, the 10, 15 minutes to get the data an hour going through it. And then you're going to have your action items and key focuses for the month ahead or for the quarter ahead. Right. And then rinse and repeat. And so, all right, so that's a that's a kind of a bonus item, which is that if you're not currently tracking some or all of these, well, your biggest constraint in your businesses that you don't know your numbers. 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 could version like the percentage of signups from first visits. How many classes you've got on in the capacity utilization of each class and overall, cancellations each month and active members at starting end of the month and then Labor Cost as a percentage of revenue and all of that like you said Josh can come like if you've got basically standard systems like zero accounting software or QuickBooks or Mind Your Own Business and my RB you know one of those things you should be able to do an easy peasy export to a Google Sheet and you know 15 minutes better being better butable you can say these numbers easy but even if you don't have that software setup deal isn't it 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 got to find these numbers and if you if you don't have it you know an automated way of doing it you just go to do it the old fashioned way because otherwise you're you're flying blind with with no instruments you just don't know you don't know whether you're doing well or not. The last thing I just want to touch on Josh which as a bonus is you know the step that comes before those first visits which is the marketing function and just the economics of like how much people spend on marketing and then how to recoup that marketing spend 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 I tried marketing but I couldn't afford it so I stopped and that tells me that they're doing it wrong because they're not doing the math so yeah how do you think about them 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 but once it's up and running and it's consistent let's say for example we're getting 50 first visits every month and those and what's a standard intro offer let's say $80 for two weeks or unlimited classes $80 for two weeks you're getting 50 people paying $80 that's $4,000 in the month of revenue from people doing a first visit so straight away I mean you could be super aggressive and say well $4,000 is my marketing budget if my marketing person can achieve your 51st visits or you might say look out of the $4,000 revenue I'm prepared to spend $2,000 on marketing and going to back to my benchmark data someone trying to achieve these metrics on average would spend between a thousand and $2,000 a month on their marketing and marketing function and that would be the assistance of a professional that's charging a monthly retainer plus the Facebook spend or the Google spend. Yeah and I think another thing I think about as well is how quick it is to recoup like the actual time the time it takes to recoup that spend because you obviously end the money on advertising before you get the client and then the client doesn't always pay you straight away like for example if you had if your intro offer was free right I mean you quite $80 right but if you're in trouble was free then you spent your $4,000 or $2,000 whatever you spend on marketing and you get the 51st visit but you don't get any money for them so you're still out of pocket $2,000 and then those people have a two week or four week or whatever intro pass and then they purchase and then you get the money back but your bank balance goes down before it goes up whereas if you charge $80 or even $50 or $40 for your intro period and you get those 51st visits well at $40 a visit you've made $2,000 right and those people buy their pack like 15 seconds after they click on your ad right so they click on their ad you know Google charges you a dollar and then they go to your website buy your pack and for $40 right like a minute later so I think a metric that we're a metric that we use at Breathe is we have to recoup you know double we really really aims 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 it allows us to take another dollar and go get another customer and so that way 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 $2 and put it back in the top and $4 come out the bottom and so you just keep doing that as long as more people are still searching on Google you keep putting more dollars in the top of the machine as long as every dollar comes back with a friend you know $2 on day one you know so you have to figure out what your actual cost to acquire that client is because it's not going to be as simple as you know one person clicks on your ad and then buys the pass and then bam you've $40 you know revenue from one dollar spend because it might be that you have like 30 people click on your ad and only two of them buy pass right so it's cost you $15 per pass to sell a $40 pass which you still making double your money back on day one right but if you've got 80 people clicking on your ad and 2 by pass what's costing you $40 per person to sell a $40 pass right so now you're breaking even but you're not actually making a profit on day one so you can't take you can't take another $40 and get another customer with that $40 so you've got to figure out the metrics on your advertising spend so that in my view anyway your initial purchase like the initial purchase that person makes of your intro pack pays double what it costs to acquire that client. Do you have 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 a 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 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 there with if if you've got a you know 10% chance and or whatever 80 bucks a week or how many what we said the price was anyway but they were with $4,000 $4,000 per year right so you cost your $40 to get them in the door they pay you $40 to $80 on day one you're already $40 ahead and then over the next year they're going to pay you $4,000 good deal that's it all right this is awesome well deal listen up um if this is if your head spinning around with the numbers go back and listen to this episode again on half speed 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 oh 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're not getting 51st visits we're only getting 20 ah well don't worry about any other step in the process let's improve the first visits right until that's no longer the constraint and when we're getting 51st visits if we're still not full right at 80% then we look ah well what's the percentage of signups we're getting from those first visits ah it's only 30% all right well there's the problem right there so then we implement on boarding 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 tie kickers right but there's a continuum right so free you get maximal tie kickers if your first visit if your intro pack was a thousand dollars you're going to have like a hundred percent signup rate from that right because someone who's prepared a thousand dollars to try it is super committed right but the thing is no one's going to try for a thousand dollars so the higher you price your intro pack the fewer first visits you'll get and the higher conversion you'll get from those first visits so someone is prepared to pay 50 bucks to try it is fairly committed right someone is prepared to pay 10 bucks to try it is just curious so that you know one way of improving your conversions is just raise the price and then you're tracking your attendance pruning the classes to maintain your profitability so you're not spending money on classes that aren't generating revenue ah 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 because that's impossible just focus on fixing the one thing that is the biggest constraint or the constraint that's at the earliest part in the funnel. Right, because if you're only getting 10 first visits a month, it doesn't matter what your sign up percentages, because you've got bug or all people coming in the door. Right, the sign up percentage only becomes relevant when you've actually got people walking in the door. So let's first get people walking in the door and then fix a sign up percentage after that. Anything anything to add to that Josh? I think so I have a KPI spreadsheet that I use. And if anyone wants this spreadsheet, I can give them the template version of it. It's going to have my growth IQ branding all over it. But that's my branding that it looks beautiful anyway. But if you just email me at J Richardson at growth IQ.com.au, I will 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 have a chat in more detail. But I think having a template or setting up one up yourself is a great starting point. Awesome Josh. 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 I've made very much every single one of these mistakes multiple times. So You guys out there, you don't know how lucky you are. It's all learning. Yeah, but no, I mean, I love this. This is what I'm passionate about. And I think I've been doing it long enough now that I actually know the process works. And I see the flow and effect that has for the business owner and their lives and their family and their community. So it's yeah, I could spend all day doing this kind of stuff. Yeah, I look forward to the next one. Thanks Josh. This has been awesome. Thanks, Raf. See you later. If this episode resonated with you and you'd like help building a team and a business that works this way, that's exactly what he and I do in our party studio mastermind. There's a link in the show notes to a short video explaining how we work. If it feels aligned, you can book a call under the video and we'll talk.