The first question many fitness studio owners ask when they start the transition to a business mindset is
How much does my studio cost to run? ”
This is a good question and a great place to start thinking about your studio’s finances. We’ll start with the simplest approach first and iteratively improve our model in future posts.
Fitness Studio Expenses
The first thing you need to do is list out all of your studio’s regular expenses. This should include everything from rent and equipment leases to marketing spend and management software.
Let’s use a small hypothetical studio as an example.
Disclaimer: your expense categories and numbers will definitely be different. Your expenses depend on the type of studio you run, where you’re located, and the age and condition of your physical space and equipment. This should only serve as an illustrative example.
Like many boutique fitness studios, our hypothetical owners rent a small space, lease their first equipment, use cost-effective marketing and management software, and try to remain budget conscious.
As you can see, this fitness studio costs $3,200/mo to run before even paying instructors! These are called operating expenses and are part of the cost of doing business, finding new clients, having a physical space to operate in and equipment to work with. (Buying your equipment outright lowers your monthly payments but has its own tradeoffs. We’ll explore this and the controlled use of debt in future posts.)
While knowing this base operating expense is important, many studio owners want to know how much the studio costs to run per class. This gives an idea about how much they need to earn from each class to cover their costs. (And, as we’ll discuss in a future post, ensure they make enough to meet their profit and growth targets from their business plan.)
These studio owners hire freelance instructors who each teach a few classes per week and are paid per class. They run two classes in the mornings and two classes in the evenings during the week, plus a couple of weekend classes. All total, their studio runs 22 classes each week. This should average around 95 classes per month, depending on the month. If the owners pay all instructors the same rate of $35 per class, that’s another $3,325 per month in expenses. (In accounting terms, this is cost of revenue or cost of services rendered rather than an operating expense; you only have to pay it if you actually have customers paying for the classes.)
Now we see the total cost to run this fitness studio is $6,500 per month. Since we just estimated that we run 95 classes per month on average, that means that each class costs $69 to run.
Fitness Studio Profit Analysis
So what do you do with this information? Figure out which classes are profitable! Try to make classes that are near break-even profitable by evaluating new staffing or pricing structures. Cut unprofitable classes if they can’t be made profitable within 90 days (or a similarly short, well-defined time frame).
How do we determine whether our classes are profitable? If members pay per class (or with a punch card), it’s easy to verify that we’re earning more than the $69 per class. For example, if you sell a 10-punch punch card for $100, then you’re effectively charging $10 per class. When 10 people show up to that class and each pay $10, you’ve received $100 in revenue; after paying the instructor and operating costs, you’ve earned a profit of $31 for that class. Very nice!
But if the 10-punch card goes for $50 (or $5 per class), you’ve actually lost $19 for that class. Boo! If you expect 10 people per class, you need to charge each student $7 just to break even. If you want to fix the per-class fee so that students pay an average of $6 per class, then you need 12 students per class just to break even. (This calculation is obviously trickier with unlimited subscriptions and multiple types of classes but it’s still feasible to determine.)
But you’re not in business to break even, are you? No, we’re business owners — we want to make a profit!
Your goal as a fitness studio owner should be to net 20% profit on every class in your studio. So if it costs you $69 to run a class, you should aim to earn at least $86.25 for the class. This will yield a net profit of $17.25 per class for you, the studio owner. Money in the bank! This is money that you can reinvest, save for retirement, or just put food on your table.
Running through all the combinations of class sizes and student fees will shed some light on your potential returns. Calculating all of these scenarios is called a “sensitivity analysis” and can seem daunting. Fortunately, we’ve built a tool to do this for our clients and want to share it with you free. All the hard work is done for you.
Download our spreadsheet to experiment with different price points, class sizes, and cost structure to maximize your fitness studio profit. Just plug in your fitness studio’s numbers.