Episode 359: Stop Guessing at Profitability — The Numbers Every Studio Owner Needs to Know Before Making Any Decision

The 4 Numbers Every Studio Owner Needs to Know

Your business is busier than ever. Revenue is coming in. Your schedule looks full.

So why does it still feel like you're wondering where all the money went?

In this episode of the Female emPOWERed Podcast, Christa Gurka breaks down four numbers that can give boutique fitness, Pilates, physical therapy, and wellness business owners a much clearer picture of what's actually happening financially in their business.

And you don't need a finance degree or a complicated spreadsheet to figure them out.

In This Episode, You’ll Learn:

• The four financial numbers every studio owner should know
• How to calculate labor cost as a percentage of revenue
• Why owner compensation needs to be included when evaluating your business
• How to calculate your average revenue per client
• How discounts, founding memberships, and unlimited packages can quietly hurt profitability
• Why revenue alone doesn't tell you whether your business is financially healthy
• What your profit margin reveals about your business
• Why a $700K business can sometimes make more money than a $1M business
• How retention affects both profitability and marketing costs
• Which numbers to track regularly in QuickBooks and your scheduling software

The Four Numbers to Know

1. Labor Cost as a Percentage of Revenue

Payroll is often the largest expense in a service-based business. Knowing what percentage of your revenue is going toward labor can reveal whether your current pricing and staffing model is sustainable.

2. Average Revenue Per Client

Don't look at what's listed on your price sheet. Look at what you're actually collecting per client visit after discounts, founding rates, unlimited memberships, and other offers are factored in.

If this number is trending downward, your business may be working harder for less money.

3. Profit Margin

Revenue gets a lot of attention, but profit tells you much more about the financial health of your business.

Christa shares what she calls the “Seven-Figure Fallacy”: a business doing $700,000 at a 20% profit margin can generate $140,000 in profit, while a $1 million business at a 10% margin generates only $100,000.

More revenue doesn't automatically mean more money in your pocket.

4. Retention Rate

A full schedule doesn't necessarily mean you have strong retention. You could be constantly replacing clients who leave with new clients who cost you more to acquire.

Improving retention can reduce marketing costs, decrease the pressure to constantly generate new leads, and ultimately improve profitability.

Key Takeaway

You don't need to track dozens of complicated KPIs to start understanding your business.

Start with:

Labor Cost % → Average Revenue Per Client → Profit Margin → Retention Rate

Look at them together and ask what they're telling you.

Do you have a pricing problem? A payroll problem? A retention problem? Are discounts eating into your revenue? Are you growing sales without growing profit?

Knowing these numbers helps you stop guessing and start solving the actual problem in your business.

SEO Keywords

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Transcript

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2:14

Well, hello there, friends. Welcome back to another episode of the Female Empowered podcast. I'm Christa Gurka, your host, and today we're talking about numbers. But please don't turn it, this episode off. I promise you, I promise you, I promise you, this is not an accounting episode. This is a know what's actually happening in your business episode. So I always think somewhere between 200, 250,000 to, like, 500, $600,000 in revenue, almost every business owner hits this exact same wall. You're busier than you've ever been, you're working harder than you've ever worked, and you're still not 100% sure where all the money's going, right? It's like, have you ever had that situation where you're like, "How are we buying more toilet paper again? Where is all the freaking toilet paper going?" Right? Does it spread legs and walk off? So this is a pro- a time sometimes where you're like, "Where is the money? Show me the money," right? This is not a marketing problem. It's not a hustle problem. It's not a resilience or a grit problem. This is a numbers problem, and it's completely fixable because today what I'm gonna walk you through is the four numbers that I believe you can pull from your books this afternoon and really gives you a full, full, full picture of what's actually happening in your business. So some of you are either tracking nothing at all, which is no bueno, and then some of you are probably tracking every single nuance, and then you have no idea what it's telling you. So usually people are on two spectrums. They're either not tracking anything or they're tracking every little detail, but they still don't know what's actually happening in their business. So today what I'm gonna do is I'm gonna hand you four numbers that will actually help you determine whether your business is profitable, whether your business is sustainable, and what lever you actually need to pull first in your business to fix what's not working. Okay? So when I was getting ready to sell Pilates in the Grove in 2024-ish, you know, all through '20... Yeah, 2023, 2024. Okay? Th- all of the potential buyers that I interviewed... Was it all? At least 90% of the potential buyers that I interviewed did not ask me one single question about how busy my personal schedule was, right? They were not asking about our Instagram followers. They were not necessarily... They n- didn't even really care how many email subscribers we had, right? They weren't... They didn't care about the logo or the brand colors or the website for that matter. They asked what I'm gonna talk to you about today's episode, four specific numbers. What was your la- what was, what is your labor cost as a percentage of your revenue? What's your average revenue per client? What's your profit margin? And then what's your retention rate? Okay? And I wanna tell this story because one of the things I realized when I was sitting in that meeting was I knew every single one of those numbers cold, and I want you as a business owner to know every single one of these numbers cold, and you can learn how to do it. So if the... your first thought is, "That is so overwhelming, I don't even know what those numbers mean," you can learn it the same way you learned how to be a great physical therapist, the same way you learned how to be a great yoga instructor, a great Pilates teacher. You can learn how to get these numbers and understand what they mean for your business. You absolutely do not need a finance degree. You don't need to go hire a fractional CFO to know these numbers. No, you need about 30 minutes with your software, with your QuickBooks, with your scheduling platform, and this episode. That's it. That's what you need. Okay? We're gonna keep this real, real, real simple today, specifically to small service-based businesses doing less than a million dollars in revenue, or doing somewhere between 200 and a million dollars in revenue. Okay? I'm not gonna give you a corporate spreadsheet with 40 different tabs. I'm gonna give you four specific numbers, and I'm gonna give you exactly how to look for them in your business. All right? How does that sound? So let's go ahead and get into it. I'm gonna take a quick sip of water first. Okay, number one, this is one thing that buyers definitely will want to know if you're looking to sell your business, and this is something you should also know because it's a metric you can impact. Number one, labor cost as a percentage of revenue. So what does that mean? That means how much are you spending on revenue... Revenue. How much are you spending on labor in relation to how much you're bringing in? All right? And I will tell you, this is the one number that's quietly running your business. Okay? So in our business, in this industry, service-based businesses, whether they be boutique fitness, hair salons, all this stuff, the, the... I'm not gonna say I guarantee, but I can almost guarantee that the highest single biggest expense on your, P&L is payroll. It's usually larger than rent. It's bigger than any tech stack. It's bigger usually than everything else combined. Okay? So the formula for you to figure out your labor cost as a percentage is your total payroll, okay, including your own draw or your salary, divided by total revenue Okay? So your total payroll divided by your total revenue times 100, right? That's how you're gonna get the percentage. Now, for our industry specifically, for boutique studios, private pay cash, private pay, physical therapy, yoga studios, barre studios, any type of boutique fitness or wellness concept, med spas, anything like that, a healthy labor cost percentage typically runs somewhere between 30 and 45%, and that includes your owner salary and your administrators. All right? If you were only to include practitioners and you were to take out your admin, your support staff, and your own salary, I'm gonna tell you that it should run you somewhere between, like, 28 and 38%, if you're only including your practitioners or your instructors. Above that, if you start getting higher, like, so if you're including your admin and yourself and you're getting over 50%, okay, what that means is you're working for your team instead of your team working for you. How many of you feel like you're an employment agency? Like you are working to pay your team? I know this resonates with some of you. And while I am not at all condoning that we should not pay our team well, I'm not saying that. What I am saying is if you are operating the business as the owner, and you are driving the bus, leading sales, setting the intention, carrying most of the load on your back, you should not be the least paid employee on your team. You should not. What I want you to think about is a lot of businesses are like, "Well, I'm gonna not take a salary so I can... So my business can survive." That is backwards thinking, because that does not a healthy business make. And if you don't wanna pay yourself, unless, I don't know, unless you have, like, exorbitant amounts of money and you don't need to make money, just go work for someone else. Go be another small business owner's, like, right hand, where you can earn what you're paid. So, like, team members are talking all the time about, "We need a livable wage," but what about you? What about owners? We need a livable wage. We should not be the least paid, the lowest paid employee on our team. It really does not show that we have a healthy business, and it's really hard to- Like, you know, it's, it's hard to, to budget and it's hard to forecast and it's hard to plan when you don't really take all of your expenses into account, okay? This number needs to include you. Too many owners calculate their labor costs off of everyone else's pay and leave their own off. Which, like I said, so if you wanna calculate it off of everyone else's pay except for yours, then again, what I say is a healthy labor cost, not including you, is somewhere between 28 and 38%. And then if you include yours, that should probably be another, you know, 10 to 12% there. And even if it's that, then, then again, we're in that healthy range of being around 45% total. Okay? Now, what does that mean? That means that if you are generating $800,000 in revenue and you do not teach, okay? So you're not teaching, you're not paying yourself as a teacher, you can expect to probably bring home $80,000. That's probably most likely what your business can support to pay you as an owner, okay? And then maybe a little bit extra in terms of profit. Now, if you teach also, then that could be more, right? 'Cause now you're an instructor and the owner. All right? So generally what we look at, this is generally what... And again, this is a generalization. 30%, okay? I usually say 28 to thir- I like to say 30, it's just an even number, goes to the clinician, the service provider, the instructor, the teacher, whatever that is. 30% of what you bring in All right? Then about 5% can go to support staff. Okay? So if you have no support staff, then maybe your instructors are doing the support staff and they're gonna be closer to 35%. Okay? And then around 10% goes to the owner Got it? Okay. So I don't wanna get too in the weeds with this, I've done a lot of episodes about that, but what I want you to understand is one of the first numbers you should know is your labor cost as a percentage of your revenue. So if you are looking at your labor cost, and you are looking at your payroll specifically to your instructors, and your clinicians, and your service providers, and that is 50/50, it's gonna be really hard for you to take money as an owner, and also to pay support staff, and also to pay rent, and also to have, pay all this stuff. Okay? Now, what I'm telling you is if you look at your numbers and you see this, I'm not telling you to cut people's pay. Like, that never goes over well. But what you have to look at then is, "Do I need to raise my prices? Do I need to adjust session length? Do I need to look at cutting costs somewhere else?" Okay? I have sat with business owners who were positive that their busi- biggest expense was not payroll, it was rent, right? Because that's a big payment every month, and we always look. Or that their payroll percentage was at 30%. And we, when we ran the actual numbers, we look at payroll, and the cost of carrying an employee is sometimes over 50%, sometimes 60%. And they realize that they're upside down and, like, there's no way to make a profit this way. So the first thing I want you to look at is- your labor cost as a percentage of your pay- of your revenue. And you can do this in QuickBooks, so, or any, usually any type of your, financial software. And what you'll do is you'll run a report, your P&L. You can do it by month. You could do it year to date. You could do it the last quarter. And then in the last column, you could add, look as a percentage of income, and it will tell you, it's 30%, it's 38%, it's 40%, it's 20%. If you're at 20%, kudos to you. Keep going. That's really good All right? So labor, like I said, is the largest controllable expense category for small business owners And it commonly runs sometimes f- 40 to 50 to 60%, which is why a lot of businesses don't have a lot of profit left. So it's really important that you look at your labor cost as a percentage of your revenue. All right? Let's get into the next one. The next one is your average revenue per client. This is another big one. Basically, how much is each client spending roughly? And this is where you can really see how your discounts, how you're giving discounts, are creeping in, or how your founding memberships are crushing your business, or how your unlimited packages are killing you. So what you're gonna look at is... Now, there's a little nuance to this, but it's easier when you look at it from a single service, okay? So if you're a class base, I would look at it as all the classes, and if you're an appointment base, look at it as all the appointments. You take your total revenue for that month, and you divide it by the number of client visits. All right? So it's not your price list. It is what you're actually collecting once you've blended the discounts, the founding member rates, the just this one rate, the free cancellation, or whatever it is, okay? So this is also where you're gonna see how people are using that unlimited package. So are you... Is an unlimited package $300 but that client comes 30 times? She's paying $10 a class. So that's where you want to look at your average revenue per client, right? This number, hopefully, is either trending flat at the worst and trending up over time. If it's quietly trending down- Then what's happening is your business is working harder for less money, and you haven't picked up on it yet. We picked up on... This is how we picked up that our unlimiteds were crushing us, and people were coming twice a day and paying, like, $7 or $8 a class. I would track this monthly. What is your average revenue per client monthly? It should, again, it should be either trending steady or hopefully trending up Okay? So tracking this monthly is gonna be something you want to do. Now, industry pricing research by the Harva- Harvard Business Journal consistently shows that businesses which compete primarily on discounting see lower long-term client lifetime value than businesses that hold firm on price. That is obvious, okay? So if you're discounting, you also don't build a lot of retention because people just jump. If, if what's holding them with you is your price, they're just gonna jump when they find something less expensive, right? So hold firm on price and compete on positioning instead of price. So we w- talked about your labor cost as a percentage of revenue, your average revenue per client. Now we're gonna talk about profit margin, which hopefully all of you are tracking. Okay? How you find profit margin, you take your total revenue minus your total expenses, and then you divide it by your total revenue, and you get your profit margin. So if you brought in a million dollars and your expenses were $900,000, you take your total revenue, one million Nope, that's 10 million. Let's do one, one, two, three, four, five, six. Yeah, divided by 900,000 equals divided by one Okay? So that's like a 10% profit margin Okay? So I don't know why I needed my calculator to do that. I should've been able to do that in my head. So while revenue is your top line number, and it does give you an idea of, like, you know, are you getting new sales coming in? So you wanna see your revenue trending up, which would be great. It doesn't tell you totally about the health of your business. Because if you are spending more than you're bringing in, you're not gonna have any profit. If you eat more calories than you expend, you're not gonna be able to, like, lose weight. I mean, let's... Don't me, 'cause I'm getting that wrong. But do you understand, like, if you're spending more than you're bringing in, you're not gonna have a profit. All right? There's lots and lots of businesses out there that do a lot of money. Peloton, Uber, for a long time was not profitable. I don't know if they're profitable now. But there's lots of businesses that do billions of dollars a year in revenue and are still not profitable. Okay? A healthy profit margin is somewhere between 15, one five, and 20% once the owner is paid. So if you look at your profit margin, you're like, "I'm running at a 30% profit margin," I'm gonna ask you... Or if businesses are telling you, like, "Oh yeah, we do a 30% profit margin," have a little, like, asterisk. Be like, "Does that before you pay yourself or after you pay yourself?" Okay? So it should be 15% is great. Trending up between 15 and 20 is excellent after the owner is paid a salary, after the owner is paid a salary. All right? So if your margin is below that, if your margin is below, like, 10%, it usually traces back to a few different things. The first thing I would look at is an overloaded labor cost percentage. All right? So are you spending 50% or more on your payroll? That's the first place I would look. Then the second place I would look is not necessarily in revenue coming in, but in your average, cost per client, i- in your average revenue per client. I- Are people sp- paying less and less and less and less, right, per session? And then both of them stacked on top- top of each other is a double whammy. Okay? So- Your profit margin helps you decide whether you can hire more people, whether how much you can reinvest in the business. Can you give raises? Can you give bonuses? Whether your business is sellable as an actual asset, okay? So profit is queen. All right? Revenue's a vanity metric, even though it's great and important, but profit really tells you the health of the business. I have had owners come to me and say that they want to, hit seven figures. So people are like, "I wanna get to seven figures." And my first question always is, why? Why do you wanna get to seven figures? Most of them say, "So I can make more money." And what I wanna tell you is that is not the right thinking. You can get to seven figures, and because you're at seven figures, you need a bigger infrastructure to run that business. So oftentimes your cost to get to seven figures is higher, so your profit's actually lower, right? So I have had people on my... not on my team, in my business groups, that are, that are doing $700,000 in revenue, okay? And they're at 20% profit, and they're paying themselves. So $700,000, 20% profitable is $140,000 in profit every year. And then I've also had businesses that were doing a million dollars in revenue that they were, like, at 8 to 10, 11% profit, right? That's $100,000 in profit a year. So it's sometimes being at a million dollars does not mean you'll be able to pay yourself more. It does not mean that you are the... that you are more profitable. You could be more profitable bringing home more money doing less revenue. I hope you guys understand that, okay? I call that the seven figure fallacy. It- it- it's-- I've done talks on it and stuff. So, okay, so calculating your, let's go, average labor cost. So if your average labor cost is gonna be somewhere between, again, if you do full labor, you want it at about 40%, okay? And then your profit is gonna be at 15%, that's 55%. Okay? If you're gonna pay yourself, that's another 10%, so that's 65%. Rent is usually 10%, that's 75%. Oper- marketing, if you're doing a heavy marketing push, that's usually 10%, so that's 85%. So now you have 15% to keep, to do the rest of your operations. This is again why if your payroll percentage is over 50%, it's gonna be really, really hard for you to have a 15% profit margin. Okay? So we have profit margin, average revenue per client, payroll as a, payroll as a percentage of revenue, and then the last one is retention rate. This is sometimes a leak that a lot of people don't wa- watch. Okay? So the retention rate is how many people are staying in your business, and most softwares in our industry have a report that will give you retention rates. All right? Every business, or most businesses, they obsess over new client acquisition, and many don't look at the retention rate. So what you could be tricked by is a full schedule and a really low retention rate. So you could think that your retention rate is good because you are... always have a full schedule, but your retention rate is actually low and you're filling the schedule with, like, new visits, which are intro offers, which are less money, which are less profit, and then you're also paying marketing dollars towards getting new leads in the door. If you can get your retention rate higher, then you need less new leads, which means you need lead, la-la-la-la, need less marketing dollars and less work to convert those leads into long-term members. We've said this over and over, a new lead can cost anywhere from 5 to 25 times more than a existing member, an existing client, okay? Losing and replacing a client costs real money, right? It co- like I said, it costs marketing spend, intro offer discounting, onboarding someone new, you're trying to convince them, right? Your team hates selling, all of these thing, okay? So a drop in your retention rate is often a sign of something broken in your pricing, okay. Not in your pricing, in your product. Is it the delivery? Is your service failing? Is it a quality problem? Where, what's happening, okay, that it's causing a drop in retention? Small, consistent improvements in retention move your profit margin more than almost any new client marketing push ever will. Because you're not really spending any extra money necessarily to keep the clients you already have. If you're losing, let's say, three clients a month and replacing them with three new ones, it looks very, very, very stable on a spreadsheet, but the acquisition cost of replacing a member that was already buying from you with marketing dollars costs money. So sometimes if you can do both, if you can get new leads in the door, but really work on improving your retention rate, love on the people that are coming into your business already, it will do significantly more for your business in the long run. It'll save you money, it'll save you time, it'll save you work. All right? So you don't have to guess your way through your finances anymore. I hope this episode taught you four numbers that you can pull very easily and understanding what these numbers are telling you about your business. Your labor cost percentage, your average revenue per client, your profit margin, and your retention rate. I hope you take the time to look at this this week. Okay? Your average, your payroll percentage you can find on your QuickBooks. I bet you it'll surprise you. Okay? Your retention rate and your average revenue per client you can find usually in your software, whether you use Walla or Moments or Mariana Tech or Mindbody or, My Best Studio, usually they have this report. Okay? And your profit margin you can find in QuickBooks. Pull them, write them down, look at them together as a holistic picture of what's happening in your business, and see if you can ascertain what this is telling you about your business. Right? Is it telling you you need to control your expenses? Do you need to adjust your pricing? What do you need to do to make sure that you're looking at these and you're solving for the real problems in your business This is something that we work on very, very specifically and very intentionally in all of our mentorship groups, whether you're in the month-to-month membership community, we teach you how to pull these numbers, we go through them with you in real time, we have spreadsheets and trackers you can use, or if you're in the accelerator. If you're in the accelerator, we dive even deeper into these numbers to really fix what's the actual problem. So if you find that your payroll is really high, what are the... what's the step-by-step process to addressing that? Again, I don't, I don't condone or suggest dropping what you pay people. That never goes over well. But how can you fix that problem slowly and over time to make sure that you get yourself, like, right side up? So if you're interested in learning how you can work with me, how you can join one of my programs, I invite you to go visit my website, christagurka.com, and go to the Work With Me page. We have opportunities as low as $99 a month, okay? As low as $99 a month, you can get access to myself and the coach- other coaches in, in our program who have real, real-life experience growing sustainable boutique fitness, wellness, and healthcare businesses, and we are sharing every single thing we know about how to create a sustainable and profitable business with you. So from as low as $99 a month. There's also some free resources on there, just like this podcast. And so visit, once again, christagurka.com. Head on over to the Work With Me page. And until next time, my friends, bye for now.