Episode 304: Compensation Models for PT, Pilates, and Wellness Businesses

How you pay your team can make or break your business. In today’s episode of Female emPOWERED, I’m breaking down the most common compensation models for Pilates instructors, yoga teachers, and physical therapists—and why getting this wrong can destroy your margins, retention, and culture.

Too many studio and practice owners overpay staff, set up complicated systems nobody understands, or tie pay directly to percentages that cut profits in half. It doesn’t have to be this way.

Inside this episode, I cover:

• The pros and cons of hourly pay, per-head + base models, percentage splits, and salaries
• Why “simple and fair” wins over complicated structures every time
• How to calculate the numbers so your payroll doesn’t eat more than 50% of revenue
• Perks and benefits (like CEU stipends, health stipends, and free classes) that attract and retain staff without tanking your margins
• A real-life math breakdown of what happens when you pay too much out of $100 in revenue

💡 Your challenge this week: Take a hard look at your pay structure. Does it actually support your profitability goals? Is it easy for your team to understand? If not, it’s time to adjust.

👉 Want more guidance on margins, pricing, and compensation strategies? We go deep into this inside the Fit Biz Foundations Membership. For just $99/month, you’ll get access to trainings, templates, and support to build a profitable, sustainable business.

Check it out here: www.christagurka.com/fitbizfoundations

Transcript

Christa Gurka | Fit Biz Strategies: 0:51

Hey there everyone. Welcome back to another episode of the Female Empowered Podcast. I'm your host, Christa Gurks, and today we're diving into a topic that came up recently in one of my Fit Biz Foundation's calls. It's about compensation structures. Structures for both physical therapists, Pilates instructors, yoga instructors, basically your service providers. And why this matters is because how you pay your team directly affects everything from retention to profitability to overall team structure and culture. And unfortunately I see a lot of studio and practice owners get this wrong. Either they're paying too much and their profit margins are suffering, or they've created an overly complicated structure that requires a lot of manual intervention and no one really understands. I wanna walk you through some of the most common pay models. There are pros and cons, some of the benefits and perks you can consider. And how to choose the right system for your business without falling into some of the big mistakes I made, as well as some of the big mistakes I see happen all the time. one of the most common compensation models is just to do hourly pay, Hourly pay is basically, you just pay them by the hour. They get paid$30 an hour,$25 an hour,$40 an hour, whatever your system is. the pros of this compensation structure, that it's simple, it's predictable for both you and the employee. It's super easy for bookkeeping. It works really well for instructors or therapists that are just starting out, or those that are subbing right now. The cons of this. A standard hourly rate doesn't really incentivize growth. in other words, they're gonna get paid whether they have a client or not, or they're gonna get paid whether they have a full class or not. it. Works when people are building a client base. But I don't love this model because again, I don't think it incentivizes growth. And I also just think it's not great for overall productivity, but some people love this model. It's probably the. Way that you pay your administrators or something like that. So it is an option. And when you do this option, that hourly rate should be based. On the expense, on the revenue that you're bringing in. So for example, if you're bringing in a hundred dollars, that hourly rate should be around$30. Okay? So it really should be approximately 30% for an employee, 30 to 35 of what you bring in. Okay? Now this. Pay scale. This model is the one I used in my business at Pilates in the Grove, and the one I also recommend for class-based businesses. This is the per head plus a base pay. So this would basically be they get a base pay of$12,$15,$20, and then a per head of a. 2, 3, 4, 5, 6, 7, 8, 9, 10 for each client in the class. So the pros of this type of pay structure is instructors get a base hourly pay plus a bonus beyond a certain number. So this really incentivizes them and encourages them to fill their classes, retain clients, and even do upsells along the way. So how can you structure this? You can start with a base pay of. 12 or$13, and then every client that comes in gets anywhere from 4, 5, 6, 7, 8, 9, 10. So let's say you have six reformers. If your instructors get$5 a person, that would be five times six. That's 30 plus. Their base is 12, so they can get 42. Okay. If you give them$6 a, head they can get six times six is 36 plus a$13 base. That's like. 49. So do you, you see how that can go up? So you can have a higher base and a lower per head, or you can have a lower base and a higher per head, either one. Alright. You can also do a per head after clients three. You could do a per head after client. Two. You could do a per head after client five. Right. You could also do a per head where it's like a$15 base,$5 per head for clients, one through five and$3 per head for clients six through 10. All of it is so that you can have a mutually beneficial experience for both the instructor and the studio. The con for this, it can get tricky if your base rate is too high and you're in a market where filling classes is consistently tough. However, if you get to the point that you are, your instructors and your marketing efforts are really optimizing for your utilization at 60, 70, 80%. This is a great win for both you as a studio and for the instructors at Pilates In the Grove, we had instructors that were making 80, 90,$95 an hour for their class, so that was great. Now, if you have, don't have the capacity to have a lot of reformers, so if you're at a studio where you have four or five or six reformers, you know it's going to be difficult for instructors to make$90 unless you're charging$60 for the class. Now. Percentage split models. So this used to be a common pay structure in both studios and physical therapy practices. It's where the staff gets a percentage of the revenue. So you can do 50 50 splits, you can do, I've heard 60 40 splits, 70 30 splits. 30, 70 splits. It's easy to scale up or down. So now the con is when you as a studio are taking 50% or less of the fee. So a lot of the thought process was, oh, well, we get 50% as a studio, and the instructors are doing 50% of the work, so they get 50%. However, they get to keep 100% of their 50%, and you have to split your 50% in rent, marketing, utilities, operational fees, admin staff, your salary, et cetera. So it doesn't always work out equally unless you do a 30%, 30 to 35% to the clinician, and you're keeping 65 to 70%. Okay, as a business. The other reason I don't love this percentage model is if you actually pay 30%, then when you raise your prices, the margin is still the same. So what I like to say is base their hourly rate on a percentage, but don't actively tie it exactly to the percentage, because if your rates go up, then their percentage goes up as well, and then you can't get a bigger margin in through there. Okay, so another one is salary structures. I see a lot of this is very common in the physical therapy practice world where PTs come on under a salary. So the pros of this, it does provide stability and predictability for both you and the team member. It does help with retention and positioning your business as a long-term career option for physical therapists. Cons are it really. Hurts or it's a big challenge when your employee is on salary and they're revenue generating and they're not at. 80% or more utilization. So if you are paying someone an 80,$90,000 salary, but they're only generating like$150,000 in revenue'cause their schedule is not full, that does not work well for the business. You will be underwater and your payroll will be 50 to 60% of your revenue, which is never good. Salaries work well when you have very predictable cash flow and someone is operating at 70, 80% utilization, especially if they're a clinician, a service provider. So if you're still in early growth stages, locking in a salary can be. Really risky because if it takes a long time to ramp that person up, you could be underwater a little bit. Okay? So those are the most common, compensation structures we see for service providers. Now, I'm gonna talk a little bit about the benefits and perks, because compensation isn't just about the paycheck sometimes perks matter. To your team just as much, especially for retention and especially for recruiting. High value, high quality clinicians. So let's talk about health benefits. Having health benefits can be very expensive for a business. And here's the other thing. Benefits really should go specifically to full-time employees. I see a lot of businesses offering benefits to part-time employees and in the general world and variety of industries, part-time employees don't qualify for benefits. Okay? So full-time you can set, different states have different. Requirements. I believe in the state of Florida, it's 28 hours. So they're great benefits for full-time people. But remember your part-time, 10 hour a week, people don't really qualify for health insurance, nor do they qualify for PTO paid time off. So if you're offering health benefits, they should be for your. Full-time employees and they should be, for people that are opting in. It is expensive. I think I've done other podcasts on how to get health insurance for your company. Most businesses now are in lieu of health insurance, offering a stipend so that the staff member can go out and secure health insurance on their own. Continuing education, CEU reimbursements is a great benefit to add to your perks and benefits and to your offer and compensation package. Now, if you wanna offer continuing education to part-time employees, I think that that can be okay and it signals that you really care about their professional growth, but it should also be commiserate with. The hours they put in. So I don't think anyone that works less than five hours a week really should qualify for benefits, but. You can say if you work between five and 15 hours a week, you get 200 to$500 a year in continuing education. If you work 15 to 25 hours a week, you get$400 a year. If you work 25 hours a week or more, maybe you get$700 a year. And then what we did at Pilates in the Grove was this went up year after year of employment. So. The highest paid continuing education payout stipend was if you worked five years or more and you worked 25 hours or more. I think it was a$2,000 a year continuing education stipend. So you can stagger this. for me, contractors did not get any benefits. And if someone is a 10 99 contractor, this is really, really important that you're not co-mingling benefits with 10 99 pay because you're setting yourself up for a possible lawsuit of misclassification of employee and contractor. So contractors, any 10 99 contractor does not. Qualify for benefits, not free classes, not. paid time off, not vacation pay, not continuing education stipend, not bonuses. Okay. So another thing that you can do are free or discounted classes, memberships. so basically you could do, if at Pilates and Grove we did, if a spot was open in class an employee could jump into that class, if a paid client came, the employee had to leave. But if there was space and there was room for them and they wanted to just show up and jump into class, that was great. That was what was allowed at our studio. these are really great benefits for re retention and attraction strategy. So think about perks that allow you to keep your best members with you long term then, and also allow you to keep your best staff with you long term. They will help you attract people that are looking to grow within your organization. So what perks can you offer, especially if you cannot offer health insurance'cause you get priced out of the market with that. Now, how do you choose which model is right for you and which benefit structure is right for you? One your business model. So are you a high volume Pilates studio or a boutique low volume, high ticket physical therapy practice? The model you choose should match your service type Now. Another thing to consider is your cash salaries. If your revenue fluctuates dramatically, likewise, don't over promise percentages that leave you with no profits. I am a big fan of hourly employees where service providers get paid per revenue generating hour. This was the pay structure that we had at Pilates in the Grove. And even with that, we were able to have a few instructors, probably at least two, I believe maybe three, have six figure salaries at the end of the year. While Pilates in the Grove was still able to have multiple six figures in profit, and myself as the owner who was not revenue generating, was still able to have a six figure salary as well. So it is possible. Okay. The other thing you want to look at is your profit margins. This is the biggest, biggest, biggest one. You must align your pay structure with your profitability goals, and if you're paying out more than 50% of your revenue to payroll, you're likely squeezing yourself out of profitability and sustainability for brick and mortar. Fitness businesses. So I'm gonna say that again. If you're paying out more than 50% of your revenue to payroll, you're likely squeezing yourself out of profitability and sustainability, and I am gonna show you why. So I'm gonna bring over my handy dandy little whiteboard that I love. Okay. And so if you're listening to this, which most of you are,'cause it's a podcast, I'm going to encourage you to go to, YouTube and watch this little section of the video, okay? Because I'm gonna do this little math equation for you. So let's say you charge a hundred dollars for a session, okay? You get a hundred dollars. Now if you pay 50% to your clinician, okay, now you are left with$50. Okay? Now generally 10% of your revenue goes to your rent, so if 10%, so that's another$10 goes to rent. Alright, you've got 3% that goes to credit card fees. So now you've got$3 that are gonna go to credit card fees. So now you're left after$10 to rent, you're left with$40 minus$3 for credit card fees. Now you're down to$37. Okay? Minus. Let's say you have 30% that goes to overall operations, which is pretty standard, which means that goes to your, additional payroll for your admin team, for your booking software, for the utilities, for, payroll, expenses for marketing. So that's another 30%. So that's another$30. Okay, so that leaves you with$7 left.$7, okay. To pay your, taxes, your owner's salary, right? And. Any miscellaneous, expenses, so like licenses, all of that stuff. Okay. And if you're left with$7 from a hundred dollars that you bring in, that is only a 7% profit margin, so now you're left. A 7% profit margin, and your goal is to have a 15% profit margin. Okay, so you can see how if you have your percentage of what you pay out too high, you don't have anything left, and this is a really good exercise to do with your team so they can see why it's not feasible for them to make 50%. Okay, so again, if you're looking at this, this is a great little video for you to do and evaluate, right? So if you don't wanna change your team, you can't tell, well, we can't pay you$50 anymore. What you have to do is really increase your prices to accommodate what you are paying out for your team. All right? I know this is real nitty gritty. Okay, try not to over complicate your pay structure. As much as you can. The more confusing your pay structure is, the less your staff will trust in it. Keep it simple, keep it fair. Do an exercise like this where you're showing them that you as a business need to keep at least 15%, one for a rainy day fund, one to give bonuses, one to give raises, one if, God forbid, you have to order more equipment or something happens, right? You need to have that profit in your business in order to operate. So here's my challenge to you this week. Take a look at your current compensation structures. Are they actually aligned with your profitability goals? Are they easy to explain? Do they make sense for the type of business you are running? And if not, it may be time to simplify and adjust. If this is something you want to dive deeper into, we do entire training on pay structures, margins, retention inside my Fit Biz Monthly membership. It's only$99 a month. It is less. Then this exercise, it's less than the cost of a private physical therapy session. It's less than the cost of a private Pilates session. Okay? It's less than the cost of what you charge a monthly membership at your Pilates studio. It's a great place. If you're still figuring out your business model and you're more winging it than actually making decisions. I'd love for you to head over to www.christagurka.com/fitbizfoundations to check it out. Alright, that is all I have for you today. I hope this was insightful and educational. I thank you so much for listening, and as always, until next time, my friends, bye for now.