In this week’s post, we are going to be catching up with Erin Haag, whom I have known for a couple of years now. We met when Erin owned a fitness studio and she needed to implement Profit First to make her business better than ever.
Erin’s Success Story
Erin owned a pilates and yoga studio in South Florida for nine years, but prior to that she worked for a whole bunch of different companies in corporate sales. You name it, she did it! We’re talking the weight loss industry, wellness centers, nutrition, medical spas, cosmetic surgery centers, and laser hair removal. She helped make millions of dollars for other people and then she was laid off during the financial crisis of 2008.
At that time, she decided she was done making money for other people and that is when she used all of her strategies to open her pilates and yoga studio. Erin had a pretty successful business. She paid herself from day one and her business was profitable. However, about five years in, she had two kids under the age of two. She was working 50 plus hours a week and hadn’t taken a vacation, let alone a day off in forever.
The final straw for Erin was when she was hospitalized twice within four months. The first time was for a kidney stone that brought on an infection and the second was for viral meningitis. She was released from the hospital on her oldest daughter’s second birthday and she realized something had to give.
She began to make shifts within her business. She did that mostly with her pricing and by automating her systems, but she basically changed everything. When Erin and I began to work together, she went from a 4% profit margin to a 47% profit margin. She also started to pay herself a six figure income and began to work only five days a week.
Erin began to work with me about eight or nine months before she sold her studio. In that time, she saw her biggest growth. In the six months from the time she listed her business until the time she sold it, her business became completely debt free. Erin also sold her business for forty times her original investment.
That was all cash in her pocket!
Since that time, Erin has been helping other boutique fitness studio owners, gym owners, and people within the wellness industry do the same within their business.
I love hearing success stories like Erin’s! But you know that she had to have a few points in her story that were not all that glorious! And that is what allows everyone else to relate to her story!
Making Changes to Your Business Model
One thing that Erin loves telling people right now is that if you are planning to start a business, now is the time to do it. She started her business during a financial crisis and everyone thought she was insane. But her business thrived and the businesses that are lucky enough to make it through and get to the other side are going to be so profitable and successful.
And if you currently have a business, now is the time to make the necessary changes in your business. You now have the perfect excuse. One of the biggest changes you can make right now is pricing. You really have to analyze your pricing and take a look at it over the last eight months.
Then ask yourself, “Have you really continued to maintain a profit margin? Have you continued to have a steady flow of cash?”. If the answer is no, then Erin and I can both tell you it’s due to your pricing. If you are still charging a per session class pack, then you must change it to a recurring revenue model. Switching your pricing model is the only way you can guarantee sustainability.
You may not believe that your business problems are tied to your pricing, but ask yourself if you did the proper analysis when you created your pricing. Did you analyze your pricing or did you simply charge whatever your competition was charging or less than what your competition was charging? We have seen the latter so many times and those owners are simply not making a profit.
How to Find Your Pricing
There is actually a formula for creating profitable pricing for your business. The first step you have to take is determining what your minimum monthly sales goal must be. You will find this number by adding in all of your operating expenses, your payroll, your liability, your debt, and your owner’s pay.
This will give you your monthly sales goal. Once you have that number, you will need to do an analysis on your capacity. Then your capacity will tell you what your monthly client value needs to be. This is basically how much each client needs to be worth to your business based on your capacity.
Let’s use $150 for an example. The $150 will be the pricing point for your mid-range package. You would then create pricing that has a weighted price for single services, which will be intentionally high. This will discourage people from purchasing a single class.
The larger commitment packages will be your bottom line number.
Conquering the Sale
Erin uses what she calls the client flow when conquering the sale. The client flow basically goes from when the client first contacts you all the way through to the collection of money. It’s going to be unique for every business and it must be individualized for every client. By the time you are collecting the money from your client, they will know exactly what you have to offer for their life, how you fit into their budget, and how you fit into their schedule.
Remember, that your goal is to solve a person’s problem, not simply collect their money! If a client begins to object, answer their question, reconnect with their pain point, and position your service as the solution that will solve their problem. You’re only asking them to commit to solve their problem.
Both Erin and I recommend using a checklist type script, so you make sure you remember to share everything with your clients. You don’t have to go down this checklist in order, but you do need to make sure you cover all of the points. This will ensure a potential client has all of their questions answered when it is time for them to make a final decision.
A client will contact you because they are interested. Therefore, if a client ends up saying no to you, something happened within your client flow. A step was missed and you allowed the client to slip out. This is why you need to be confident that you have everything your clients need.
Your Ideal Client and Pricing
You have the choice to be the best, the cheapest, or the most efficient. You can’t be all three though. When you are setting up your pricing, you’re targeting your ideal client. Your ideal client is going to be able to afford you, especially if you are doing the right type of marketing.
Once you have your pricing in place, it is a good idea to do a profit analysis. Determine what your current profit margin is, so you know which direction you are headed in. This will allow you to make adjustments to your pricing and expenses, so you can be where you should be with your profits.
As soon as you have everything where you want them to be, you can work on the systems you have in place. This will ensure that everything is ready for when clients are walking through your door. Those systems will also allow you to re-engage with existing clients and transition those clients into more profitable packages. Those steps alone can help you increase your profit margin by 95%.
The reasoning behind that is those clients are your cheapest clients. They are already in the door and you don’t need to convince them of anything. They love you and want to continue to work with you.
You may be worried about increasing your prices right now in our current situation, but Erin says now is the best time! People are actually expecting price increases right now. Since you may only be operating at 25% or 50% capacity, your clients understand that you need to charge more.
Besides, you should have been increasing your prices every year since you opened and most likely, you haven’t been. A 3% to 5% price increase is normal. After all, your rent likely increases 3% every year and your taxes and expenses increase, so why shouldn’t your prices? So, now is the time to get your prices into current market value.
Learn from Erin’s experiences and price your services properly. You will have a healthier profit margin, can pay yourself more, and hopefully have systems in place that will allow you to work fewer hours than ever before!
It’s a win-win for you and your clients!
One of the most frequents subjects/question that has come up with my clients and peers recently is:
"What should I do with my EIDL loan?"
My observation is that many gym owners have moved on from the mindset of using the money for what it was intended - a short term solution to keep the business afloat due to decreased revenues from Covid-19, or as a cash reserve as we move into fall and the unknowns of a "second wave".
Instead the thought process has evolved to "how can I spend it?" New equipment, building renovations, signage and marketing campaigns are all ways I have seen it being spent. In many cases credit was not previously available through normal channels prior to the assistance programs the government is now offering. Think about that. Your business could not support additional debt pre-pandemic. Revenues are down which triggers loan assistance under new government guidelines, often very large loans for a small business. What makes you think you are going to be able to afford to pay that loan back?
All too often we are in the "monthly payment" mindset. We've been "taught" by those who are in the business of selling on credit - car dealers and real estate agents come to mind. It's not about what you need, it's "what monthly payment can you afford?" Look I have been sucked into this too. The whole point of the dance with the credit manager is to see what the maximum monthly payment you can "afford" is, and then find a house, or car, or refrigerator that stretches the upper limit.
I've heard it more than once about the EIDL loan as well. The argument goes "It's only about $700/mo to pay back the $150,000 they gave me." Yes, that's true. Over 30 years and total interest of over $100,000! That's like buying another house. No thanks.
This is a relevant subject as we work our way through the Fix This Next Business Hierarchy of Needs.
Question #4 on the Profit Level is;
"When debt is used, is it used to generate predictable, increased profitability?"
Answering this question requires some discipline and work. When choosing to take on debt in your business, there needs to be a clearly defined and achievable increase in profits in a clearly defined time frame. There also needs to be ongoing measurements so when that isn't happening, you can take action by either adjusting the plan or pulling the plug on any more money being flushed. It''s the difference between "spending", and "investing". When you invest, you expect a return. I would suggest that every dollar you use be approached with this mindset.
My job is to help businesses create cash management systems that guide strategic thinking and decision making around their money. Dancing with Debt is Dangerous. You have to take the lead, not let debt take control. Know what you are getting into and why. Run projections that prove the debt you are taking on is an investment, not just a spend. Know when it's time to cut your losses. And always have a plan for paying it back.
This week, we are going to be focusing on the year end. It is coming up faster than you think, since it is already the middle of October! I have four tips for you to be thinking about as you plan your year end. Well, I actually have five, but the last one is a bonus and it definitely won’t apply to everyone.
I think it is best to dive right in and talk about the things you can be doing right now. Basically, how you can prepare your finances for year end.
4 Tips for Preparing for Your Year End Plus a Bonus Tip
- Get Your Bookkeeping Up to Date
I know a lot of you have been putting this off. You’ve had a lot of other seemingly more important things to do this year. And I agree, I probably told you before that I don’t always do my bookkeeping every month or all of my financial tasks every month. They sometimes fall behind! But NOW is the time to get those caught up!
The way I would recommend you getting caught up right now is to actually start doing September’s bookkeeping. Just start there and then you can stay current. Then in November, you do October and December, you do November. In the beginning of January, you do December.
I’ve also done a little calculation for you. There are 11 weeks left in the year now. Let’s say you haven’t done any bookkeeping yet in 2020. So, you basically have January through August to do. If you do one month per week, you can take almost all of December off, because you will be all caught up by then. Or since there are holidays in there like Thanksgiving, Christmas, and New Year’s, you might want to plan to get your bookkeeping completed in the weeks around those holiday weeks.
So, figure out the weeks you are going to do bookkeeping. It is super important that you get it done before the end of the year. If you don’t do it before the end of the year, you are going to pay your tax preparer more to get your taxes done.
You can reach out to us to learn more about us doing this for you. We are currently doing a lot more historical transaction work right now. People want to be caught up before they get to their tax preparers and tax return.
- Talk to Your Tax Preparer at the End of the Third Quarter or the Beginning of the Fourth Quarter
This is something you need to be doing right now if you haven’t done it already! We always recommend our clients and every business owner, myself included, talk to their tax preparer at the end of the third quarter or the beginning of the fourth quarter. Do this when your bookkeeping is up to date, so they can look at your financial statements and give you a projection of what your tax bill is going to be. They can also tell you if you will be getting a tax refund. That would be really good news to have right now. The earlier you know this information the better. After all, if you’re going to owe money, you have the rest of the year to save that money up.
If you haven’t already been saving, or you haven’t been saving enough, we can make adjustments and get you on track.
When your tax preparer gives you an estimate in April or when they do your taxes, that’s based off of what they think is going to happen. Well, we all know that 2020 has not given any of us what we thought was going to happen!
So, take your financial records to your tax preparer and have a conversation with them about what they really think your tax bill is going to be based off of the actual results you have had in 2020.
This is also a good time to talk to your tax preparer if your revenue has significantly increased this year. That has happened with some of our clients. If that happened to you, now is the time to consider becoming an S Corp. It can be beneficial to change from an LLC or sole proprietor, depending on the numbers.
The bonus tip applies here, but only if you are already an S Corp. This designation requires you to pay yourself via payroll. (You cannot pay yourself via payroll if you are in a partnership, an LLC, or a sole proprietor.) If you haven’t been doing this yet in 2020, now’s the time to start and talk with us or your tax preparer. You might need to do some catchup payments as well.
The IRS is starting to crack down on that and they need to see reasonable compensation to you as the owner.
- Set Your 2021 Revenue Goals
We all definitely need to be setting 2021 revenue goals right now. I think we all had revenue goals for 2020 and we’ve had to readjust those. This is the time to look at what 2020 was actually like and make whatever predictions are reasonable for 2021. Set those revenue goals and then start to reverse engineer all of the things you need to do to hit those revenue goals.
I always start with the revenue as my goal and then say, “Okay, that means I can pay myself this.” Or maybe you start with your pay as your goal and reverse engineer it into your revenue.
Either one of those options is okay since they are interchangeable. It depends where your pay is currently, but then how many new clients does that mean you need and how many new leads does that mean you need? How much marketing should you then be doing to generate those leads?
Hopefully you have data to back it up. Say you want to get 48 new clients in 2021. That’s 4 new clients a month. So, how many leads do you need to sign up 4 new clients? It may be 8 or it may be more. Hopefully, the data you shows you exactly how many leads you have needed in the past to obtain the number of clients you want. Use that data to back up your goals for 2021.
Take the time in the fourth quarter of 2020 to be the CEO of your business and set those goals. Then reverse engineer to get all of those quarterly and monthly goals for 2021.
- Find an Accountability Partner
Finding an accountability partner is probably the most important thing on this list. Once you have your goals for 2021, you can report them to your accountability partner or group. If you don’t have an accountability partner or group yet, find one. They are the only thing that’s going to make sure you hit those goals. I have a blog post that shares how to find accountability partners, so give it a read if you need a little help finding your accountability partner.
These are the four things you must be doing in the rest of 2020 to end the year on a positive note and to make sure 2021 is as close to what you plan for as possible. Obviously, we have to readjust when things happen, as 2020 has taught us. But we can only adjust if we have a plan in the first place. If you don’t have a plan, you are only flying by the seat of your pants all of the time and that won’t be very helpful.
If you are struggling with ways to end your year in a good way and start 2021 strong, contact us today. We can catch up on your bookkeeping for you, so you never have these struggles again in the future.
Over the last few weeks we have been digging into the Profit Level on the Business Hierarchy of Needs. Question #3 relates to Transaction Frequency.
"Do your clients repeatedly buy from you over alternatives?"
As I considered how this question related to the fitness industry, I realized there are some layers to work through when it comes to answering that question.
It's no secret that there are many different options and modalities of training in our industry. Weightlifting, Powerlifting, Crossfit, Yoga, Pilates, HIIT; just to name a few. Attracting clients is one thing - keeping clients is a different thing altogether. We as consumers have pretty short attention spans, and are prone to chasing the "latest and greatest". In the fitness business it seems like there is some new fad coming out all the time. How do you keep clients from jumping ship and heading across town to the newest shiny object?
1. Know Who You Serve.
We have talked about finding the "sweet spot" in your business. Sometimes this is called a "Niche", but it's more than that. It's knowing what you do best and why, and finding clients who speak that same language. When you walk into our gym it looks very much like a Crossfit, but a dedicated Crossfitter would be very disappointed after a very short period of time training with us. That's ok. It's just not what we do, and trying to put a square peg into a round hole just isn't going to work. You can't be the only choice to everybody, but you can be the only choice to your ideal client.
2. Think Long Term Relationship
Relationships take work. It's not just a matter of signing up a new client and "setting and forgetting." Live up to your brand promise. Listen to what clients are saying. Genuinely care about your people. Remember details. And educate, educate, educate. If you don't want people "gym hopping" on you, you must be prepared to tell them why you do what you do, how that benefits them, and why alternatives may not suit them. You don't have to bash a competitor to explain why loaded box jumps might not be good for 60 year old knees. And it doesn't cost extra to care.
3. Build In "Longer Term"
There has been a move away from longer term contracts in the industry. "No commitment" is attractive to the consumer, after all. Now I am not saying you have to beat your customer over the head and try to force them to stay because they have a contract, but it does provide you some leverage. And it's more than that. From a training standpoint you know your clients need consistency over the long term to see results. Does it serve them well to offer punch cards and class passes, or would educating them up from about the importance of a training program be more beneficial? I can't answer that for you, however I believe the gyms that are setup for success long term don't just have random classes, they have a unified training philosophy. Yes, this requires more effort from the training staff and commitment from the client. That is a good thing because the client gets better results and you can charge more for those results.
4. Find Ways To Do More Business With Current Clients
What other ways can you serve the clients you already have? What are they purchasing elsewhere they could be buying from you? Supplements, equipment like foam rollers and bands, and nutrition coaching are just a few of the things you can bring in house and increase your revenue.
Creating a business where you are the "only choice" in the minds of your prospects and ideal customer will attract better clients, reduce churn, and put more money in your pocket. There are four ideas in this article. Which one can you put into action today?
I know that 2020 has thrown us quite a few curveballs. Normally, I have conferences to attend at least twice a year. Those conferences are ones where I meet like-minded people and learn things I do not already know. This year, I must do those conferences virtually. And to be honest, I’m going to miss my tribe of people!
Just the chance to kick back, relax, and have fun talking about all the things!
I know there will still be many speakers for me to gain extensive knowledge from during my virtual conference. Donald Miller, John Jantsch, and Mike Michalowicz are just a few of the speakers I will be learning from this time.
I’m even looking forward to the networking time in this conference, despite it looking different this year. The time when I am talking one on one with another person always provides eye opening experiences. Over the years, I have discovered there are fellow business owners, accountants, and bookkeepers who have really pushed me to grow personally and professionally. They have held me accountable, so I would do what I said I was going to do in my life and my business.
And that is what I wanted to share and go into detail with you today. Even as a bookkeeper or accountant, I need someone from the outside to be looking at our business and our finances. These people have been helpful in seeing the forest through the trees.
After all, we get bogged down in the details of what we are doing. The blinders go on and without a little push from others, we can miss so many things. Right???
A little confession here… We don’t always review our own finances. Yes, sometimes it gets done, but other times, well, let’s just say it slides into the background. This is where the mastermind group I am in has been really helpful and super important in the last year.
We have now started to review our numbers together as a group on a high level every single month. And let me tell you… When you have to report that to somebody else, you get to know your own numbers more intimately. You also see things that make you say, “Oh, I don’t like that. I want that to be different. That should be different.”.
Of course, that stirs up a bunch of other questions that include, “How can I change this? What are you all doing?”.
All those questions allow me to create a plan. This plan is necessary, because I am in the spotlight once a quarter in my mastermind group. I have to tell them what my plan is going to be and what I’m going to do. I then meet with some people from the mastermind group every single week, so I stay accountable.
We have a sheet with the quarterly goals listed on the top. Each week I go and tell everyone whether or not I did what was needed to meet my quarterly goals. The worst weeks are the ones where I have to admit I didn’t do what I said I was going to and why.
The best weeks are the ones where I can say I did what I set out to do. Those are the weeks I love, because I can see what is working and what isn’t. That allows me to make changes if needed.
All of this shows what being held accountable does. While the quarterly goal is right at the top of my sheet, it sometimes takes another person to remind me to do what is necessary to reach it.
Once a quarter each of us in the Mastermind group sits on the “hot seat.” I went in with a question that had nothing to do with my financial or marketing goal for the year. My Fix This Next assessment showed me that those were the two things I should be focusing on in my business for 2020.
This assessment is available on the Fit for Profit website if you are interested in seeing what you should be doing for your business.
My question was totally unrelated to what I should be focusing on. Thankfully, the members in the group told me that it wasn’t on the level of the business needs hierarchy I was supposed to be focused on. It was exactly what I needed to hear at that moment!
I knew I had to go back to the drawing board. But that is exactly what accountability is and what it does.
- Reminds you of what you’re supposed to be focused on
- Reminds you of why you’re doing it so you don’t get off track
- Reminds you why you are doing all of the work you are
- Reminds you to stay on track
- Reminds you to keep your goal front and center
All of these things are the favorite things that we get to do for our clients. And I know in the fitness industry, it’s what you do for your clients. You hold up the people who are making the best progress and you show them to people, so that they can see what’s possible for them. And when people don’t show up for workouts on a regular basis, you get on the phone, or text or email, and communicate with them. You tell them you miss them.
- How can we keep you coming back?
- What can we do for you?
- Is there something going on that we can help you with?
That’s what we do for our clients with finances too. We have that call at least quarterly with our clients that are making the best progress. We meet quarterly and go over financial reports with them. We look at what has happened in your business and what’s going to happen in your business. What does the past tell us about what’s going to happen and what adjustments do we need to make right now to change the finances. Change how that plays out in your business.
What can we do proactively?
Yes, a lot of accounting and bookkeeping is reactive. From looking at the history, we can see what has happened in the past. With Profit First coaching and advising, we can then look at what is going to happen.
We can’t guarantee what will happen. Obviously! But we can determine what we think is going to happen.
In 2020, who knows what’s going to happen in October, November, and December. It’s going to be different and we don’t even know how different. But is there anything we can do right now to prepare?
In October, you normally look towards the holiday parties in November and December. I don’t know what those are going to look like this year or if they are even going to be possible. But you know you will want to reward your team.
Your teams have put in a lot of work this year. It’s been very different from what you thought they were going to do. What they expected to do. The people who have stuck by you, most of you will want to find a way to reward them.
Now is the time to think about what you can do in December for them and make it easy. This is one of the proactive things we can do. We can make those necessary changes now.
Every time I meet with a client, we set up the due dates for the changes they are going to make and then they email me on that due date to tell me they did whatever they said they would. If I don’t hear from them, I reach out to them. That is accountability. I know we don’t always like it, but that is how change happens. This is how we grow and our business gets better.
If you don’t currently have a group of people, a group of business owners, or a business coach, now is the time to find one. You can always reach out to us for help. That is what we do!
You don’t have to pay someone for this though. You can easily find like minded business people to do this with you for free. Many people will recognize the benefits of everyone helping each other be accountable. The goal is to find people you have a lot in common with, so you can push each other to be better in life and in your business.
While an accountability group is great, one on one works well too. You can have set meeting times, but also check in as needed in between. You can then reach out if you don’t hear from someone when you are supposed to.
If you don’t already have one, find an accountability partner or group today and change how your business looks in the future. Yes, your team can be helpful with accountability. But sometimes you need someone on the outside.
Our Fit for Profit Facebook page and Instagram are an excellent place to start. You can meet other business owners like yourself and I am there to add to the conversation too. You never know, you might find your accountability people right in that group!