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.
Accountability…
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.
You ask:
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!
I'll bet that you have clients that really love what you do. They understand the hard work you put into serving them, appreciate it, and prove it by sticking around and paying you month after month. Those are the clients you want and need more of, right?
And they may not say it, but they really do care if you are profitable. Why? Because these clients also understand that if you aren't, you won't be around very long to serve them and to keep them happy.
In the midst of the Covid-19 pandemic, businesses that were running on razor thin margins are disappearing by the hundreds. Where I live, we have seen restaurants and shops close down because they just can't make it on current income, and they had little to no reserves built up to withstand the current economic reality.
It's happening in the gym industry too. Gyms are closing down, never to reopen. That stinks for the owner, but it also stinks for the community they served. People NEED the service you have now more than ever. It is your responsibility to make sure you are here for the long term.
It is your responsibility to operate a business that is as profitable as it can be.
Question #2 on the Profit Level of the Business Hierarchy of Needs is:
"Do you have healthy profit margins within each of your offerings and do you continually seek ways to improve them?"
In other words, are you charging enough for the service or services you provide?
When I am working with a client who is going through the "Pumpkin Planning" process, we analyze each service to determine how much it is really making the business. Some gym owner's I work with have multiple service offerings; group training and semi-private for instance. All too often the pricing is really random, without understanding how it's affecting the bottom line.
For instance if my group training offering is $99/mo and I can train 15 clients with one coach, that's $1485 generated. If my semi-private is $300/mo and I can train 4 clients per coach, that's $1200 generated. Even though semi-private costs 3 times as much it's not generating as much income per session. And that's not the only factor to consider. For example what is the time it takes to write semi-private programs vs. group? Are group instructors compensated differently than a semi-private coach? What other overhead considerations are there?
Often we set our prices based on what others in our area are doing, or what we perceive the market will bear, or based on some head trash we are dealing with around our value. Sure, you can consider those (the first two anyway), but they can't and should not be the only way you determine your prices. Build your profit margins in right from the beginning. The Profit First system includes percentage targets for your Profit based on your sales income generated. For instance a healthy business doing between $500k and $1M a year should be generating 15% cash profit. Between $250k and $500k the target is 10%. If they aren't there now, what is your plan for getting them there? Do you even know what your overall profit margin is, and then have you broken that down?
If you haven't, you are not alone, and this is not an indictment on your character or your ability to run a business. The truth is that almost none of us have taken the time to figure it all out, because we are running around doing a thousand and one other things in our business.
And at some point, it's going to come back to bite us. Like it has so many businesses over the past 6 months.
Here's why healthy profit is so important in the context of the times we live in. When you have a healthy profit margin you can create a greater "business viability and survivability" margin. How much less stressful would your life have been over the last few months if you had 6 months of living and operating expenses saved up? That's doesn't just "happen". You need a cash management system that puts every dollar you earn to work in the right places at the right time, and a plan to help you reach your targets. You really can't afford to not put your Profit First any longer. It's time to take action and build the profitable business you (and your clients) always wanted. We can help.
As we approach Q4 now is the time to push to end the year strong. It’s the perfect time to revisit old business strategies from last year so that you can increase your profits for 2020. If your financial numbers were fantastic last year, that’s great! Keep the strategies that worked for you and cut the ones that didn’t.
If your financial numbers weren’t amazing last year, or maybe you’re just interested to see how you can increase your profits even more, we have you covered. Every business has a gold mine in its current customer base.But not all business owners remember to mine this gold, because they are too busy trying to attract new customers or developing new products or services. This is the perfect time of year to step back and remember the easiest ways to increase your profits is using your existing customer base.
Top 10 Tips to Increase Profits for Fitness Business Owners
As an entrepreneur, you are responsible for shaping your business success, so here are 10 tips you can use to increase your profits this year:
Revisit Your Current Prices and Make Adjustments as Necessary
Many people will tell you that increasing your prices will increase your profits, but that’s not necessarily true. Increasing your prices by a small amount might increase your profits without turning away existing customers, but make sure you research your competitor’s prices and adjust based on what makes sense in your market.
Keep in mind that if it has been awhile since you have raised your prices, it is definitely time to do a little research and make the adjustments that are best for your business. Review the price list for your services and products to determine what you need to do to bring all of your numbers back in balance.
It is important to note that customers do expect periodic price adjustments, so don’t let procrastination or fear hold you back from making a good solid business decision here.
Bundle Your Services or Products Together
Make your products or services more attractive by bundling them together and pricing them at a better deal than purchasing the services or products separately. Customers that only want one particular product or service should still be able to purchase the product or service à la carte, but offering different packages of increasing value makes it much easier to upsell to clients and increase your profits.
Make Your Online Presence Known and Manage Your Online Reputation
Everyone uses search engines and social media to find the right business to serve their needs, so make sure you can be found online. Create a website for your business and make sure you have business pages on social media platforms like Facebook, LinkedIn, and Twitter. You’ll have to develop some marketing strategies and optimize your site to rank high, but, when done right, these channels can dramatically impact your profits for the better.
When you have many good reviews, your credibility goes up and your business is more appealing to potential clients and customers. If your clients leave you an amazing testimonial, it’s a good idea to ask them to post it online as well—especially on Yelp, your Facebook Business Page, and Google Reviews. On the other hand, negative reviews will look bad to potential clients and can negatively impact your profits, so make sure you respond appropriately to the review and show potential clients that you care about getting things right.
Encourage Customer Referrals by Building and Nurturing Customer Relationships
Connect with clients and build strong relationships through effective communication, providing exceptional service, getting feedback, addressing concerns, and showing appreciation. Doing so can increase repeat customers, customer referrals and your profits.
Cross-Sell Current Customers
Restaurants practice this the most, asking us if we want appetizers, dessert, or fries with our entrée, and you can apply this to your business too. If you offer two services and a client is only participating in one service, make sure they know about the other service you offer, and find out if they have a need for it.
This is called cross-selling, where you offer a current customer a service or product that they don’t already purchase from you. For example, a salon will want to offer waxing services along with haircuts. A gym who also offers nutrition coaching will want to follow up with the newer members to encourage nutrition after the gym habit has been established. An online business who sells a DIY course and also has a group accountability program will want to offer customers that program as well.
Upsell Current Clients
Offer steady customers a product or service with more features than they usually purchase. Examples include moving a client from coach to first class, from a budget vacation to a luxury one, from a standard model car to a luxury version, from group classes to private training, from an off-the-rack suit to a designer suit, from the standard service to an all-you-can-eat version, and from a regular meal to a super-sized one.
Some customers simply need to be given permission to splurge on themselves, so why not by you? Others have outgrown the standard package but find it hard to break routine. With a gentle nudge from you, a percentage of your clients will purchase the upgrade, therefore boosting your sales with little effort on your part.
Start a New Product or Service Line
If you’re limited to just a few products or services, it might be time to expand. Be sure you’ve analyzed the profitability of these moves first and have the first service line operating profitably on its own. Then it might be time to add nutrition coaching if you don’t already offer it, or child care for some classes, or a smoothie bar to your reception area. Expanding the scope of what you’re selling will provide you with additional revenue and if priced appropriately will lead to added profit as well.
This is a great way to then start upselling or bundling products and services to your customers!
Expand Your Geographic Reach
If you’re still only offering services and products locally, consider expanding your reach, especially because the internet is so readily available nowadays. Think about which services you can offer virtually; some may require you to invest in cloud-based delivery systems. If you only sell products at a physical location, e-commerce is a huge industry and you could definitely increase profits by having a storefront online.
Curb Irrational Spending
Invest in things that will last, such as your own education, great systems, team training, and assets that you really need. Avoid spending on items that are used up quickly, such as elaborate entertainment expenses that don’t generate significant revenue, excessive utilities, and stopgap equipment.
This area can be a tough one to evaluate objectively because there can be emotion and attachment involved in the spending. Let us know if you need help in this area; we can help you look at your spending with fresh eyes and provide a new perspective using the Profit First system.
Maintain Your Focus
Great entrepreneurs have clear focus. If you have too many projects going on at once, you end up delaying all of your project completion dates, and nothing gets finished. Ask yourself, what’s the most important thing I can do today? And work on that until it’s done. Then ask yourself the same question again, and wash, rinse, repeat your way to success.
All ten of these tips will help to raise your average profits per customer and boost your overall profits without a lot of additional work on your part. Try these tips today, so you can enjoy a more prosperous 2020!
Connect with Shannon:
If you are interested in learning more or joining a community of like-minded fitness business owners, check out my free Facebook Group: https://www.facebook.com/groups/PFforfitness
Shannon Simmons, a 10-year business owner, and 5-year Profit First Coach is the owner of Netbooks Accounting Services, LLC. She is one of the original Profit First Professionals when the concept was created by Mike Michalowicz.
NetBooks is your gym and fitness center’s business partner in achieving levels of profitability, accounting integrity, and financial reporting that will allow your business to do more than just thrive but to achieve the highest levels of profitability.
Our professionals are intimate with the fitness market and will guide you through creating the right plans, managing your operations and accomplishing your goals. Think we might be a good fit? Click Here to find out!
Being in debt sucks. I hate debt. I despise car payments, mortgage payments and credit card payments. I don't like borrowing money for anything!
If you want to know how I really feel about debt, just ask me sometime. 🙂
Seriously though. I know there is a concept of "good debt" vs. "bad debt" that we will actually talk about in a few weeks. But if you are in debt, you know it doesn't feel very good. I remember a time I was in debt to the IRS for five figures. That REALLY didn't feel good, and that experience largely shaped my perspective on debt to this day.
Debt is a huge problem in many of the businesses I consult with, and it shows up in two primary ways:
1) Large credit card or loan debt
2) The inability to pay monthly bills with current cash flow
Even worse is the correlation between these two. #1 gets worse because the business owner is in situation #2, and keeps using credit cards to cover. STOP IT ALREADY!
In my last post (You've Got Profit All Wrong) we introduced what Profit is and isn't as an introduction to the Profit level of the Business Hierarchy of Needs.
The debt load in your business has everything to do with the Profit you can achieve, which is why question #1 on the Profit level is;
"Do you consistently remove debt rather than accumulate it?"
Answering "no" to that question usually reveals a business that has a pretty short runway when it comes to both stability and viability.
It won't surprise you debt is one of the very first things we work on when implementing Profit First into your business. First we look at what the sources and amount of debt are, then create a plan to systematically pay it off. And we also record total debt at the end of every month. Without this awareness and keeping it in front of you, it's easy to ignore.
At the same time we are going to take a good hard look at expenses. I know, I know, you are running "lean", but are you really? I can tell you first hand that you alone cannot be objective when it comes to reducing expenses. If you didn't "need" it, you wouldn't have purchased it in the first place, after all. Reality check. We ALL spend money on things we don't really need. And as Mike says, "If you can't pay your bills, you can't afford your bills". Having an outside advisor who can be non-emotional and objective about expenses is critical at this stage.
The beauty of the Profit First system is it puts an automatic debt reduction strategy in place using your Profit Account. If you have outstanding debt, we use most of the funds in this account to accelerate your debt payoff. Why the Profit account? Because you are not truly profitable when you have debt.
The freedom you will feel when you get out of debt is worth the short term pain of cutting expenses and running lean. Spending money is fun, I like doing it too. I racked up thousands in credit card debt for stuff I "needed". And it took years to get out of debt when I finally woke up to how foolish I was being.
You can't change the past. But you can make better decisions now that affect your future and the future of your business. Think about it. How will your life change when every dollar you are paying in debt becomes a dollar that goes into your Profit account?
It’s the end of August and it is super hot outside! I have been starting to spend more time inside, due to the incredible heat. Plus, I am getting back into a normal routine, because my kids are back in school. I’m not sure how long they will be there, but they are there and I will take the normal routine feeling for now.
In this week’s blog post, I want to address how to pay your team. I am not talking about all of those details like direct deposit. I am talking about considering hourly and salary pay rates. Basically, how to determine how much to pay your team.
How to Pay Your Team a % of Revenue and Why You Might Want to
I am focusing on this topic this week, because so many of you have been reducing your teams over the last few months and are starting to bring them back. Everyone seems to be asking about how to do this the right way with our new normal.
Where to Begin When Determining What to Pay Your Team
Before you can even start paying your team, you must have a client to service. That means you must have made a sale and you must be aware of your pricing. Some people will say pricing and how much you are paying your team is like a chicken or an egg thing. Which one comes first??!!
Pricing has to come first, because as I said, you must have a sale before you can really start thinking about how much to pay your team and your coaches.
It’s not as easy as looking at what’s going on in the world around you and saying $99 a month. While that sounds good, you need to make a few calculations to see if that pricing really works for your business. I’m not going to use too many specific numbers right now, because that can open a whole other issue. After all, I am an accountant and I do have a habit of geeking out with numbers and trying to solve what appears to be a puzzle in front of me.
Determining Your Pricing – The Short Version
You should make sure you have your pricing right before you do anything else in your business, including paying your team. I am going to give you the short version here with a little reverse engineering. As you are determining your pricing, you must know what your expenses are and what you need your revenue to cover.
A little hint, your team payroll is one of those expenses that your revenue must cover. This is when you must make your decision of how much you are paying your team. I say that you must do this now, because you need to make sure your revenue is covering your payroll and all of your other expenses. Once you know that your pricing is right, you can go sell and then pay your team.
It is important that you are paying yourself as the coach as well. And the amount you are paying yourself must be a market based wage, because you may be the only coach in your business in the beginning. Therefore, you must make sure you are paying yourself the same amount you want to pay all of the coaches you bring on in the future.
Target Amount for Paying Your Coaches
The target for how much you should be paying your coaches based off of your revenue is 25%. That means 25% of your revenue is going directly into your coach pay account. With the Keep More Money Method, we recommend that you have a separate account for coaches and that you place 25% in there to cover those payments.
I will remind you that the 25% is a target, or a goal, that many people cannot hit when they are starting out. We do have people who are at the 25% revenue for coaches pay, so we know it can be done. We also have people who are at 44%, because they are paying commission or part of a member’s revenue if the coach is responsible for that member. It basically depends on your business model.
As with your profit, taxes, and owner’s pay, your team pay should always be in a separate account.
You can see that I definitely believe in paying your team a livable and professional wage. You may think you can skip this payment, if you are doing all of the coaching. However, if you are not paying yourself that market-based wage, then it is going to be really hard for you to bring in somebody else later and start paying them a livable and professional wage.
You can also compensate your team by giving them a portion of your profit bonuses. That money will come directly out of your profit account when you take your quarterly profit distributions. That should not be included in their livable wage pay. That money should be considered a bonus to encourage them to help you become more profitable in your business.
Of course, the only way you can make sure your team understands and is actually helping you be more profitable in your business is to be completely transparent with your numbers. This is also something we strongly encourage. You should be sharing some sort of numbers with your team, at least monthly if not weekly. This will allow them to see where the business is and what they need to do to get on track to receive their bonus. These bonuses also work to get your coaches to reduce expenses wherever they can.
You can choose to pay your team a livable wage based off of how many hours they work or how many members they have. We do have some clients who base all of their coaches pay off of their “book of business” and how many clients they have in the gym. You can easily do that with software. It works really well for some people and the profit distributions bonuses incentivize the team to keep members there as long as possible.
Hourly or Salary?? – Pros and Cons of Each
As you are determining how much to pay your team, you will need to decide if you are paying them hourly or salary. There are pros and cons to both. I can’t even say there is a right or a wrong answer. I believe it is what you, as the business owner, is most comfortable with.
When you decide to pay a salary, you know exactly what your payroll cost will be every single week and month. The amount is always going to be the same. However, it is very difficult to change somebody’s salary, especially if you don’t change the responsibilities.
I have a non-fitness client that does this frequently. He is always changing his employees’ pay from salary to hourly and back again. I told him that his team was probably not very happy with him in that situation, because they wanted to be on salary since it is predictable for them too. They still know they are going to be paid a specific amount, even if they don’t work as much one week. They also know that they will be paid that amount if they work more hours for a few weeks and in the end it should even out.
While switching to hourly helped him reduce his expenses, his team was finding it hard to depend on their paycheck.
As a business owner, you can control how many hours an hourly person works. That means you should be able to budget and plan what your payroll cost is going to be within a couple hundred dollars for every single pay period. Yes, you need to manage this closely, so you know no one is going over their set hours.
Our clients that pay their team based on a commission feel like they have this figured out. Those team members might not own the business, but they feel like they do because they take care of their members or clients and your business. They have an incentive to do it too, because if one person leaves, their pay goes down.
Those team members will reach out to clients they have not seen in a while to make sure everything’s okay. They are like a personal marketing team, because they get even more pay for bringing in new clients. While it all depends on your business model, we have seen it work well, even with group coaching.
These are all of the different ways to determine how much you can pay your team. You must make sure your pricing is at the point where you can pay your team the amount you should. Everyone working for you should be receiving a livable wage, or market-based wage. The goal for that wage is 25%. That means your pricing must cover 25% payroll, plus all of your other operating expenses at the percentages that they should be at for your targets with Keep More Money.
Start working on those numbers and then see where you should be when it comes to paying your team. Plus, share this with anyone who is struggling to determine how much to pay their team. Also, feel free to comment with your thoughts or questions. These conversations are the best way to see what is working for other businesses and get ideas on how we can improve on our own businesses.
Do you have a visceral negative reaction to the word "Profit"? Do all the stories of companies who maximize profit at the expense of quality, or people or the environment give you an icky feeling when you think about making profit in your own company?
Let's get real. You have to get over it. Don't let the negative stories about what other companies do block your pursuit of owning and running a profitable business. It's your choice how you are going to run your company. The vast majority of companies are run ethically and responsibly. Be one of them, and feel good about it.
As we move from the Sales level to the Profit level on the Business Hierarchy of Needs (BHN), it's important to have a clear understanding of what Profit is, and what it isn't.
Here's how Profit First and Fix This Next author Mike Michalowicz defines Profit:
"Cold hard cash that the shareholder(s) (the owner or owners of the business) can use for themselves in any way they want, such that using it will not negatively impact the continued healthy operations of the business."
My definition of Profit is: "Your reward for a business well run."
As the owner of your business, you are the primary investor and shareholder. You have taken the risk to own and operate a business. The risk is failure, and a lot (most) small businesses do. The reward for your investment into your company is your company giving back to you in the form of Profit. This is not greedy, it is fair. 100%.
Notice I wrote giving back to you. As in you the business owner(s). To do what you want with it, outside the business. Save it, spend it, bury it. Your choice. It's your money. There is an important distinction to be made here; you cannot "reinvest profit back into the business". It's either profit or it's an expense. Once you spend cash the business has earned for business purposes it is an expense. There is absolutely nothing wrong with doing that if you choose to do so. But it's not profit. Faking your margins to feel good is not cool.
"Ok, Ok" you say, "what's the big deal? Who cares if I call it profit, expense, or blue cheese? It's my money after all".
It makes a difference in a couple ways.
First, profit is a habit. When you get used to taking and distributing profits it is an amazing way to operate your business. On the other hand, if you keep trying to "create" profit with more and more sales, it almost never happens. Why? Because spending is also a habit. And if you can't curb the (over)spending habit, you can never be permanently profitable.
The second reason taking profit regularly is so important has everything to do with the value of the company you are building. The reality is your company is probably not going to be acquired at an outrageous price by some tech or dot com investor. If you want to build a company that endures and has value to someone else, you have to demonstrate, on your P&L's and Balance Sheet, that you have a history of being profitable. This is what my business broker called "Benefit To Owner". In other words, when someone buys your business, they want to know what their immediate potential earnings will be. When we sold one of our gyms for top dollar, it was because we had demonstrated over a number of years a high benefit to the owner. We ran a profitable business, and when we were ready to sell, it netted us more money.
Even if you have no plans to sell anytime soon, you need to have this on your radar now. Some of the best advice I ever got was from Nick Berry of Fitness Revolution who told me; "You need to be ready to sell your business way before you want out." Exactly right.
Work on building a "Profit Mindset". Get rid of the trash in your head that says profit = greed. If you want a business that you truly enjoy and make the impact on the world you want it to, you have to be profitable.
Next time we will dig into Need #1 on the Profit level of the BHN, and discover what you need to do next to build your own profitable company.
This week, I wanted to share another case study with you. I am so happy that I was able to connect with Austin Mitchell in recent weeks and listen to his success story. Before I share his successes though, let’s learn a little more about Austin.
Austin is the owner of Somnium Fitness in Norfolk, Virginia, right outside Virginia Beach. He fills the role of CEO at the gym. He looks at the bigger picture every day and how he can increase profitability and growth. His team handles many of the day to day tasks of Somnium. While his core fitness focus is CrossFit, he switched the name of the gym to Somnium Fitness to target a different clientele than regular CrossFit. His gym currently has 250 members and he thinks everything’s going great!
Somnium Fitness opened back in May of 2015, so they have been open for five years now.
Austin has four full-time team members, as well as one part-time social media manager. His social media manager creates the one voice of their brand for consistency. The acquisitions manager does all of the sales and memberships, as well as assessments. The manager also makes sure that everything is being tracked in house.
The three coaches on the team do so much more than coaching. They all maintain a high retention rate by making sure they check in with members weekly. Austin realizes he has a small team, but they all work together to check off all of the day to day stuff.
Now that you have the background on Austin’s fitness business, it is time to check out his numbers. This past July, I happened to notice that Austin’s business had a $10,000 increase in revenue. I thought this was slightly strange with how this year has been going. So, I decided I had to talk to Austin about what happened a few months earlier to hit this revenue increase.
The increased revenue started with steady growth Somnium Fitness saw back in February. The team had set goals during their weekly meetings. They had projections of the goals they wanted to hit during the first quarter of 2020. Everything had been on track, and their momentum was amazing, until everything happened in March.
They didn’t let the shutdown affect them though. Instead, they managed to get everyone online in a week. Somnium Fitness didn’t lose any members and their business stayed steady.
It was easy for Austin and his team to create the online platform, because they had that type of structure in place beforehand. They had always checked in with each and every member every single week. They began the shutdown with Zoom workouts, but after a few weeks, they began to send out personalized workouts as well. They knew that those personalized workouts were what their members needed to stay engaged.
Somnium Fitness was able to reopen their doors towards the end of April. Between that time and the beginning of June, they had 125 new members sign up. Every one of their new members are what Austin considers annual members, so they will be around for a while.
Austin attributes those new members to their marketing and the systems they have always had in place. Austin was in the marketing game for five or six years before he opened the gym, so he knew that he had to match the marketing with what the gym provided in house. One specific marketing model will never work for everyone, because not every gym offers the same things in their gym. Austin is very aware of that and he focused Somnium Fitness’s marketing model on what they are offering and staying consistent.
It is important to note that Austin is not focusing on one specific person for his marketing. While he does know that demographics are important for marketing, he understands that everyone at his gym is different. So, he focuses on people who want to live their best life by working out and adjusts his verbiage accordingly. Past that, he doesn’t like the micromanaging that would be needed to cater to all the different people who walk through his doors.
Austin implemented Profit First into his business back in February of 2019, because his business was basically bankrupt in that month. It was at that time he started to take financials very seriously. Once he discovered Profit First, it’s been like night and day.
I would like to point out that Austin didn’t have a background in fitness when he started Somnium Fitness, nor did he have any finance training. He actually went to Old Dominion University to study engineering. He lasted for two years before realizing that he didn’t want to do that job long term. He switched to exercise science and knew that he could spend the rest of his life being the best trainer he could be. He got all of the degrees, all of the certificates, and everything else he could think of at the time. Austin even did one semester of grad school before he realized he didn’t want to continue with that. Instead, he decided to open the gym and dropped out of school.
Most fitness businesses open in the same way Austin’s did. The owners simply like to train and they love helping others on their fitness journey. However, not all businesses make it past the five year mark. This is where Austin has marked a major milestone and that milestone was only possible because of Profit First.
Austin remembers implementing Profit First into his business. While he says it wasn’t that hard, he does say that it wasn’t as easy as he remembers. He had to make some difficult decisions like raising his rates and letting go of some staff members. Austin also had to cut a lot of expenses. Those three things were not easy, but he knew if he didn’t do it, the gym wouldn’t survive. While Austin did collect a paycheck before implementing Profit First, it was not the paycheck he would have liked to be getting.
Prior to implementing Profit First, Austin was getting between $1,700 and $1,800 bi-monthly. Now, he is taking home around $2,800 bi-weekly plus his profit distributions. The first quarter provided about $4,000, while the second quarter was around $7,000 in profit distributions. The third quarter looks like between $7,000 and $8,000. According to Austin, his $42,000 from last year will increase to $85,000 this year and that doesn’t include any fourth quarter distributions. He is predicting a $130,000 quarter with a 13% net profit, so he will get another $8,000 there if everything goes as planned.
Austin knows that Profit First has changed his business for the better. He can easily share his quarterly projections with certainty, instead of not knowing how much money he has available. He meets with his team every week to go over the financial statements and continue to look for things they can improve on. At the same time, these meetings allow them to always know their profit margin, gross margin, revenue, and even expenses.
Austin just took everything out of his profit account at the end of June and distributed it between all of the team members and himself. He knows how hard his team members work to keep the gym successful and he wants to reward them accordingly.
So, now that you know all about Austin’s success, I would love to hear your thoughts! Share what you love about Austin’s journey and what you might have done differently for your business. Let’s learn from each other and celebrate everyone’s ideas!
It's pretty safe to say you didn't get into business to be a bill collector (unless you actually are a bill collector of course).
One of the most frustrating aspects of running a business is chasing people down for money, if you let it be.
Need #5 on the Sales Level of the BHN is "Collecting on Commitments", and the question we ask is;
"Do your clients fully deliver on their commitments to you?"
If you recall from past articles, the service provider/client relationship is a two-way street, and both parties need to be happy with the exchange. It's hard to be happy when people owe you money, it just is.
You are a nice person, I get it. You want to offer a little leeway when someone is behind on their payments to you. Stuff happens.
And you aren't wrong, stuff does happen. But at what point and to what level of frustration does their problem become your problem? if this is happening more than just occasionally, it's time to get serious about fixing it. You don't need the added stress.
The fact is, if we have done the work up to this point, and are attracting the "right" clients that fit into your sweet spot, collections is usually a non-issue. Sure, once in awhile someone will have a credit card problem, have an account hacked, that kind of thing, but it won't be over and over and over. Yes, I have had a client (or two or three) like that too.
Not only are you not a bill collector, you aren't a banker either. If someone owes you money for a service rendered, you have now become a lender to your client. A double whammy you don't need.
So what to do about it?
First and foremost, get every client on EFT, or automated payments. In the fitness business it is now industry standard, most people expect it, so just do it already.
Have clear terms of payment in your contracts, as well as terms for non-payment. In your terms their should be a "cut-off point", or an upper limit to how much a customer owes you at which point you will no longer service them.
Track your receivables every month and make sure every client is current. It's really uncomfortable to go back to a client and say; "Ummm, sorry Cathy, but I just noticed your card hasn't gone through for the last 6 months". Oops.
Enforce your terms. Every time.
Contrary to popular opinion, I am not cold and heartless. I care about my clients very much, but I am not a charity. And even if you operate as a not-for-profit, you still have bills to pay.
Remember, fulfillment of the terms of the agreement by both parties is included in and an integral part of the sales process. Selling to the right people matters.
Here's a review of the Sales Level of the BHN.
Know what your sales level target is in order to support your personal needs as the owner.
Attract enough quality prospects to support the needed sales.
Convert enough prospects to clients to support needed sales.
Deliver on your commitment to clients on time, every time.
Every client pays on time and in full.
Is your company fulfilling every component of the Sales Level of the BHN? If not, it's time to Fix This Next.
