Someone recently asked the question, “What’s the most important number to measure in the fitness business?”
Fitness business or not, the most important number to measure is net profit margin.
It measures how profitable your business is in relation to the sales you generate.
Some businesses lose money and they can’t continue to operate that way. Unfortunately, at some point, they will be forced to close their doors.
But even businesses that are profitable have different levels of health. I know of businesses that generate over a million in sales and make 100K in profit. I know of other businesses that generate 500K in sales and make 100K in profit. Which do you think is healthier? If you said the second one you’d be correct.
So how do you calculate net profit margin? It’s pretty simple. Take your net income and divide it by your total sales. So in the examples above we would have:
- 100,000/1,000,000 = 10%
- 100,000/500,000= 20%
So what’s a healthy profit margin in our industry? It can get a little tricky because it partly depends on how much the owner is making. Some owners take a very low (or no) salary which would artificially inflate the margin. Others use their business for a lot of personal expenses which might lower the margin and they might be OK with that. When you’re the owner you get to choose how you want things to operate.
If you’re someone like me and you just want a number, I would say that if your business has a 10% profit margin after you take a reasonable salary (what you would pay someone to do your job), then you are on the right track. Of course, a higher margin is always better. If you have nothing left after taking a reasonable salary or worse you can’t take a reasonable salary it’s time to evaluate why. Don’t ignore this. It won’t magically get better.
While I mostly wanted to explain about what your net profit margin means, here are 2 ways to increase it.
Little changes equal big results
All success is the culmination of many micro wins. Here are some examples that over time will make a big difference.
- Raising prices – If your economics aren’t working you may be charging too little. Small group or semi-private training for $99 per month might get you a lot of sales but you’ll just get busy with something you can’t sustain.
- Add more value – What else can you do for your clients? Can you sell them supplements? How about another service that can help them or other add-on?
- Show and closing rate – How many of the people that book actually show up? What would happen if it increased 10%? Do the math on that over the course of the year and your mind will be blown. Or what if you could increase your conversion rate by 10%?
The things you can’t quantify
While I’ve been discussing things you can measure, don’t forget about the things that are difficult or even impossible to measure.
Sure, it might not be able to scale but if you can improve your culture, create more impact, and add a bunch of revenue maybe it’s OK that it doesn’t scale.
Check out this video I recently made to hopefully help people feel more comfortable when they come in. Am I going to be able to calculate ROI on it? Not sure but I’ll take my chances!