opened a personal training studio. He had a monthly net of roughly $11,000 and toed the line of negative cash flow for his first 12 months in business. However, things began to border on desperate, and
The First Lesson of Business: "Pumps vs. Drains"
In the health club field, we've come to call "streams of revenue" profit centers, but in many, if not most cases, the term is a misnomer. Ditto for many personal training studios, and double ditto for many wellness centers that seek to prosper by connecting with mercenaries disguised as allies.
A profit center really translates to "a profitable business within a business," and if you're looking to assess whether a business is successful, you'll want to gain some insight into what the business is actually worth. So ask, "What would someone pay to purchase this business?" The answer is typically a multiple of "net." If "net" is zero or less, you don't need a mathematician to perform advanced calculations. The business is valued at zero.
Every business that courts its first paying customer is a "stream of revenue," as money is flowing into the business. But unless financial pumps exceed financial drains, a revenue stream does not a profit center make.
Is Personal Training a
? Profit Center
If personal training revenues exceed all related costs, including payroll, payroll-related costs, training-specific marketing dollars and recurring expenses, ranging from uniforms to printing, it is a solid profit center and should be a thrilling revenue stream for a health club owner to embrace. However, note the first word of the previous sentence. "If" is an important word.
Here's the trap most health clubs fall into: they offer free assessments, free consults or free sessions. They may pay their trainers nine dollars to $12 per hour. Using the lower number, if a club offers three free sessions, the personal training entity, before it generates a nickel, is a $27 cost attached to each and every membership. That means if 100 members enroll and each one receives three free sessions, the club has to bankroll $2,700 of personal trainer pay. The industry-wide conversion statistics are abysmal, and if five percent of the free sessions wind up as paying clients and each client lasts an average of 10 sessions, session fees and compensation structure will determine how much of a loss the personal training entity is to the club.
I'll say it differently. If you looked at a health club's personal training department as its own business, in more cases than not, that business would be operating at a deficit.
Now the Bright Side
If you plan adequately, manage strongly and enforce profit-oriented policies and systems, personal training in a health club can be a revenue stream that rivals membership revenue and, more importantly, 25% to 35% of that can be profit. That's a healthy profit center, a healthy, self-supporting business within a business.
And perhaps even more exciting is, in a small space with controllable overhead with personal training as the core of the business, the entry into positive cash flow is also the entry into considering the integration of several synergistic businesses. Once you get your core business comfortably profitable, strategically adding revenue streams can increase profit exponentially.
Is the Website a
? Profit Center
You should have a website, whether you're an independent trainer, a health club operator or an entrepreneurial wellness professional. The mistake I find many fitness entrepreneurs make is expecting the website to become its own revenue stream. In most cases, the website is a pivotal marketing tool, but it's ultimately a marketing / retention / communication vehicle for other business. If you are already profitable, if you have products, information or automated services to sell, then you might very well create a website profit center, but remember the rule here. If it costs more than it generates, it may be driving revenue, but it isn't a profit center. '
There are some real simple rules for building a revenue stream that serves as a business within your business:
- If you look at your present operation and identify one or more entities you'd like to consider a "businesses within a business" and any of them operates at a financial loss after the anticipated "start up" period, fix it quickly or give it up. If it's a profit center, it must generate a profit!
- If your business is in the black with comfortable cash flow, begin planning and assessing feasibility, financial requirements, upside, downside and risk related to the self-supporting entity you wish to implement. Although there may be some unexpected chaos in the startup of any business, if you can't see your way to simplicity in any profit center, or if you can't see a manner of having it internally managed without putting a strain on necessary staff accountability, rethink it before you implement it.
- Have your bookkeeper or accountant set up your books and your chart of accounts, so at a glance, quarterly, you can assess "the value" of each "added stream of revenue."
- Be careful not to let any "profit centers" distract you from your core business.
- If you have an independent revenue stream that serves you, tap into the potential for interdependence. Your personal trainers, if positioned professionally, cannot help but become advisors to customers, members, clients and patients. If you have few items or services that you sell as additional profit vehicles, connect your staff fully with the virtues of each product or service, and encourage one business feeding another.
In a Perfect World…If operating a membership-based facility, here's the ideal integration of new revenue streams that promise to serve the core business:
- Build a membership base that will cover your costs. You may add profit centers to the business, but don't rely too heavily on any one of them until you find your core business supports-committed expenditures.
- Build a personal training entity without a commitment to the bottomless pit of hourly pay. Strategically arrange compensation whereby trainer payroll cannot exceed personal training dollars generated. Remember, pumps must overpower drains.
- Unify the trainers to send a common message. This is challenging but extremely powerful in finding a platform for profit center promotion.
- Begin selling one product that you can buy at less than 50% of your selling price, and get your staff connected to it so it becomes a "theme" within the facility. An example may be a specific heart rate monitor, a specific training apparatus clients can use at home or an inspirational book or audio program. The idea isn't to find new wealth with a single product but rather, to create a profit stream, even a small one, which can be built upon without the risk of unnecessary drains.
- Once you have a product or two selling, sell one consumable nutritional product or product line that your staff can be evangelistic about. They don't have to recommend the product, but they have to use it themselves and understand the product's true value. If the staff is connected, the core business is profitable, and the marketplace is paying attention.
- With several profit centers proven, begin exploring "programs" that allow you a revenue share without risk or cost. Don't invest tens of thousands of dollars in "program equipment" unless careful planning allows the investment to crank up the pumps while drains are carefully managed.
Happily Ever AfterBryan's business did not come to a breakthrough. In fact, it crashed and burned. Bryan, however, got married, secured a position as a fitness director and head trainer at a recognized facility, and he's never been happier. For whatever reason, he needed to go through the entrepreneurial strain to realize the grass may really be greener for him as a committed employee with limitless incentives to earn. From that perspective, his experience served him. From that perspective, the fairy tale had to include a battle in order for the victory to be appreciated.
I hope you'll find the value in slowly adding revenue streams that do, in fact, become ever-growing profit centers, and with careful and strategic development of a core business with far-reaching arms, you may find the "happily ever after" you deserve.
Phil Kaplan counsels fitness professionals through his unique "Be Better" program. For more information, visitwww.philkaplan.com for more details.