Shownotes
This episode could be worth literally millions of dollars to you.
Josh is an accountant and financial advisor to over 40 Pilates studios and has a unique insider’s view of the financial drivers that make some studios 10x more profitable than others.
In this episode, Josh and Raph break down step by step exactly what the best, most profitable studios have in common that enables them to clear $250-$300,000 per year in net profit.
Resources mentioned in the episode:
- Josh's Financial Model: Growth IQ Pilates Studio Feasibility Calculator
- Find Growth iQ Instagram here
- Connect with Josh on Linkedin here or email him at jrichardson@growthiq.com.au
Connect with me on Instagram: @the_raphaelbender
Download a free course guide:
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Transcripts
PE - How to make $250k/year profit in your Pilates studio with Josh Richardson
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: [:So, not, not revenue, but profit. Uh, so I'm here with Josh Richardson. Welcome, Josh. Thanks for having me, RAF. Ah, I'm, I'm really looking forward to this convo. So, um, Josh, uh, can you please introduce yourself to the Pilate Stratosphere? Right. Um, well for, for those of you that, uh, don't know me, my name is Josh Richardson.
e specialize in bookkeeping, [:Uh, so, so I've got a good visibility of what works, what doesn't, uh, you know, what are the critical success factors, if you will. Um. And I've been doing it long enough now that I can almost spot it after a half an hour conversation with someone that's, you know, going into it for the first time. Uh, or who's been doing it for a year on their own without much help comes to see.
lking about that today. Hmm. [: nting firm when, you know, in:Uh, and one of my clients at the time, you know, considering I was a 22-year-old accountant, that, uh, you know, I wasn't, I wasn't one of the big guys dealing with clients, but, uh, he got quite ill. Um, and he had a kickboxing gym, uh, and he couldn't run it. So the, it went up on the market and I thought, right.
y not have a go at running a [:But, uh, four years later, uh, I exited that business and it had, you know, close to 600 members. It was a thriving gym at that point, or a group fitness gym. Uh, it wasn't a, a polite, we didn't offer Pilates, but it was a group fitness gym. And throughout my time doing that, it's just, uh, obviously made a lot of connections with other fitness professionals in, you know, where I live, uh, which then word of mouth, uh, extends from there.
for me to, for me to get you [:Yes, exactly. So, uh, you know, I had no choice really. Well, yeah, you know, there's, everyone always has a choice, but, um, I think it was, you know, it was hard for you to duck my calls, let's put it that way. Yeah. Well I think we talk about a lot about this stuff anyway in our weekly catchups and, uh, you know, when we see each other.
So it's good to, you know, document all of this in a podcast. Yeah. Oh, absolutely. So, alright, so to set the stage here, um, you have, uh, you know, like your company does bookkeeping and you are an accountant by qualification, but your main. Um, your, you know, personally your main expertise and skillset and real interest is in strategic advice, advice to businesses on how to.
you know, make more and keep [:Uh, and different people with different, uh, you know, passions fall into those areas. So I've luck, luckily enough, have some great managers that deal directly with the bookkeeping and, and the accounting. Um, but I just found myself being able to add the most value to people by basically looking at their numbers, looking at what they're doing, and, and converting the language of a accounting, you know, a p and l and balance sheet into something that an owner can understand and then go and action some, you know, so action some things to make that bottom line.
this, the prospects of this [:There are people right now making a quarter of a million dollars a year in net profit. Like, that's after they've paid all the expenses. So, um, and that's, that's the, so you'd for, uh, breed education, you, your firm does, uh, bookkeeping. You do all bookkeeping, you doable keeping you prepare our tax accounts.
Advise us on minimizing our tax legally and all of that stuff. But I think the main thing that I lean on you for, you know, every week is strategic advice on our, um, basically our cash flow, our profit and loss, and our balance sheet, and just the, basically the, the business strategy and outlook. So, um, and that's what we're gonna talk about today for, uh, Pilate Studios.
So, alright, so you've, [:Um, maybe it does, but, you know, can't, can't promise it. Um, and so, so what is the. You know, and in Australia, you know, this just sort of seems to be the model that has, you know, thrived the best or is thriving the best at the moment. You know, I imagine most of those studios are fairly similar in terms of their basic configuration, right?
few people who are operating [:Um, and that they're really happy with that and they're making a great income for themself and they don't even have to leave their house. Yeah. Uh, you know, that, that's two or three. Uh, and then on the other end of the scale, we have, you know, a facility that has enough room to fit 25 people in a class and is running 50 or 60 classes a week.
ception there. I think that's: at they're operating out of. [:Mm. Alright. And I just looked it up and it's 16, 14, 16, 15 square feet. So for those of you in the imperial world, um, alright, so. Alright, so first, yeah, first question. Um, what's the spread, right? So, you know, two, 250,000 profit is the upper end. What, you know, so what's the, what's the revenue and profit And revenue is how much money you make.
een negative some amount and [:So, yeah. So what's the spread, you know, revenue and profit, bottom end to top end. Right. So yeah, top end, you'd be probably about 750 to $800,000 revenue and the 250 to $300,000 profit. Mm-hmm. Uh, bottom end though you'd, you know, is about $400,000 revenue and no profit or negative profit in some cases. Uh, so there is a spread.
Uh, and I think, you know, over time it also depends how old the studio is, if it's a franchise, all that kind of thing. But over time, if you've been operating for more than three years and you've got that kind of space, I would, you'd hope to be up around that upper level. Right. And so just to be clear, 'cause you said we've got some people with say four reformers at home or whatever, or four capacity of four clients at home.
ation. Right. They're, we're [:There's a bit of upkeep and I always like to include the owner's time in terms of wages to get a real profit figure. I think, uh, you know, probably, um, tip number one is a lot of owners might work sort of 60 or 70 hours a week and they don't pay themselves initially, so their profit looks great. Uh, you know, it might say a hundred thousand dollars, but when you work that out to an hourly rate, you're getting paid like $20 an hour.
Yeah. So I see a lot. So, yeah. Yeah. So, and, and there's a time in everyone's business journey where that has to happen. Yes. That, that's probably the other thing. You, you have to work up to the point where you're paying yourself a commercial salary and taking a dividend or a profit out at the end of the year.
. So, um. So that's a pretty [: e classes on your wages bill [:So once you hit the break even you, you really, the, the profit starts to go up dramatically. It's all cream or Most of it's cream. Yeah, it's all cream. So that, that's why every extra reformer in there is an extra 50 grand a year to your top line. And probably of that 50 grand, 48 and a half goes to your bottom line spot on.
the UK as well, but it's all [:Right. So you just, basically in Australia it's the Australian Bureau of Statistics. So, and I'm pretty sure they have a census, you know, in most countries. So you just go to whatever your national kind of Bureau of Statistics equivalent is. You know, it's like, what is the population demographic of X, Y, Z?
You know, area, um, what's the age, what's the median household income? That kind of thing. That's what you're talking about, right? Spot on. Yeah. And, and then line that up to who your target market is. And if the demographic graphic of your area is, uh, 60-year-old, uh, men with a average income of $60,000, uh, well and your product is suited to something else, well then it's not, probably not gonna work as well.
hat we feel an affinity for. [:Back pain 'cause I had back pain myself or, you know, whatever it might be. Or sometimes it's just like, oh, well I happen to live in a certain location, so I wanna service people in that certain location. Yeah. Because that's where I live. Um, it's just kind of like a, a marriage of convenience as it were, clients of convenience.
Um, yeah. But like, something that I think is so powerful and probably, like you say, you know, one of the most foundational factors in, in your business success is like, who do you serve? And I think that defining your ideal client, there are three, you know, big characteristics. Number one is they have to have a painful problem.
e and effort that it's gonna [:And the third thing is you need to be able to find them, locate them. Um, and so, yeah, I think a lot of like, and I think the illustration for that is like, you know, for if you're struggling with your marketing, you can't get people in the door. Like there's lots of reasons why that might be a problem. But like, if you are, if you choose your market well enough, you actually don't need to do any marketing.
Like think about if you are selling, I don't know, you've got setting up some kind of fast food vendor or stand in Australia or be like SUVs or something in the US or probably hot dogs. I dunno. In the UK it might be like a pie with peas on top or something. Um, in Europe it'd probably, I don't know. Or frog's legs, um, uh, and you're, you're vending, you know, food by the side of the road.
the nightclub closes. Okay. [:Had a belly full of alcohol and that all they can see is your hot dog or pie and peas or whatever stand, it's like, it doesn't matter if your hot dogs are shit. Right? And it doesn't matter if you're not good at selling, like you're gonna sell out those hot dogs. Pretty much whatever the price is too, it doesn't matter.
So I think the, the number one factor, factor in success is have a starving, you know, have a starving crowd, you know, eager to buy your stuff. Well, and, and the other, I think the other mistake is people try and get away from competitors or they try and create some distance between. Other studios or other fitness studios or, or something that's offering a similar product.
, it doesn't actually matter [:Rather than if there's more Pilates studios visible, maybe we'll actually create more customers. You know, maybe the fact that that studio's got 50 customers and those 50 customers are raving about Pilates to their friends means that there'll actually be more people in that suburb who want Pilates.
know, years that is, um, set [:Spot on. And then, and then once you've got your location there, there's probably another, you, you've then got your, your key expense, which is the lease or, or the property cost mm-hmm. That you can put into a financial model. And that's probably the next thing, the next success factor that I would, uh, suggest Pilates studios owners start to look at.
eing able and willing to pay [:Yeah. Uh, from there, financial. So, sorry. You go ahead. You go. Um, so yeah, from there there's three reports you need to know about. Uh, there's probably more, but there's three that I look at, and that is your profit and loss, a balance sheet, and a cashflow forecast. Now, all of those you can predict in advance with a certain level of accuracy or, or variance by, um, doing a financial model or a forecast.
en level of sales, which you [:It's this many classes with this many people who are paying X amount of dollars per week. Right. And, and at a basic level, you know, that's a, that's a one page spreadsheet or Google sheet or whatever that just says, okay, if we have this number of clients and they pay this much per class and they come this many times per week, you know, this is how much revenue we make.
Right? And then you can, it's like a crystal ball. And then you can just change the numbers and go, okay, well what if we charge this much? And then it just all calculates it out for you and tells you what the difference or what if we had this different number of clients, or what if, you know, what if we had more reformers in the room or what.
much overhead cost from our [:We can say, okay, great. Well if we run this number of classes with this number of clients at this price per session and pay this much for our instructors and blah, blah, blah, blah, you know, at the end of the month we're gonna have this much left over spot on. And you'd, you'd be surprised at the number of studio owners who have a certain amount of, they look at their bank balance and they say, right, there's.
$30,000 in the bank, we're good to go. And it's like, uh, what about all the, all the, you know, you've got your tax coming up and your rent's coming out, and so I probably, you know, the next big success factor is having a financial model that you can adjust the variables. Yep. And I've actually got a spreadsheet like that, RAF, that I, I could definitely make it available for people to have a play around with, um, just to put, put their metrics in.
been going well and they're [:Because I say, look, we don't think we could actually do that many classes per week, or mm-hmm. We can't afford to pay, you know, we can't fit 14 reformers in this. Space we can only fit 10. Um, so it, you know, you, you're actually failing fast, I suppose, by doing that financial modeling, right? And the, you know, when you do model it out, you realize very quickly that the difference between 14 reformers and 10, it doesn't sound like that much because you're only dropping like, you know, four, four fourteens, whatever that is.
now, insurance and whatever, [:So it's a fixed cost. Well, just in the same way that if you sell more classes, once you cover your red, it's basically all profit. But the thing is it works in reverse as well. So if you, if you've got 14 reformers and you know, you've got 40% profit margin or 30% profit margin, you take out four reformers, well, that basically all of your profit goes.
So you don't lose, like you lost 30% of your reformers, but you didn't lose 30% of your profit. You lost all of your profit. Uh, that's exactly right. And um, and if you just looking, sorry, Rob. If you're just looking at your bank balance, you actually, you'll notice that it keeps going up initially, but you have to remember there's.
months down the [:Right, right. And it's got, I think it's gonna obviously vary, you know, from jurisdiction to jurisdiction in Australia here we pay our tax quarterly as a business. Actually, I think we pay ours monthly now, don't we? Like our Yeah. Depending how big. Yeah. Monthly, quarterly, annually. Yeah, and so we probably, probably get a little bit of all of the above.
And so you, you, and I've definitely been guilty of this and, and experienced it myself. As you go along, you're looking at the bank balance going, oh, we're doing great. And then it's like, oh shit, you know, we've got 50,000 in the bank. We just got a $60,000 tax bill. You know? Exactly. And it's just, it's demoralizing.
It's so demoralizing for people that sort of see that bank balance growing and then it, then it's all gone overnight. Um, so this cashflow forecast, which if you've got a good accounting software, you can quite easily put it together with the help of an advisor that knows how to do it. Yeah. And it just gives you that, that crystal ball, it helps you sleep at night.
e not laying awake thinking, [:This is how much we're on track for this month, next month. Uh, and mostly like. You within like 5% in, when it comes to the expenses, like you say, are we gonna expend, you know, 20, it comes out as like.
And that, and, and you know, we also have now like a, a, a, basically an envelope system where we have our bank accounts, we have three bank accounts, and one's our kind of our main business trading account. Then we have a second account that is basically money that. Account, but it's earmarked for bills. Like, okay, we owe this much to the tax office next in next month or whatever.
k if you're [:It's not our money. It's, it's in your account, but it's not your money. Yeah. Right. So we've basically got an envelope, you know, like my mum used to do this. We had an envelope system in the kitchen. It's like there's an envelope for the shopping money and different envelope for the bills money. Right. So we basically do that except our envelope's got like a hundred thousand dollars in it or whatever.
In the, I think, yeah, at a basic level, what, what studio owners or bus just business owners in general can do is set up. Three accounts, you know, one's your trading account where all the money comes in and all the money goes out, and that's the one with all the transactions. But every week look at your financial data and work out how much you have to set aside for income tax services, tax and payroll liabilities.
ero or, or MYOB or Reckon or [:So any, anything over and above goes into the savings or the, you know, the fund that I would earmark for, a dividend payable to the owner at the end of the financial year or reinvestment back into the business if you're trying to grow it. If you are growing. Like if you are growing, I'd put more, like more into the reinvestment rather than pulling it out as a dividend.
So yeah, that's the other classic is people just pull all that profit out and spend it on fancy cars and, and nice houses without actually growing the business. Right. Alright. And so, yeah, we keep enough in that trading account to, you know, cover whatever it is, a couple of weeks worth of wages, payments or, or whatever.
ax account whatever needs to [:And number two, do some financial modeling. And that kind of comes into choosing the location as well, because you might go, oh, there's this great studio in a place in a suburb or an area where there's my demographic, you know, et cetera. But then you look at it and you do the, you do the math and you're like, oh no, it can only fit 11 reformers in a instead of 14.
And you're like, where you model that out doesn't, you know, doesn't work. Yeah. And, and for the sake, you know, you model it out, you might pay your accountant or advisor a couple of hundred dollars to work through that process with you. Right? I mean, a $200 expense of getting, of getting to that decision earlier rather than in a year when you've, you've waxed a couple of hundred thousand is a lot cheaper in my eyes.
en for one year, five years, [:You know, just no, no point keeping doing something if it's not working. Um, you can, you can move businesses, move all the time, and, you know, a lot of them thrive through it and find great greater success when they find a, a starving crowd. And the second thing is, uh, I, I don't know, I'm, I'm semi obsessed, but when I'm on Instagram and I, I, I've, you know, basically 99% of the people I follow on Instagram are Pilates people.
And I see, you know, Pilates studios a lot, and I just flabbergasted when I see some of the empty floor space in between, you know, the yawning, yawning, tundra chasms, you know, in between like there's a reformer over there. Then there's like a few, you know, multiple feet of, you know, just empty floor and they're like, oh, there's a Cadillac.
're like, fuck yeah. How are [:Like you can actually make, make as good money in a four on one session as you can in a 10 on one session because you can charge commensurate higher prices in a four, like, you know, 10 on one session. You might charge $20, $25 in a four on one session. You can charge 50, $55, you know, and so actually the total, like 10 people at $20 is $200, four people at $50 is also $200, right?
So the total revenue you get for the session can be the same in a four on one as a 10 on one. Um, but a lot of people I talk to at home. I say, oh look, I can't fit four, so I just do two. And it's like, oh, that's like going from five, 10 reformers to five. It's like you've cut out all of your profit. You know, like yeah.
t that you can charge at two [:Uh, and I would just like implore you if you are setting up a garage or a back room, or if you have a garage or a spare room or whatever and you are thinking like, oh no, I can only fit two. Like, no, knock out a wall, like take out all of the furniture, like, you know, get smaller equipment, put the equipment closer together.
Can you put one kind of, you know, in the doorway or so, like how can you get four people in that space? Figure it out. Yeah. I, I had an absolute classic, uh, with a client who they, so they had 11 beds, um, and they were, you know, waiting lists. They were always busy, but they were breaking even, and it's the worst feeling of so being there.
ah. And so they thought they [:You still have to pay. And they're like, oh, you greedy bastard. You're making all this money hand over the fist. You got full classes. It's like, dude, we're actually losing money, you know? Yeah. Oh. But these people, I went up and looked at the space and they just had to knock a wall out and it would open up this, this big open area that they were charging out.
Let's just say it was a thousand dollars a month. So they're making $12,000 a year from this area. It was gonna cost 'em $15,000 to do the, the building work and renovations and $10,000. Per new reformer, but we could get four new reformers in. Oh my. Each one reformer was worth 90 grand a year. Yeah. So they've gone from breaking even to, you know, pushing, you know, 350,000 profit just from adding four new reformers because they had the waiting lists.
that was an interesting one. [:And it's like, well, so is, you know, is the ability to do legs in straps every class, is that worth $300,000 a year to, you know, would you, are, are you happy to continue paying $300,000 a year for the privilege of doing legs in straps? Or could you just do side splits instead and take 300,000? Yeah. You know, like, put your reformers closer together.
Adapt. Adapt. And, and the clients, if they walk out sweaty and feeling good, like they've had a workout in, in my opinion when I, when I had the kickboxing gym, uh, they feel great. They're not really thinking about the exercises you did throughout the class. Uh, they're just thinking about how great they feel as they're walking out of the gym.
f exercise has their kind of [:And if you just go, okay, well we're not gonna do that, we're just gonna have a squat rack or something. Instead it, like, you can suddenly double or triple the number of people in, in the same space. Alright? So choose your location, model it out and get some, you know, somebody, uh, good to, uh, help you with that process unless you are already a, you know, a genius at spreadsheets and, and financial modeling.
rtainly my perception when I [:We'd way too small to have a cf, anything, you know, we didn't have a c anything, you know, we're just like, oh, it's just me and I'm taking the garbage out and whatever. So, CFO sounds a bit, you know, overly grand, like, you know, McKinsey and CO would have that, but not, you know, XY, Z Pilate studio. Um, but I think that's, that's a big mistake and that's probably one of the things that's keeping a lot of people from experiencing the level of profitability that and growth that they want is 'cause they're not getting the strategic advice.
And so what I've learned is you don't, you can get really great advice from a highly qualified person for pretty cheap if you only get it. A couple of days a month. Right. And so I don't need even at breathe, like we're doing like three and a half, $4 million a year at the moment in revenue. We don't need a full-time in-house CFO.
or us to pay you four days a [:So our Growth iq, our firm offers. Yeah. The bookkeeping, the accounting and the advisory or the CFO, um, we would call that your finance department. So any business has a finance department, even the, even the person at home with, with four. Positions per class right up to the big business, has a finance department.
Um, the bookkeeping is quite easy to look at a value on that because it's gonna save the owner time. And what a bookkeeper can do in one hour would probably take you five or six and you'd probably do it incorrectly. So, you know, if you put five or six hours into training your team or working on your marketing, your sales, so many other higher value tasks.
easily to look at that, the [:An advisor will stop you from making those decisions. That will put you one or 2% off track. And if you could do too many of those, one or 2%, you know, poor decisions, you're gonna end up bankrupt. Yeah. Uh, they're just gonna keep you on track. Um, so it's so important. And for those bus, you know, the average Pilates studio that we're talking about, the cost for someone that will do all your bookkeeping, all your accounting, and be your advisor, you know, you, you get a meeting or you get them on call, uh, you know, my clients can call me whenever they want and they'll get a response within 24 hours.
payroll. So not only are you [:And I know that. Our clients are in the top. 20 or 30 of the entire franchise, you know, out of, let's say there's a hundred total studios. And I like to see our clients are all in the top, in the top, um, half there, which, you know, clearly they're doing a lot of things right, but they've also got one common factor, which is the, the assistance and the advice.
Yeah. And the sorts of things that you, that a good advisor will help you with are just proactively. And, you know, for years I had accountants and I thought, oh yeah, I've got great accountants, but I didn't, that's 'cause I didn't know what a great accountant was. I thought a great accountant just does your tax at the end of the year and you don't get an angry letter from the tax department afterwards saying that you stuffed it up.
t's like the ba that's like, [:Or like, you know, you are not getting great return on this product that you're selling. Or, you know, I'm worried about our cash flow. You know, if we look, if I look three months ahead, I'm worried about, you know, profitability in this month or whatever. So like it's very proactive stuff and pick, uh, picks up things that.
I as a business owner, like wouldn't notice otherwise. And so I think that's the true value where you get, you know, advanced warning of stuff and you get, it's like having a little warning light on your dashboard in a car, you know, like that that tells you when the oil's going low or something. There's something, the problem, so you can stop and fix it before the motor blows up, you know?
ly. EE, exactly. And, and I, [:So when I, when I speak to business owners, I understand that, but I come through with an angle of what the numbers are telling me is that you've just invested heavily in marketing. Uh, I would expect to see the sales. Start to increase and it's been three months and nothing has happened, so can you, can you give me more information about that?
And it's, it's not like we're saying you should or shouldn't. It's let's work together and sort of get to the bottom of what's going on here. Yeah. Yeah. And we've had so many of those conversations. Alright, so what's the, what is, are there any other big things that separate out the, the 300 or $250,000 a year studios from the barely breaking even Yeah.
ners pulling their hair out. [:Assets from an insolvency event. They're, they're the two main considerations to think about. And once again, you'd set your structure up before you start trading. So talk to your advisor about that. Right. Um, and the third one is, in my view, hold, hold on, hold. Just before we get to that. So just to unpack that just a little bit, uh, so, you know, basically, are you a kind of, you know, limited liability company essentially, or are you sort of trading under your own auspices just as a free ranging member of society?
Um, or are you a partnership [:Is your personal income and so is all taxable at whatever tax rate you pay. Whereas if you are a company, well, all the company income is company income and then it gets taxed in Australia at a much lower rate than the personal tax income normally, uh, you know, depending on how much you're earning personally, but then also you can distribute that as profit or you can invest it in the company or whatever.
ighest tax bracket, which in [:Right? So think about all that extra money that you can then reinvest back into the company's growth that the sole trader won't have. Right. Um, not only that, but you get extended, you can lodge your tax later, you can pay it over a longer period of time. There's all these concessions there that are really helpful in a company structure.
Um, whereas a sole trader, it's simple to set up. It's cheap to set up, but long term, if you're growing a business, it's, it's gonna be really debilitating, you know, because of the tax. So that, that's how you grow your wealth quicker, is you reinvest back into your business, you know, at a higher rate. Right.
one of the spouses owns the [:So if, you know, if the company went, became insolvent or someone sued or something like that, well they can't take your house away 'cause it's not actually your house. It's like. You know, they can take the company assets, but they, the house isn't one of them. Whereas if you're a sole trader, then they can come after your house because that's an asset, everything, all, all, all your assets.
So, yeah, um, that's why you really need to separate your, your personal assets and wealth from your company assets and, and wealth. Um, and there's also, there's other levels of structuring you can do as you become more wealthy as well. Um, but I think the other thing to talk about is partnerships. And in my view, and from what I've seen across my whole client base, they very rarely work.
y everything's all rosy. Uh, [:And they're amazing. They, there are particular kind of people that are amazing, um, but it, it's very rare that they do in the long term. And, um, I mean, I've had experience of being in a partnership that in the end, you know, didn't work out for me. And, uh, one of the things that I've learned is that, yeah, things do change and you think, okay, it's all great now we love each other, we've got these common goals and everything.
But later on, five years later, someone's had a kid, someone wants to move into state, someone loses interest and wants to do something else. Someone gets a job offer. You know, so, you know, priorities change and you know, you can't predict that that's normal. There's no nothing. Any of those things, it's just like, yeah, life happens and people move in different directions.
s is born out in the numbers [:Like basically it lays out the rules for if I wanna sell out, you know, what happens there if you wanna sell out, what happens there? If we both disagree, you know, how do we make, how do we break the deadlock? You know, so the, and it's gotta be a written agreement, you know, put together by a competent lawyer.
That is makes so, you know, because it's all great when you're like holding hands and, you know, dancing in a circle around the maypole, you know, at the start of the business. But like five years later when you're both kind of like broken and tired and over it and over each other and you know, you just wanna get out, the other one's working 10 hours a week, like it's always right.
ocument to go back to. And a [:Um, and then it's in, in black and white and you can refer to it if there's any, you know, ever a, a separation event, uh, down the track. Yeah. And another business I was in, I wasn't a, an owner, but I was, uh, I was a high level employee there, uh, um, uh, quite a while ago when I. That was the last job I had like 20 plus years ago.
But, um, where one of the partners actually became incapacitated medically. And so what happens in that situation, um, was his wife took over and she didn't get on with the other partner at all, like they hated each other. Um, and so, yeah, so you've gotta, you've got to account for, you know, all those types of eventualities in your partner agreement.
agreements if you're gonna a [:But then financially, you have to remember that all of a sudden you could have a really good studio that's making 250 grand a year and you're both working hard, but that profit is split 50 50. So. Number one, you have to be making that much money. And are you happy with $125,000 a year profit from a Pilate studio?
Or is it better just do it by yourself and, and take the whole two 50? Or do you have two studios that you both run separately? So comes back to your financial modeling piece, right? Isn't it amazing? And when you think about it like that, like, 'cause I've, I've been both, right? So I had four partners in my previous business and I've got zero partners in my current business.
to a business with partners, [:But then you don't think, oh, hold on. Like, hold on. Well, if we make a hundred dollars, that means I only get $20. You know, like, you don't think of that. And so I think what I would say now is like, okay, we've, if, if I was considering going into a partnership with someone, which I basically wouldn't, but just say I was con considering going, I'd think like, okay, well if, if I didn't partner with this person, could I just do this by myself?
And if the answer's yes, it's like, well, don't, don't go into a partnership. And if the answer's like, no, you, I absolutely. It's like there's no way I could do this without this person. So basically, okay, maybe I can make $250,000 profit by myself, right? But what if we starting something that's four times the size and goes gonna make a million dollars in profit?
e size of the pie, you know, [:And often it's gonna be a lot cheaper to pay the consultant and you can sort of turn them on and off when, when you do and don't need them. Right. Yeah. And in my experience, um, you know, as life situations change, you know, people in partnerships, you know, some of them work in the business more than others.
And, and then it's like, how do you handle remuneration for all that, you know, someone's working 60 hours, like you said, and someone's working 10 hours or, or whatever it might be. Uh, or maybe someone's doing, you know, relatively mundane admin tasks and the other person's doing all the marketing and teaching, you know?
to a partnership unless, uh, [:Airtight partnership agreement drawn up by a competent lawyer that is gonna ask you all those tough questions. Like, what if you die? What if you have kids? What if you wanna move into the different country? What if the studio closes? What if, you know, whatever. So all of that stuff. And, and then you have to think about liability, right?
So, um, just say the studio does go bankrupt and, um, you know, they might, you know, even if you're a limited liability company, anytime you take a lease on equipment or a premises or whatever, they always make you sign something called a joint and several liability, which means that, so basically you waive your directorial, um, uh, sort of privilege as, you know, limited liability companies.
an come after me personally. [:They're just gonna come after you for the full amount. Right. So we are not bearing equal risk unless we go in with equal assets. Correct. And and that's what I, I see that a lot actually, probably not in the Pilates studio area, but partners that have different financial capacities outside of the business and it always causes issues.
'cause not only that, uh, with the liability, but there's always one that's wanting thing to pull money out of the business to fund whatever they're doing. And the other one's like, I don't need the money. I want to leave it in there and grow the business. Mm-hmm. So these are things that come up after a number of years, not necessarily at the start.
lright. So, uh, partnerships [:I, I've got one more. Uh, and it's, it's, it's, I've got it written here. Passion versus passive investment. So if you're going into something to eventually create a passive investment, uh, versus someone who's going in because they're passionate, I always see that passion trumps. The person that's going in for an investment.
t they're doing continuously [:It doesn't franchise or not, they are the most successful operators. Yeah. And you know, like everyone listening to this is going well, fucking duh. You know, like of course when you give a shit about your clients and you're passionate about what you do, and that's everybody who's listening to this. But I think that, um, my comment on that is that I think that passive income is a myth.
I don't think it's a real thing. I mean, I think, all right, if you're Warren Buffet, maybe. But, um, if you start a business, uh, passive income is not a thing. I think you Yeah, totally. And especially if you're running a Pilates studio or Right. Multiple Pilates studios. It, you have to be involved. Right. And you, you can absolutely leverage your income.
a year in [:I'd make okay profit next year and the year after that would be outta business, you know? Yeah, exactly. What happens too, they, uh, yeah. The, yeah, especially in the franchise situation, it, it always starts off with a bang and probably 'cause the owners are a little bit more involved, but after 12 months or two years, it's.
All my ears dire in what I've seen. Mm. So, alright, so I, you know, something I haven't, you know, has been conspicuously absent from what you've said, um, about these really big rocks. Like what are the big levers that we can pull out? Like what are the things that we need to get right if we want to give ourselves a maximum chance of maximum profit is like, we've gotta choose a good location with a starving crowd who can afford to pay for our hot dogs.
advisor, I mean like from a [:Customer service versus equipment upkeep versus whatever, and they can look at it and go, normally we only spend 8% on marketing in the best studios, but you are spending 12%. You know what's going on with that? I think we need to cut back there. Or you know, maybe you're only spending 4%, maybe that's why your numbers aren't very good.
You know, so maybe you need to spend more on marketing. And so someone with that experience and someone who can model out. And you're saying, and you say like, you know, and I know this is the case for a lot of people, and this was me as well, is you. You look at a premise and you think, oh, I fall in love with it.
reformers in here. You know? [:But then you need somebody and, and you wanna show it, and you wanna ask people's opinion, but guess whose opinion you're asking? Oh, other people like Pilates instructors and your parents and your friends and whatever. And they'll go, oh, it's so beautiful. Look at the light and the, you know, there's a juice bar around the corner and, but yeah, you need someone to look at and go, oh, I wonder how many square feet, it's, oh, let's map out, let's cut out some paper reformers and put them on a scale model and fill out, figure out how many you can put in.
Oh, there's a pillar there that means you can fit in one less reformer. So, yeah. Alright. So I said, oh, you're only gonna make, you gonna make 5,000 a month loss when you're at full capacity. You know, and, and just on that as well, when you're picking someone to help you with that advice, pick someone who you know, is got the confidence to have the hard conversation with you.
people. Well, [:Uh, definitely. So, 'cause if we hadn't, of those 10 people would've been out of work along with all of the rest of the people in the company and along with all of our clients as well. So that was definitely good advice with COVID and the interesting conditions over the last two years, I've had lots of those conversations and, you know, in, in every case the business is now better off for it, but at the time it was really hard to hear and deal with.
as kind of towards the end of: we had about half a million [:We need to do something different. Uh, and, and you actually said like, we need to save this much money per month, and here's how I recommend we do that. We cut this much off payroll, we cut these vendors, we, you know, whatever, you didn't sort of say, I recommend these particular people or anything, but you said, you know, we need to save this much money.
Uh, and if we don't, here's what's gonna happen. Um, and yeah, that was a tough time, you know, for everyone in our company. You know, it was not fun for, you know, obviously for me to have to let people go who I loved and respect and love working with. Obviously not fun for those people. Uh, and probably not a lot of fun for the people remaining 'cause they're sort of, you know, got survivor guilt and they're worried about their jobs and whatever.
t the thing is in, you know, [:The best time to borrow is mon borrow money is when you don't need it. Just take that to the bank spot on. Um, so if you're doing real well now go borrow some money, get an overdraft, get a line of credit. Um, don't use it, just use it when you need it. But when you need it, they won't lend it to you. I'm telling you.
ig point that I, I, that big [:If we save that much, here's what happens. Like, we had those, we had a couple of really tough weeks. We had to let people go. We had to talk with the people who we didn't let go and explain what was going on and whatever. And, you know, that was, that was a glum time, but four weeks later we made like $80,000 profit per month.
We made a hundred thousand dollars profit last month, and it's like you are only a few tough decisions and a few tough conversations away from a fantastic business. You know, like, doesn't matter how shit things are, you can fire that shitty client. You can get rid of your premises that's in the wrong part of town and get a better one in the right part of town.
ng for ages and it's really, [:Yeah. Well, as long as you, as long as I think we avoid the hard conversations and the hard decisions until it, you know, it becomes so painful that we have to do something about it. Right, right. And I think the, the key, you know, uh, the key benefit to me of having you as a financial advisor, Josh, is I get to, I get to see what's coming up.
bit more time to make these [:It's not a like out and out emergency, we have to do it yesterday or we're all dead. Um, so yeah, so that, that is the benefit. You can make much smaller course corrections and get, you know, a great result when you don't, you know, if you are like already halfway off the edge of the road with the front wheels, you know, spinning in above the abyss, it's like it's too late for, you know, minor course corrections at that point.
Um, yeah. But if you catch it when you're just starting to drift, you can just make a small correction on the wheel and bam, you're back on the middle of the road again. Yeah. And I just think it can be so lonely in that leadership position if you're just going it alone and you're sort of, you've got your same thought processes and the same things you look at to aid your decision making.
is a massive success factor [:So is there anything in there, like, do you notice like ratios of numbers that like, you know, the best studios pay a certain percentage for staff or marketing or rent or whatever? Or is it all about much of, a much less. Yeah, it's, it, it really does depend on, you know, how much you're paying your staff and, and things like that.
But overall, the studios that are doing better, you know, probably 10% of overall revenue on marketing is around the, um, sorry. Yeah. Yeah. Eight to 10% I think is a good marketing spend, depending on your area. I've got people that spend, so, so if you know one person, so if you're making a hundred, if you're making a hundred thousand dollars a year, you should be spending eight to 10,000 on marketing basically.
I think so, yeah. [:So workshops, continuous education, getting together, spending the money on growing as a team. They, by far, are the better performing studios. Hmm. I would've thought I would spend, you know, if you, if you are doing, if you've got a $700,000 revenue studio, uh, I would say another probably 30 to $40,000 into your trainer's continuous development would be the number that the, the best studios are doing.
ially. Yeah, absolutely. And [: eys, which, uh, we've got for:You know, so and so's longer here, no longer teaching me anymore. I'm gonna go elsewhere. E. Exactly. Exactly. So I think there's three critical departments or success factors, sales and marketing. So you wanna invest in that. Um, your finance department, I think you should invest in that, and I think your investment might be 10 to $15,000 a year into your finance department.
cation and what the space is [: on, uh,: % [: bed space, you know,: lue is the total spend that, [:And so the, the way to calculate that is super easy. If you've been going three years, say as a studio, you just go, okay, how many new customers have we got in the last three years? What's our total revenue in the last three years? Total revenue divided by number of new customers is the average revenue per new customer for the last three years.
Um, and then you like, so if you know, or, and you, you know, the average customer is, you know, because obviously some people are gonna be worth $20 and other people are gonna be worth $5,000, but it's gonna average out somewhere. So if the average customer's worth like a thousand dollars to you, well, you know that, uh, if you can and, and if you get, like, you know.
s is one, you just keep your [:So if they don't, they don't cancel. They, they keep paying. Why Aren are they leaving? Yeah. Yeah. Um, and the other thing is you can sell 'em more valuable services, you know, sell them small groups, sell 'em one-on-one, sell 'em, you know, whatever other, you know, add add-ons you provide, um, you know, if you have massage or whatever else, you know, sell 'em more valuable stuff to make, make their, make it, you know, give them better results and give you more profit per customer.
Yeah. And I think, look, if you, if you're looking for some metrics or KPIs for the sales and marketing, I think. How many new customers walked through your door in the last month? How many of those people signed up to a membership or bought a pack? And then you start to see how many are converting. Mm-hmm.
o you have on your schedule? [:To do better classes. And I don't know if you, you probably don't track these numbers, but, um, I know from other sources in the fitness industry that really, like a, a churn of sort of 5% or less is, is good. So basically churn, churn is like the, the number of, you know, the percentage of your total client base who cancel or leave every month.
So just say you've got a hundred, you know, clients who've got current passes. If five of them cancel this month, that's a 5% churn. Um, and if 5% five cancel next month, that's 5% again. Um, so if you, if your churns 5% or less, that's, you're doing awesome. And if it's like 10% or more, you. You've got a problem. And if it's, if it's above 15%, it's basically an emergency.
ll Pilates instructors. Like [:Well, yes, that my best fitness studios or Pilate studios would convert 80% of people that do a one class trial or a a three class trial. Um, so 80% is phenomenal. I think, you know, eight outta 10 people would sign up. Yeah. Yeah. Um, but, you know, the, the average would, I would hope to be around 50%. Right. And if you're doing under 50%, there's an issue with your onboarding or your initial customer experience.
Right. And also, yeah, so not just the experience though, but also the selling skill of whoever's conducting those sessions and the process. Part of your onboarding has gotta be, how do we. Get this person into the right, you know, ongoing product. You know, whether it's a pass or one-on-ones or membership or whatever to meet their needs So that, you know, so basically at the end of their three trial sessions, they're like, holy shit, this is amazing.
Yeah, exactly. Exactly. Um, [:I think, what about pricing? Do you have any, do you have any of that information, like, you know, packs versus memberships, like average cost per class, that kind of thing? So I'm, I'm a big advocate for direct debits to start with. So that's like a direct debit, that's automatic withdrawals from the customer's account.
I think, I, I can't remember. The reason I say that is in America, I think they call 'em something else. I can't remember what they call them. Basically. There's an automatic fortnightly, uh, drawing out of your account. It's, that's every two weeks, let's say. You know, you know, um, a lot of Americans have said to me, what's a fortnight?
ell, which is a seven night, [:I think that's what we'd say. Yeah. So let's look, let's talk a weekly, let's talk on a weekly basis. I think 50 to $70 per week would entitle the participant to two to four classes. So if you break that down per class, I, I really think, you know, the average, you know, after sales, I think people end up at around 15 to $18 per class in a, in that 14 to 16 bed environment.
Whereas I think to be really profitable, you need to get that up to about 22 to $25 per class. A hundred percent, yeah. Um, but people sell, people just, um, you know, you gotta value the product and as soon as you give it away for free, you're basically telling the client that you don't value your own product.
ining them. It might be that [:Mm-hmm. Um. Yeah. So it would be like 120 bucks a week, 140 bucks a week, something like that. Yep. Because they obviously value what you're doing, so they're prepared to pay that. Right. And it's so weird that, you know, it's such a thing in Pilates and I think, you know, here's what I think it is. I don't know if I'm right, but this is just my end of one perception of this, that most of us Pilates don't make good money.
p of coffee, you know? Yeah. [:So it's, it's what are their priorities? What, what are the priorities? And once again, if you're in the right demographic and the right area, uh, I think you'll, you'll come out on top. Right. Right. Um, alright. Uh. And you're gonna, do, you gonna share that, uh, spreadsheet, the model? Um, so we'll link to that in the show notes as a Google doc.
Yeah. I'll share once I've got one that looks at direct debit, a direct debit business model, and one that looks at a, a PAX paid upfront business model. Yeah. Uh, so you can have a play around with those and see what works out best. Uh, but I'm definitely an advocate for the direct debit. Yeah. And I think I know why and, and to tell me if this is the correct reason.
ns is even if we have wildly [:This year we did $660,000 in sales. And you know, June we did like 330,000. It was like literally double, you know? Yeah. Um, but our actual cash collected each month was about the same. Right, because Exactly, because where every, you know, every those $660,000 worth of sales, they didn't pay us the 660,000 in April.
They all paid us their first down payment, and then they're gonna pay us off over the next 12 months or six months or whatever. It's, and so the, when you have a amazing sales month, you get cash flows about the same. When you have a shit sales month, your cash flows about the same. When it's Christmas, your cash flows about the same.
You know, if you go on holiday and close the studio for a month, your cash flows about the same, you know, so it's basically, you can predict your, you can predict your revenue pretty accurately. Absolutely today is the number one benefit. I think the other benefit would be the decision to leave is on the client.
say, right, we canceled the [:But the onus is on you to make the sale continuously. And I would, yeah, the sales spend is much higher in those studios and what it is in the direct debit studios. And I think if, if, if you're listening and think about like there are products, right? Where if your service was cut off, you would straight away, like just say a credit card was declined by the phone company, right.
And they cut off your phone, you like you would straight away. You know, be on the phone to them sorting that out. Right? You wouldn't go, oh, I'll fix that next month. You know, but just say your credit card was lining and your Pilates pass. Didn't, you know, and you thought, oh, well I'll just buy my Pilates pass next month.
mething. It's like you would [:That is awesome. You know, you must be doing an amazing job. Uh, and you know, all power to you. But I think for most of us, me immortals, uh, our clients love us. Our clients love the classes. But let's face it, if, you know, the month were tight, it would be easy for them to just not. Purchase. Whereas if that direct debit's already coming out and they're like, oh fuck, you know, it's really, you know, we're tight this month, let's cancel the Pilates.
And they look at their terms and conditions, it says, oh, we need a month's notice. They're like, oh, fuck it. You know, by the time, by the time we give the notice, we'll get that next check anyway, so who cares? And we'll leave it going. So the default becomes they continue to pay you rather than the, the default is they stop paying you unless they take action.
's lives. Right? Right. And, [:Right? They're more likely to get the benefits, et cetera, et cetera. So I think you we're acting in the best interest of our clients by doing that. A hundred percent. If you think, you know, if you listen to this and you believe people should do Pilates, well get 'em on a direct debit. Yeah. Um, well, we we're, the upfront does work if you've got waiting lists weeks in advance and they have to buy the upfront pack to book in.
Right. Uh, that, that's where it can work. Yeah. And, and packs are good if you need quick cash, like, if you're like, holy shit, I can't afford to make payroll this month or whatever, it's like, oh, let's have a special and sell some packs. You know, because you can make some money right now. Exactly. But, um, you know, pro tip, and you know, I'm sure none of none of you out there are dumb enough to make this mistake that I've made.
e by date on it. 'cause, um, [:You go, oh, you know, your balance sheet looks pretty. Shit. That is a great tip. Yep. Definitely put a, yeah, a three month, three month or six month time limit. Yeah. Yeah. I'm a big fan of not unlimited anything. Yeah. Yeah. Um, uh. Yeah. Even if someone wanted an unlimited membership, I still wouldn't do it. I would do like, well, how many times do you want a week come like 6, 5, 8, you know?
Okay, let's set up an eight times a week membership for you, you know? Yeah. Um, because in my, in my original studio we had, we had people, like, we didn't audit one time. We had some, like 10 or 12 people who, between them were coming like 160 times a week. Right. It was crazy. They were coming, like, many of them were coming to like two classes back to back five days a week, plus one on the weekend.
[:It's like they were doing an unbelievable deal. Just like insane. Yeah. Crazy. Get the heck outta here. Prices. And you wouldn't, you wouldn't notice it if you weren't at capacity. I mean, it's good to have them in there because it gets the vibe going and it's great, but when you get to capacity, it's like, oh, hang on a second.
Right. This isn't, you're stopping a full paying person coming in. Right. And you're thinking, oh, so-and-so's one of our best customers here all the time. Always loves it. Always gives us a high five. You know, it's, yeah. But they're paying fucking $2 50 a class. Yeah. They're not your best customer. They're your worst customer.
esn't matter if you've got a [:And especially with inflation and everything else going up, you're totally justified to do that. Yeah. And I would say 10% look at a 10% price increase every 12 months. Yeah. And the good news is if when that $10 a week person leaves, they'll be replaced by a $70 a week person. Spot on. Yeah. Had you be like, why fuck didn't I do that three years ago?
Yeah. Um, so another tip for young players, you know, and this is a mistake I've made, you know, when you open up your studio, don't sell foundation memberships that have a guarantee of this price for life. You think it's great now, but when you're fucking full in and you know, you know, bursting at the seams in two years and you are turning away people who wanna give you $75 a week because you've got this malarkey paying $10 a week guaranteed for life, you'll be so cursing yourself.
nd actually on our financial [:Don't give foundation memberships with guaranteed price for life or guaranteed privileges for life. Just like, don't guarantee anything for life. Um, spot on. Because you're almost certain to regret it at some point in the future. So, you know, like when you got, when you've got no clients, that 10 a week person looks pretty good, but when you've got like 275 a week clients, that 10 a week person looks like a real party pooper.
another set of eyes, looking [:You know, passion over just looking at the, at the potential profit. Um, yeah, I, I think, I think though, and I, I a hundred percent agree on that, but I think for our audience, uh. Only people who are passionate about Pilates listen to this show. I'm, I'm guessing. Yeah. And so lack of passion is not gonna be an issue, but lack of financial nouse is gonna be an issue.
So I think, um, I would say for all of you listening out there, I love you. You are fucking awesome. And get your fucking shit together financially. Like, you know, I know you're passionate. You have to read a TLA balance sheet and a cashflow forecast. And if you're looking at your bank balance at the end of each month as a way to tell you whether you're going well or not well, you need to talk to someone.
[:You, you can be on the first floor or in a back street or whatever. 'cause people, you don't get many passing tray. People find you on the internet or through your Google ads or, or whatever, right? So you don't have to be on a main road in a prominent. Location necessarily. Um, uh, so yeah, set up, but set up in a suburb or a locality where there are plenty of your target demographic and your target demographic should be people who, one, have a painful problem, like back pain or.
o have money and the will to [:And it definitely shows that it's an area that can support Pilate Studios. You know, it's where people can afford to pay for Pilates, so that's cool. And then get some good financial modeling. Uh, you can use the spreadsheet that Josh is gonna share, but get someone you know, if you, if you are not already competent, get someone who is competent to look at it.
And even if you are competent, get someone else to look at it who's not emotionally invested in your decision and get someone to look at it. Who doesn't give a shit about how beautiful your studio is or anything. All they care about is how much profit you're making. Um, and, uh, you and, and listen to their advice.
our revenue on marketing and [:Cancellations, prep, uh, you know, set up your pricing well. So you're making like 22 bucks or more per session on average. And that's on average. So if you packs are priced at $22 each, you're not averaging $22 'cause you're giving away intro things and you're whatever. So it's gonna, like, if you're priced at 25 a session, you might average 22.
Um, well, and you know that, that special you do, uh, 10 classes for 50 bucks. Right. You don't, that's, you know, you've just brought the average way down, way down. Sales and detriment. Yeah. Yeah. Um, and you know, price, price your memberships so, and your packs so that the memberships are slightly more attractive but still averaged out at that 22 per, you know, so make the packs a little bit more than that, for example.
[:I'll probably think of about five more things after we, uh, wind it up, but I think, you know, we might have to have another one somewhere along the line. Yeah. Well when you think of those things, let's get you back. And, um, out there in, uh, the Pilates stratosphere. If you've got questions, thoughts, comments, differences of opinion, you know, experience that runs contrary to this, whatever, uh, you know, reach out to me on social media, reach out to Josh.
horse town in the middle of [:If there's not, if it doesn't, if, if the demographic of your local area doesn't match, you know, a suitable target market, well, it's not a place to set up a studio. Uh, and so go somewhere that is, and it might, it might be the two horse town, you know, 50 miles up the road that you can set it up in or the regional capital or whatever.
Um, but if you're in a big city and you're thinking like, oh, I'm in a depressed neighborhood or whatever, it's like, we'll get to another freaking neighborhood. You know, like set and, and you can continue to live in your depressed neighborhood if you want, but don't set your studio up there because they call it depressed.
'cause it's depressed, it's not gonna work. Right? Yeah. Yeah. Um, so yeah, so, uh, you know, I think it does apply to you and if you're in a, if you're in a small town or if you're in a place where it's like, oh, they haven't heard of Reformer Pilates, or like, well, at some point they hadn't heard of Reformer Pilates in Australia.
bably apply to Matt Pilates. [:Yeah. Right? Yep. Same formula. Yep. And if, if we, you know, if we took out Pilates and said CrossFit instead, it'd be the same. No different. Yep. Yep. Sorry folks. There, there, there are some differences obviously between Blade and CrossFit, but from a financial perspective yeah. If you're just looking at the numbers, they, they, they're pretty similar.
Right. All right. Well that's good to know. All right, well thanks so much Josh. This has been so awesome and, uh, I look forward to our next convo. Yeah, thanks for having me, RAF.
