23 Yoga Business Terms You Should Know
No MBA is needed to run a yoga business, but you do need to educate yourself.
ROAS (return on ad spend): This ratio refers to the profit (or loss) from your advertising spend, usually calculated monthly.
$2000 in new student revenue / $1000 invested in Facebook Ads
ROAS = 2 to 1
Pay Per Click (PPC): This is online advertising, such as Google or Facebook, where you pay only for those people who click on your ad.
Cost Per Acquisition (CPA): This refers to the cost of acquiring a new client via paid advertising.
You pay for 100 clicks on Facebook that cost $1 each, and you acquire one client. So, acquiring that client cost $100 in total. Your CPA is $100.
Search Engine Optimization (SEO): This is a website optimization strategy of naming and tagging pages in a way that makes them easily discoverable by search engines.
Topline Revenue/Gross Revenue: This refers to the total money collected without deducting any expenses. If you opened the imaginary cash register and counted everything, that would be topline or gross revenue.
Bottomline/Net Revenue: This refers to all the money left over after you’ve paid all your bills. In most cases, this is pre-tax and often without any owner/operator salary deducted, but people use different calculations. The true net profit of a business would include taxes and an owner/operator salary deducted.
Owner/Operator Salary: In most small yoga studios, the owner does not take a salary, they simply keep (or reinvest) whatever is left in net profit. This is a perfectly fine way to do business, but from an investor or buyer standpoint, the owner’s salary is a real expense that needs to be added to the monthly balance sheet before the real profit is determined.
Profit & Loss Statement (P&L): All business should be tracking their revenue and expenses at least once a month. These monthly accounting reports are usually called P&L statements as they show profit and loss of the business.
EBITA: An acronym for Earnings Before Interest, Taxes, and Amortization of business profitability used by banks, potential buyers, and investors.
Margin/Profit Margin: This refers to the money left over after expenses on a product, service, or event.
You teach a backbend workshop that costs $100 to the clients and your costs for the event are $60. Your margin is $40 (40%). If you sell a yoga mat in your studio for $30 and it costs you $22 wholesale, your margin is $8.
YOGA STUDIO TERMS
Introductory Offer: A common new-client attraction offer that makes it inexpensive and easy to join your studio for a trial period. Typical intro offers are one week or one month in length and are often offered at a deep discount.
The first class is always a challenge. Students feel stiff, awkward, and they struggle to follow along. By the second class, students are at least twice as confident; and by the third class, new students often know their teacher’s name, understand the basics, and are somewhat competent.
Most studio owners report that if they can get a new student on the mat three times, the chance of them becoming a dedicated, long-term member is very high. The objective of the introductory offer is to get your new students to reach that magic three-class number.
PRO TIP: If possible, your intro offer should automatically turn into a normal, recurring monthly membership unless the new student cancels before the end of their trial. This automation makes it easier to stay a member than it is to leave, which is key.
Member Conversion Rate (intro student to member): This percentage rate refers to the number of students who purchase an intro offer and then convert into long-term members.
100 new students did your Introductory Offer
60 became monthly unlimited members
Conversion rate: 60%
PRO TIP: A low conversion rate can mean your students are not happy with your studio, that your intro offer was too cheap and they are not willing to pay your higher/normal rates, or it can also mean your intro students were not a good fit for you to begin with.
Utilization Rate: The percentage of your paying/active members who are using their membership daily (or weekly or monthly).
Utilization Formula: Total daily students in class / active members = your utilization rate
25 students in class today / 100 active members = 25% utilization rate
Traditional gyms have terrible utilization rates, usually around 7% of their active membership coming to workout daily. This is why a small gym that might only have space for 50 people at one time can have 1000+ active members.
Yoga studio utilization rates tend to be 15-20%, and during peak seasons (January and September), utilization rate can be 20-30% or higher.
Here’s how to use this information: If your utilization rate is low (sub 15%), it’s an indication that your members are not excited or motivated to come in. If your utilization is high (25%+), you know that things are going great.
Reverse Engineer Your Competitors
If you want to figure out how a local studio is doing with membership, the simplest way is to figure out how many students take classes in an average day and multiply by five (this assumes 20% utilization).
Most yoga studios use a software program called Mind Body Online, and it often shows the number of students signed up for classes on the studio website. This means you can often collect this data in minutes.
A small, local studio has 4 classes per day and 30 people come through the doors daily. 30 x 5 tells you that they have an estimated 150 active members.
Churn Rate: This is the percentage of your active members that cancel or stop paying on a monthly basis. The industry standard churn rate is 15% monthly, so if your number is lower, you’re doing great. If you’re losing big numbers monthly, something is probably not working.
- You had 67 paying members last month
- 7 people canceled
- 7 cancels / 67 members = 10% churn rate (this is low!)
Retention Rate: This is the opposite of churn rate; the percentage of members you retain each month. Retention rate is often used to analyze first visit or introductory period success rate. If your retention numbers are low, it means you’re struggling to convert early visitors into clients.
Lifetime Value (LTV)/Annual Value: This is an approximated average of what a member is worth long-term to the studio. This number allows you to think strategically about marketing investments and growth. The number will always be an educated guess, but a helpful one.
Example #1, Lifetime Value:
Average monthly membership: $99
Average monthly churn (see above): 17%
Take 1 (client) divided by 17% churn (.17) = Avg months as a member
Math looks like this: 1 / .17 = 5.8 months
And then: 5.8 months x $99 (avg membership = $582 est lifetime value)
Since an average client is worth $582 to you, if you spend $100 or even $200 to get that client through advertising and marketing, that’s a great return on investment.
Example #2, Yearly Value:
Take your total revenue last year divided by total unique students who took classes.
$300,000 in revenue / 2,200 students = $136 annual avg member value
In many cases, “lifetime” is too long. Small studios often need a faster return on advertising to keep the lights on and pay bills, so sometimes it’s better to calculate the average annual value, knowing there is much more revenue that will come later.
You had 67 members last month paying
7 people canceled
7 cancels / 67 members = 10% churn rate (this is low!)
Flatline Scheduling: If possible, your peak classes should be at the same time every day. Consistency is crucial for your studio.
Ideally, your students will know that there is a 10 AM class every morning and a 6 PM class every night, for example. It helps increase client satisfaction.
If you break this rule with ever-changing class times, even if you publish it everywhere, you’ll find students showing up to classes at the wrong times again and again.
In terms of class style, there can be some variation, but if every Tuesday at 6 PM is a Power Flow class, for example, and every Wednesday at 6 PM is a Yin class, this helps students know what to expect. In an ideal world, students would plan their yoga week, check schedules, and organize their calendars. In reality, the decision to come to class is often last-minute or random.
PRO TIP: Your schedule can vary on weekends. During the week, focus on consistency.
Flatline Pricing: This pricing structure attempts to set a baseline value that you can offer long term on the first visit. It is especially important to consider when crafting your introductory offer or promotions. Sometimes a great intro offer or deep discount offer can draw clients initially, but then they leave when they have to pay your normal rates.
Intro Offer = 1 Week for $25
If they stay a member, monthly membership = $99/month*
It’s OK to ask for a bigger time commitment (one month or one year), but to ask for more money for the same value breaks the flatline concept. Flatline pricing is ideal, but not always the best choice. Sometimes, discounts are needed, and sometimes very inexpensive intro offers can work – but proceed with caution.
Tiered Membership: This concept allows for “membership” at various levels of attendance. The advantage to you as a studio owner is you get members (not class cardholders) with recurring payments and consistent connection to your studio.
Monthly Unlimited = $99
3x / Week Package = $79
1x / Week = $69
Membership Model: Membership model studios focus almost entirely (or even exclusively) on monthly recurring memberships. Little or no class cards are sold.
The membership model for studios is superior in so many ways, but the most obvious is financial. For stable and healthy accounts, monthly recurring revenue is the gold standard. A membership-based studio can also get bank loans easier, find investors easier, and eventually sell easier. A class card-based studio is constantly borrowing money from itself, selling into the future, and is an unsophisticated way to run.
Work-Study Positions: Someone works reception or assists with administrative tasks in exchange for a membership at the studio. This is a popular opportunity for teachers in training and college students. To calculate the exchange, you take the hours worked multiplied by a reasonable wage in your area. Once they’ve worked enough hours for a monthly membership, they are done for the month.
The disadvantage of this structure is that the turnover rate is big, the staff tends to be unreliable, and even though they are unpaid, they take time and energy to manage.
Membership = $100/month
Work-study employee, John Doe, works two five-hour shifts per month in the studio behind the front desk. The rate for this type of work in his area is $10/hour, so he “earns” his membership with these two shifts.
Flat Rate/Per Student-Teacher Fees: In an attempt to reduce risk, some studios offer their yoga teachers a base rate plus a per-student rate. The idea is to include their yoga teacher in the upside and protect the downside. There are very few circumstances where this model makes sense. It usually serves as a short-term solution that is not sustainable for neither the teachers nor the studio long-term.
Flat rate pay is the industry standard now.
Per-Student Fee Example:
Teacher receives $20 per class + $2 per student for every student after 10
10 students = $20 + $0
15 students = $20 + $10
25 students = $20 + $20
Liability Waiver: This is a document (print or digital) where students take full responsibility for their health, outcome, and any potential injury that might occur in your studio. This is usually part of the new student form that includes their contact information and basic studio rules.
PRO TIP: Contrary to popular opinion, it’s legally impossible to waive your rights in most jurisdictions. This means that the liability waiver, in most cases, is a personal agreement, not a legal one. Since almost no one ever goes to court, personal agreements are arguably more important than legal ones, so it’s important to have these in place.
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