How much money does your business bring in each month? Considering that revenue is a metric that most business owners follow closely, chances are that you can answer this question within a few hundred dollars of the actual amount.
But what other numbers should you be tracking in your business? Suppose you own a service-based company such as a yoga studio or a CrossFit gym? Here are some important metrics, aside from revenue, that matter.
Financial Metrics
Without adequate incoming revenue, your business won’t be able to meet its expenses each month. Aside from seasonal peaks and valleys, revenue in a service business — in particular, a membership-based business — tends to be fairly consistent, ideally trending upward each month as new members are added.
Aside from monthly gross, here are some important ways to look at your revenue.
Revenue trends by month and by quarter
After several months of using a software platform to manage your business, you’ll have enough data in the system to see revenue trends, whether good or bad. This historical data gives some great context year after year.
Looking at revenue quarterly tells a bit of a different story than just looking at it by month. Perhaps July was slow, but August saw an unusually large number of sales because of folks returning from vacation, so you’ll notice a big difference in monthly revenue for July and August. Second and third quarter revenues, however, might not differ that greatly. By looking at your revenue both ways, you can better assess whether any underlying issues need to be addressed.
Revenue by category
Another way to look at your revenue is by breaking it down according to the different categories of services that you offer, like appointments and classes. This provides more insight into the service categories that generate the most revenue for your business. If you use accounting software to run your business, be sure to take the time to carefully assign your service offerings to revenue categories — it makes all the difference when you’re looking at your financial reports.
Average revenue per member
If you sell recurring memberships you’ll want to keep track of your average revenue per member — an important metric for projecting how both revenue and net profit will grow in your business. It can also help inform your pricing decisions for membership plan offerings. The greater this number, the fewer members you need in order to reach your revenue target.
You likely have a handful of membership plans with different price points and visit restrictions — perhaps an unlimited plan that you sell for $150 per month and a two-visits-per-week plan that you sell for $99 per month. For projection purposes you need to know what each member is paying on average — this will depend on how many members you have on the $150 per month plan versus the $99 per month plan.
Fortunately, it’s an easy number to get. You just need to take the total dollar value of membership revenue and divide by the total number of member: (total value of membership revenue)/(total number of members).
For example, let’s say that last month you had 134 members paying a total of $14,698 in membership plan sales. That means that last month your average revenue per member was $109.69. If in the following month you sell 10 additional memberships at $150 per month you’ll see this number rise.
Uncollected revenue
In most membership-based service businesses, clients often pay for the month upfront automatically with auto debit or EFT, and that tends to minimize account receivables. There are, however, many unforeseen circumstances; sometimes client credit cards expire or payments fail, so it’s important to be able to quickly see any unpaid invoices and collect that revenue.
Visit metrics
Tracking attendance and the number of visits to your business is critical in a yoga studio or CrossFit gym. Not only does diligent attendance tracking help ensure that all visits are paid for and that membership plans aren’t being abused, but tracking total visits gives you a greater sense of how your business is growing.
If total visits are trending upward, existing clients are probably coming frequently and you’re likely adding new clients, a great indicator that business is going well.
If total visits are trending downward, you might be experiencing some seasonal variation (perhaps it’s summertime or right before the holidays when many people go on vacation). Or, the downward trend could be a symptom of a bigger problem (unpopular staff are instructing during key hours, or clients are choosing a different studio with greater proximity to work, for example). You’ll want to do some digging and find out why people aren’t coming as often as before.
If you’ve been in business for a year or longer, you’ll be better equipped to see possible seasonality trends, be better able to prepare for your busiest months, and budget for those months when business slows down.
Busiest days
Knowing the busiest days of the week is great information to have. Send out an email letting clients with more flexible schedules know which days and times are a bit less crowded. Knowing the busiest days and times can also help you make decisions about which new classes to open and when. If you have data at your fingertips showing current demand for classes, you can make schedule changes with confidence.
More metrics that matter
Most profitable services
Do you know which of your services or service types are most profitable? If not, go through this exercise to calculate your gross margins on each of your services or service types. Knowing which services add more money to your business’ bottom line can help you decide how to best allocate space in your studio or gym.
For this, you need to measure the total earned revenue per service (revenue from sessions that were completed) and the total cost to provide the service (labor costs per service type for the same date range). Take the earned revenue and subtract the costs, and then divide that number by the earned revenue: (i.e. earned revenue – labor costs)/earned revenue.
Net profit
Net profit is the amount left over after you’ve paid labor on your services, as well as all of your operating expenses. A great indicator of the health of your business, net profit, shows how well you’re managing your expenses relative to revenue. If you’re able to keep your operating expenses fairly consistent month after month and if you’re able to grow revenue at a steady pace, you’ll see net profits increase as well.
Your business, your metrics
Depending on your business you’ll probably want to track several other metrics regularly. One of the benefits to using business management software with customizable reports is that you can view your business data exactly how you like.
If you aren’t yet using a cloud CRM application to manage your service business, I urge you to start (and to check out FrontDesk!). It’s incredibly valuable to have access to your data wherever you are and to have the ability to look back one year, two years, or even five years from now, see trends, and evaluate your business’s performance over time. Not only can you see how far you’ve come, you can plan for where you want to go next!