Maybe you are interested in opening a studio and don’t know where to start, we can help you before you make the mistakes.
Or maybe, you’ve been running your fitness business quite successfully for some time now. You’ve run a tight ship. When possible, you’ve managed costs. However, you still feel there should be more money leftover at the end of the day.
Good news is there probably could be.
As business owners, there is often one area we overlook when cutting costs due to personal and emotional reasons – the cost of our employees.
Employees typically account for the greatest percentage of variable costs to run a business, so, it makes sense that one of the top ways we recommend reducing expenses is to look closer at your labor cost.
Let’s discuss two mistakes… err corrections you can make when it comes to managing employee costs in your fitness studio or gym.
The first area to analyze is the initial rate you are offering new hires.
This is usually the first problem and often the first misstep we have in any business.
Maybe somebody wants to earn a little more than what they’re worth (smart buggers!) or a certain instructor earns a bit more at another studio so when they come to you, you feel an obligation to pay them at the same rate.
We recommend setting your rates right the first time. The rate you believe is sustainable and allows for growth overtime as your business grows.
TIP: The best time to pay employees more is when you have the ability to pay them more.
Now, if an instructor’s milkshake is bringing all the members to your yard, then absolutely reward your rockstar instructor with better pay.
But let them prove how good they are before you agree to paying premium rates of yet unproven work. Or, setup a commission structure with a pay cap. We like to see pay caps set at no more than $75-$120 per class in bigger cities and competitive markets. Our clients that are located in more secondary and rural cities, those price caps drop down to $50-75 per class.
Incremental Pay Increases
The second area we want to point out is the sneaky incremental pay increase.
When you run a fitness business, we recommend you keep wages stagnant until your business is profitable.
Dollar by dollar, hour by hour, we see too many businesses struggle with labor costs that are increasing incrementally over time, counter to the increase of business.
These small increments add up. Fitness owners might not realize the aftermath of the raises until it is too late.
In cases of clients we’ve been brought on to help, they have given a $100 increase here. A $100 increase there. And over the course of a year incremental increase have resulted in additional labor costs of $18,000 per year.
You can buy several of your own milkshake machines for that!
Here at The Fitness CPA we advise our clients to increase pay when:
a) your business is currently profitable and consistently growing (unsure if your business is growing? Talk to one of our Fitness CPAs by filling our inquiry form here)
b) a particular trainer has proven their worth in milkshakes…. errr.. new members.
Now, you may be thinking to yourself… “Well, I’m stuck.”
You’re not stuck. You can always make changes to bring wages back down after setting them too ambitiously.
Of course, it will be harder than getting the rate correctly in the first place, but it’s not impossible.
We recommend working with an accountant or your Fitness CPA to make sure your wages are appropriate for what your business can sustain. There are various ways an experienced accountant can help change the rates of current employees without rocking the boat too much. Make changes now so you can have a business model in place that will see your business and employees thrive for years to come.
It’s critical to give oxygen to the business first, before extending the life mask to others.
Sometimes, it will mean making difficult changes or decisions, but we promise in the long run it will only lead to happier employees, a healthy business, and more milkshakes all around.
If you enjoyed this article, we encourage you to check out our new YouTube series where you can access similar content in quick, audible snippets.
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