Let's talk about breaking even
I was at a yin yoga class last night at one of my fav Saskatoon studios (shout out to Jen at Ivy!!) and I found myself doing some mental math.
You see, every single time I go to a yoga class, I think about something called a ‘break even point’.
I can’t help it lol.
I just love thinking about how much each person paid for the class and how many people have to register for the studio to recoup its costs for the month (aka when does rev = expenses??)..
I know I’m weird, friend. But part of my job as a CPA-turned-management-consultant is to do fancy calculations so my clients can make MUCH better decisions in their biz = = = increased profitability and more confidence as a leader.
So let’s nerd out for a moment and talk about a yoga studio example. (and if you don’t have a yoga studio, keep reading - this example can be adapted for each and every biz out there)
Let’s assume the following facts about a fictional yoga studio
Fixed costs (rent, utilities, insurance, debt pmts) = $8,000 per month
Average price charged per student, per class = $15
Estimated variable costs per class (office, instructor fee, advertising, R&M) = $500/mo / 100 classes on avg) = $5
To calc the Break Even Point for this yoga studio, here’s the formula:
Break even point = fixed costs / (price per class - variable costs per class)
= $8,000 / ($15 - $5) = 800
➡️ ➡️ ➡️ Interpretation: at least 800 students would have to attend classes each month in order for the studio’s revenue to equal its expenses. And if we assume there are 100 classes per month, that means an average of 8 students per class are needed. BAM! ⬅️ ⬅️ ⬅️
This info is useful when deciding a few things:
How much to charge per class (I’ve seen ranges of $20-35 per class recently)
How to schedule classes (i.e. maybe adjust things if only 2 people come to a Weds 10am class, but 20 come on Thurs 8pm because it’s your only weekday evening class)
How much to pay your instructors (i.e. if your variable costs per class are too high, it will be almost impossible to break even)
You might think - duh - isn’t this obvious, Tanya?? Maybe, but I’ve seen many a business owner not move forward with an “obvious” biz decision because they didn’t feel confident.
And what happens when we’re stuck in “analysis paralysis”? Money problems stay the same or get worse. Team members become less engaged. You feel stuck and start dreading Mondays.
Take it from a proud nerd: numbers will help you become more confident in making tough biz decisions.
That's all I have for you today. Have a great week, friend.
Take care and talk soon,
Tanya