To determine how successful your department is, you must know the numbers.
Over the last four installments of this series, I have demonstrated an effective step-by-step method for growing a successful personal training program in your facility. The first four steps of this plan include (1) implementing a program to integrate members; (2) educating both members and trainers through seminars and workshops; (3) using small-group instruction to reach more members and enhance your bottom line; and (4) establishing a well-defined brand for your service.
Although taking these four steps will go a long way toward achieving your department’s fiscal goals, there is one final and crucial step: measuring success. Simply put, you must know your numbers. Keeping score is not only how sports teams measure outcomes but also how smart businesspeople in all industries determine success. To measure the success of your program, you must master four key financial competencies:
1. developing your annual budget
2. understanding your departmental monthly income statement
3. filling out a variance report and justifying any discrepancies
4. identifying and charting three to five key statistics
Your department’s annual budget is the backbone of all decision making. The budget expresses how you think your department will perform for the fiscal year, encapsulating the revenues and expenses you expect each month. By subtracting the expenses from the revenues, you get a projected profit or loss.
Your annual budget should be developed on a spreadsheet program, such as Microsoft Excel. The first budget is always the hardest because you don’t have the previous year’s budget to use as a template, but the following steps will make the process easier.
1. Identify Revenue Sources, and Project an Income for Each. Remember to include all specialty programs (one-on-one training, group training, indoor cycling, massage, etc.). Identifying revenue sources for the first year isn’t easy. The fact is that you have no established track record. One way to estimate the first year’s revenue is to benchmark your program against competitors of similar size; another way is to use the goals you’ve set for your trainers as a guide. Either way, after 3 months, revise your projections based on the history you’ve established. Remember, a budget is a working document; it is not set in stone.
After the first year, you can use the previous year’s revenue figures and your projected increase to develop new projections. For example, if personal training brought in $20,000 in January 1999, but you have been collecting $30,000 a month for the last 3 months, you know you can budget $30,000 per month or more for the coming year. Go through this process month by month for every revenue source.
2. Identify All Expenses Associated With Your Department. Expenses include commissions for personal training and group training, payroll taxes, continuing education, supplies, etc.
The process for figuring commission-related payroll expenses is easy. If your trainers receive 50% of training revenue, enter 50% of your projected income figure as your commission expense. Determining wage-related payroll expenses for floor staff is a little more time-consuming, but not at all difficult. Simply add up the number of hours per month your fitness floor is staffed (don’t forget to count double coverage). Multiply the total hours by the average pay rate. Remember that 2 months of the year have three pay periods.
Tax expense is a factor of total payroll. Enter the appropriate factor in the tax line. You need to account for social security (6.2%), Medicare (1.45%), federal unemployment tax (FUTA), state unemployment tax (SUTA) and workers’ compensation. I use 13% as the factor.
To determine the cost of supplies, evaluate the needs that are likely to arise throughout the coming year. After the first year, you can look at the previous year’s total as a guideline.
3. Enter Both Revenue Sources and Expenses on Your Budget Spreadsheet.
4. Justify Your Assumptions. In an appendix to your spreadsheet, explain the logic behind your numbers. This shows your superiors that you put thought into the projected figures.
Keep your budget in an accessible place for easy reference. If your superior asks what your personal training revenue goal is for February, you should be ready with the answer.
An income statement is a financial statement that shows the revenues and expenses generated for any given period of time (monthly, quarterly, annually). It subtracts the expenses from revenues to show the profit or loss for the given period. By the first week of each month, you should receive a copy of the previous month’s income statement. If your facility uses a club management software system or if you use a small-business financial management program such as QuickBooks®, these statements are easily generated. Your income statement setup will look very similar to your budget, with two key differences: (1) The income statement will show the figures for only 1 month; and (2) the figures will be the actual figures for that month.
When you receive a copy of your monthly income statement, inspect it for any areas that do not seem to make sense. Investigate these discrepancies using the general ledger or daily sales reports. (See “Common Causes of Discrepancies on Income Statements” on this page.) Your club management/ small-business software program will allow you to generate these reports easily.
Once you are satisfied with the accuracy of your monthly income statement, you are ready to complete your variance report.
The variance report is the key document for making financial decisions. This report compares the actual figures from the income statement with the projections in your annual budget. Most income statements will provide a side-by-side comparison. Highlight all revenues and expenses that are significantly over or under your budgeted figures. I use 10% or over $1,000 as my benchmark. For example, if my budget for personal training revenues projected $25,000, and my actual revenue was $24,555, I would not consider that a significant variance, but if my actual number was $19,000, I would consider it significant.
The variance report can best be displayed by creating a template that can be modified for each month’s report. After highlighting all significant variances, you must perform the most important part of the process—justifying the variance.
Developing a budget does you no good if you simply hand the budget in for approval and never use it again. Your budget should be a working document you refer to when making all strategic decisions. The best way to evaluate your progress is to justify any variances found in your document. In my experience evaluating income statements over the past 6 years, I have found that the following are major reasons for variances:
- Revenues Exceed Budget. This seems like a good thing, but if revenues consistently exceed budget, it may indicate that you should have set higher goals during the budgeting process. Take this into consideration when preparing your next budget.
- Revenues Are Less Than Budgeted. Initially this sounds bad, but often it is a function of timing. Let’s say that in January you had $37,000 of revenue when you budgeted $30,000, but in February you had $25,000 rather than the budgeted $28,000. Clearly your big January has affected your February revenue, so there is no need to worry. You are $4,000 over budget for the year to date. It’s important to look at not only the monthly variance but also the year-to-date variance.
- Personal Training Commissions Are Higher Than Budgeted. This expense probably has the most monthly volatility of all expenses. In most cases, personal trainers and other commissioned staff are paid when the service is delivered, but the club has already collected the money. Owing to timing, payroll can be seemingly low or high during a given month, but it should even out over the fiscal year. Strict expiration dates for training packages, firm cancellation policies and streamlined session packages reduce volatility to some extent.
Every manager should identify three to five key statistics to evaluate success. Here are four good ones to track:
1. total monthly personal training sessions
2. total monthly revenue
3. monthly revenue vs. the monthly budget
4. total monthly fitness evaluations
It is a good idea to look at the 3-year trend. I recommend using a spreadsheet program that can generate graphs and tables, but simple graph paper and colored pencils will work just fine. Graphing your key statistics provides a visual reference of your department’s progress and can uncover important trends and give justification for variances.
Here are a few things you should know when analyzing your graphs:
- Flat revenue lines mean no growth. If your trainers are maxed out on clientele, a flat trend means it’s time to hire more trainers.
- An upward trend in fitness evaluations coupled with a flat revenue trend means that fitness evaluations are not being effectively converted into training packages. Consider sales training for your staff.
- You should expect downward trends in slow months, but compare the numbers with the previous year’s numbers at the same time. The present year’s should be higher.
Once you graph these areas for several months, you’ll begin to analyze your numbers in a completely fresh way.
Any coach can tell you that keeping score is the best way to measure success. Knowing your numbers arms you with the financial tools necessary to take your department to the next level.