One of the most important aspects of building a successful yoga studio is understanding the cost of growth. As we all know revenue is the income your yoga studio receives from traditional business operations such as drop-in fees, multi-class passes, unlimited passes, yoga workshops, privates, merchandise, etc. We also know that on the other side of the equation, your studio has expenses. In order for our yoga studio to grow at a consistent and sustainable rate, it is critical to understand the relationship between revenue and expenses, as both play a part in the overall yoga studio cost structure.
One of the ways a yoga studio can go about increasing revenue is increasing the number of students. Let’s imagine that our goal is to attract 100 new students over the next 3 months. As with any marketing effort, there are going to be costs. Almost every studio owner we talk to can immediately identify the first challenge associated with spending money on any marketing strategy (building a new website for the yoga studio, print advertisement, etc.).
If I spend too much money, I may achieve my goal but it will be difficult to grow profitably and consistently.
The second challenge is often overlooked.
If I don’t spend enough money (in the right places) it will be difficult to differentiate my studio from other yoga studios and achieve your growth objective.
As you can probably imagine, the answer lies somewhere along the continuum of cost. But in order to evaluate whether any particular course of action may be right for your studio, we first need to look at two variable, the lifetime value of a client (LVC) and client acquisition cost (CAC).
The lifetime value of a client is simply the dollar amount a client spends at your studio over the life of the relationship. This would include every drop in fee, multi-class pass, unlimited pass, merchandise, etc. they buy. Clearly, every client is different. You may have someone who has been taking classes for 5 years and has bought several accessories from you; you may also have someone who has taken a single class and never returned. LVC is simply the average of all of those clients.
To accurately calculate client acquisition cost, you divide the total costs associated with generating a client by the number of clients you generated.
We are unable to get a complete view of growth and cost without both numbers. We know that our objective is to add 100 new students, and that there is a CAC associated with each one. So what should your CAC be? Is spending $100 just to get one client good or bad? Your answer should ultimately depend on how high the LVC is. If a single client is worth $5,000 (LVC = $5,000) may yield a different answer than if the LVC is $500.
Simply put, you may be willing to spend $100 on a client that will ultimately bring you $5,000, but may be unwilling to spend $100 if the client only brings in $500. Because there are other factors involved in the overall picture (operating expenses for example), there is not a single “right answer” that will work for every yoga studio.
Most business owners would say that it’s critical to keep expenses as low as possible. We believe that you should keep your expenses as low as possible, but not lower. What we mean is that simply employing a policy that values reducing spending over anything else is doing your studio a great disservice. Growth always has a cost. Rather than looking for ways to eliminate this cost, it is better to learn and understand it, then make informed decisions with regards to spending.