Blog

Get Fit Holiday Promotions: How to Calculate Your Cost of Service

I do not know if holiday seasonal stress disorder is an actual condition, but if it doesn’t really exist, it certainly should. Every fitness business out there is being pushed this time of year to offer some sort of special or deal in order to entice people to sign up or make that first leap into health and fitness. Given that our wonderful industry also has some of the tightest profit margins, it can cause a greater amount of stress to try and exceed the expectations of the consumer.

Retail businesses can offer an 80% off discount, or a “buy one, get one free” promotion. They’ll still make a profit. But most of the fitness businesses we work with are service-based. If they offered these outrageous discounts, it would mean they would be paying people to work out. Not a bad promotion if you can swing it; “Come to my personal training studio and I will pay you to get fit!” You may get hundreds of clients, but those doors will be closed before they can even get in.

One of the best things to understand before you offer a special promotion is the cost to deliver your service. Determining your cost of service will assist you when you offer any promotions to existing and new members.

Calculating the Cost of Service for a Fitness Business

  1. Overhead Costs ―These are the indirect costs to your fitness business in providing services to customers. Examples include labor for other people who run the fitness facility or Martial Arts school, whether administrative assistants or a director of a department. Other overhead costs include your monthly rent, taxes, insurance, depreciation, advertising, office supplies, equipment lease, utilities, etc. A portion of all these costs will need to be included as part of your fees.
  2. Material Costs ― Material costs refer to stock or inventory required for the service. These are typically not huge additional costs for the average fitness business. For example, an automotive center would need the cost of brake pads and brake fluid when calculating a brake job. In our training studio, I add in the cost for our towels, laundry detergent, soap, shampoo, and razors. We purchase and supply these to our clients. They could just as easily be considered overhead expenses. In our training studio, I know that these toiletries add up to around $3 per client session, so I will use that number when calculating the cost of service and determining a promotional offer.
  3. Labor Costs ― Calculating labor costs for fitness businesses is usually pretty straightforward. Wages are typically the same per service per staff. That said, it is good to keep the average cost per service on hand and up to date. Also remember that when you give a raise to staff members, be sure to change this number to keep your costs in line.

We use our Member Manager software to calculate most of this for us with just a click of a button. I can see exactly the percentage of revenue per service that is going to labor for all staff or on a per staff person basis. Member Manager also calculates the revenue that I generate per service and pinpoints members that pay below my rack rate so I will know when it is time to raise their rates. All of these costs are important numbers to have handy when determining the discounts you want to offer. I can quickly add my costs together, along with my desired profit, to formulate an accurate price for a special.

Next week I will apply this cost of service calculation to a few fitness business models and show you some cool specials that help increase member attendance and still keep profits high.