Remember when your high school math teacher told you that you’d need to understand algebra to get by later on in life? You probably scoffed, as many kids do. But we’re here again to go over more calculations that are essential to your dance studio’s success. Hang up your dance shoes and break out the calculator, and get ready for part two of our “Crunching the Numbers” series.
Any small business has to do a fair bit of marketing, and your studio is likely no exception. The fliers you print, the ads you run and the referral program you promote are all ways that you market your dance school in hopes of drumming up new business. But how are you supposed to know if your marketing efforts are working? That’s where metrics for marketing for dance studios come in. Read on to learn how you can calculate marketing return on investment, customer acquisition costs and more.
Marketing Return on Investment
First up is return on investment, commonly referred to as ROI. The concept is simple: You need to figure out how much business you’re gaining in relation to what you’re spending on marketing. For this calculation, you’re going to need your gross profit. You can refer back to part one of this series if you need a refresher on how to find this number.
To find marketing ROI, subtract your marketing investment – how much you spent on marketing services – from your gross profit. Then, you divide the answer by the marketing investment. So if your gross profit is $5,000 and you spent $1,000 on marketing, ROI would be $5,000 minus $1,000, then divided by $1,000. This gives you a marketing ROI of $4 – that means for every $1 you spent on marketing efforts, you got $4 worth of business.
This calculation is essential when you’re evaluating your marketing strategy season over season. It’s always good to try new campaigns – whether it’s direct mail, sale sites or something else – but you should evaluate the worth of a strategy after a given season. If your marketing ROI dips, chances are your new marketing efforts aren’t paying off.
Customer Acquisition Cost
Another important marketing metric is the customer acquisition cost, also called CAC. This is essentially how much money you have to spend on marketing in order to get one new student. The calculation is a simple one.
To find your CAC, set a defined time period. A good measure might be over the course of one dance season. Take the total amount you spent on marketing and divide it by the number of new students you acquired. So if you spent $1,000 on marketing and 20 new students signed up, your CAC is $50.
This metric by itself just tells you that you need to spend $50 to get one new student in the door. However, you can use CAC to calculate other more revealing numbers that will help you adjust your marketing and prices.
Time to Pay Back CAC
One way to use CAC to your advantage is to calculate how long it takes you to make back the money spent on acquiring each customer. You can calculate this in terms of seasons or months, whichever works for you.
To calculate time to pay back CAC, start buy subtracting your seasonal cost per student from the revenue per student. Divide your CAC by this number for time to pay back. So working off the example above, if you earn $500 per student per season and spend $300 per student, you’ll need to divide $50 by $200. This leaves you with an answer of 0.25, meaning you break even on a student’s acquisition cost after 1/4 of a season. Easy right?
If you aren’t a big fan of math, you’re not alone. An article in Psychology Today explained that almost 80 percent of college students described math as a skill they felt they couldn’t figure out. Even if math isn’t your thing, there are going to be quite a few instances where you need to crunch numbers as a dance studio owner. Yes, your calculator can help, but it’s important to understand the basic formulas and processes behind some standard small business profit calculations. Here’s some must-have math that studio owners need to know.
Calculating Gross Profit
Here’s that illustrious word that all studio owners hope for but many fail to achieve: profit. If you’re going to run a business and keep your doors open, you’ll need to know how to calculate gross profit, or the money you’ve earned from selling a service. The seemingly simple equation for gross profit is sales minus cost of services sold.
For studio owners, profit calculations are usually quite simple. Your revenue for a given season – or the money you collected from students – is your sales, and then you subtract any variable costs. Since you’re selling a service instead of a product, your variable costs will likely only include the salaries of hourly teachers, materials used in class and other expenses that incur as a direct result of holding class. Leave any fixed costs – such as full-time employee salaries, rent or mortgage payments, insurance, marketing costs or office expenses – out of this calculation.
So for example, if you charge $500 per student, and you teach 20 students this season, your revenue will be $10,000. If you spend $4,000 on variable costs, your gross profit would be $6,000.
Finding Your Gross Profit Margin
The next step in the important financial calculation is to figure out your gross profit margin, which is your gross profit expressed as a percentage of your revenue. Don’t worry – it sounds harder than it is!
To calculate gross profit margin, simply divide your gross profit by your sales, and then multiply by 100. Following the example above, $6,000 divided by $10,000 is 0.6. Multiple this by 100, and you get your gross profit margin of 60 percent.
Using Gross Profit and Gross Profit Margin
You may think that you’re in the clear if your gross profit increases year after year, but this isn’t always the case. Your gross profit margin is actually a better indicator of how efficiently your business is performing. If you notice that your gross profits are increasing but your margins are on the decline, this indicates that your spending is outpacing your revenue growth. Be wary of this trend! If your costs grow too fast, you could be heading for financial trouble.
Crunching Net Income Numbers
As you may have gathered, gross profit isn’t equivalent to the amount of money your studio is left with at the end of the year. You still need to take into account those fixed costs that remain stable from month to month. According to Entrepreneur magazine, these expenses include:
Wages of full-time workers
Once you’ve added up all these fixed costs, you’re ready to find net income. Subtract this number from the gross profit you’ve calculated. So if your fixed costs are $5,000 and your gross profits were $6,000, your net income would be $1,000. This may not seem like a lot of money, but it’s always a good thing when your business has a net gain at the end of the year. If your net profit turns out to be a negative number, this means you’ve sustained a net loss, and you’ll need to find a way to lower your costs or increase your revenue.
Check back soon for more math-related tips that are key for studio owners!
As a consumer, you’re probably a big fan of Groupon. After all, who doesn’t love getting 25, 50 or 75 percent off services from their favorite stores and restaurants? While this site is very popular with consumers – it boasts 70 million subscribers – Groupon isn’t always a win-win experience for business owners.
A study from Rice University showed that Groupon promotions aren’t always profitable. Of the 150 businesses surveyed, 66 percent said their promotion generated money. Despite more than half making money, just 42 percent said they would consider running a deal again. Keep these numbers in mind while you’re deciding whether to use the daily deal site.
If you’re considering offering a discount with a dance class Groupon, here are some pros and cons that you’ll want to weigh before clicking “OK.”
Pro: Groupon Helps Create Your Deal
No need to fret if you’re not a whiz with words. Groupon will not only help you pinpoint services that will sell effectively, but an associate will also give you a hand with the web copy. This comes in handy if you’re not so great at crafting compelling advertisements.
Pro: Bringing New Customers In
Getting new dancers in the door is always a good thing, especially if you’re the new studio on the block. If you choose to run a dance class Groupon deal, it’s safe to bet that you’ll see some new faces in the studio. People love discounts, so this is a good way to edge out some of the more established studios in your area and give your school a competitive edge.
Con: Having to Discount Your Services
While you’ll likely get some new students out of your Groupon promotion, you’re not going to make the same money as you do from regular dancers. No one is going to purchase your deal if you only discount 10 percent – the appeal of daily deal sites is that businesses offer services with steep discounts.
Because you’re only going to be making a portion of your usual revenue from Groupon deals, make sure you will still be bringing in enough money to pay your fixed expenses. Otherwise, you may be better off using traditional marketing tactics to bring in customers who’ll pay the full rate.
Con: Groupon Takes a Cut
After you discount your prices to attract customers, Groupon is going to take a portion of the money you make. The New York Times explained that Groupon usually takes 50 percent of the revenue, so if you sell $500 worth of classes, you’re only going to receive $250.
This can be problematic if you had to discount your prices a lot to begin with. If you offer your services for 40 percent off through your promotion, then Groupon takes half, you’ll end up with 30 percent of the money you would have made if the customers paid full price.
Pro: Getting Paid Immediately
However, one upside to the Groupon method is that you get paid right away. Even if the Groupon buyers never show up to redeem their classes, you’ll still get your money from the site.
Con: Attracting Bargain Seekers
Inc. magazine explained that another less-than-desirable outcome of Groupon is that it attracts people seeking deals. Many of the students who come in as a result of your promotion may only be looking to redeem their classes – not to sign up for more. As a studio, one of your long-term goals is likely to build a solid base of returning students, and if Groupon buyers are only interested in the bargain classes, they’re not going to contribute to this objective.
One tried-and-true method of generating a little extra income at your studio’s dance recitals is to sell bouquets of dance recital flowers to proud parents. This strategy is genius, as parents love having the option to pick up lovely flowers for their dancers without having to make a pit stop at the florist. However, it often takes studios a few years to perfect their flower-selling processes, as the cost, supply, and execution can be a bit confusing. If you’re selling bouquets for the first time, here are some tips to help you make the most out of this recital extra.
Determine the Demand
The first time you’re selling bouquets at your end-of-season recital, you probably won’t know how many to order. Should you assume that half of the parents will purchase flowers? Or maybe three-fourths? It can easily become a guessing game.
However, it’s best to come up with an informed estimate instead of picking a random number. After all, you don’t want to end up with 20 extra bouquets, as that’s just a waste of money. Consider sending out a survey to parents to get an estimate of how many people would buy recital flowers and what price point they’re interested in.
When in doubt, err on the lesser side. It’s better to sell out than to have bouquets left over.
Arrange for Flower Delivery
Hopefully, you left ample time in your flower-planning process to arrange for delivery. Dance Exec recommended that you contact local florists at least one to two months in advance. If you wait until the last minute, you might not be able to get competitive quotes on the style of bouquets you’d like. You also may want to explore online vendors, such as 48 Longstems. Odds are, you’ll get a better price online.
When you’re ordering, keep the price point that parents agreed to in mind. You’ll want to mark up the flowers at much as possible so you can optimize your profits. If you can find quality bouquets for $10 a bundle, you should aim to sell them for around $20 apiece. Another option to consider is just purchasing a large number of roses or carnations and allowing parents to purchase one or more for around $5.
Consider Pre-Selling Bouquets
Another option that dance studio owners suggested on this Dance.net forum is to pre-sell recital flowers. This takes a lot of the guesswork out of the equation and also eliminates the need for someone to man the bouquet booth on recital day.*
If you’re going to do a pre-sale, create order forms and hand them out to your parents. Then you simply give the orders and payment to your local florist, and let them take care of the rest! Parents can pick up their pre-ordered bouquet on recital day. The only downside of this method is that some parents might forget to place their orders and be disappointed come recital day. If you think this may be the case, pick up a few extra arrangements for last-minute sales. Be sure to mark the prices up accordingly!
Other Merchandise to Stock Up On
When you’re selling bouquets at recitals, chances are that parents will be willing to purchase other add-ons for their accomplished dancers. For this reason, it is often beneficial to have other merchandise available at recitals. Consider having branded studio attire, balloons, teddy bears, trophies, or recital DVD forms available for parents. These inexpensive items are often a hit with students and parents alike, and they are a great way to generate a little extra revenue for your studio.
With your seasonal dance recital coming up, you’re probably facing a lot of costs from venue rental, lighting, backgrounds, props and more. What if we told you that there’s a way you can get back some of that money and potentially make a profit from your recital? Many studio owners have found that dance recital program ads are an easy and effective way to earn extra money for their businesses. While it takes diligent planning to pull together a great program packed with advertisers, it might be a huge boost for your studio. Here are a few ways you can sell program ads more effectively.
Determine Reasonable Prices
If you’re going to become a selling machine, you have to make sure that your prices are just right. After all, you’ll end up pulling teeth if your cost per ad is too high, and if it’s too low, you won’t make any money. So don’t just pull a number out of the air! Do your research to determine what’s a fair yet lucrative price for your program ads.
The biggest factor in determining how much to charge for ad space is what you’re going to pay to have the programs printed. For this reason, you should get quotes from your printing vendor before you start selling ads. One studio owner on Dance.net explained that she takes the per-page price from the printer and doubles it for a full-page ad. For example, if it’s going to cost you $50 per page to print the programs, you may want to sell full-page ads for $100, half pages for $60 and quarter-pages for $40. This strategy will ensure that you make your money back and then some.
However, you may need to adjust your prices if you find that businesses are balking at the cost. Be sure to look at the big picture – with higher prices, you might sell two full-page ads at $100, but if you lowered that price to $80, you may very well sell five and make $400.
How to Target and Approach Advertisers
Many studios incentivize their students to sell ads. This strategy works for some, but while 5-year-olds are cute, they’re probably not the best salespeople. That said, if you go this route, there are ways that you can help your dancers target the right businesses and advertisers to optimize on your returns.
If you are going to ask students to sell ads, give your students guidance before setting them loose in the community. For example, the North Cambridge Family Opera Company recommended that you pitch to businesses whose target market will be attending your recital. Companies that cater to children, parents and families will likely see the value in your ad space. Similarly, if your students are selling, instruct them to try businesses where they are regular customers and ask self-employed individuals if they want to purchase ad space.
When it comes to sales tactics, it’s usually beneficial to create a fact sheet and some talking points to help close the deal. Give your sellers information on how many people attend the recital, what the general demographics are and how the money will benefit the children who attend the studio. Some businesses may not necessarily need the advertisement, but if they are community-oriented, they may be interested in supporting the local arts program. Don’t be afraid to take a unique angle while selling!
Offer Ads for In-Kind Services
You may want to consider pitching a deal to some of the local vendors that your studio frequently works with. You can offer them free ad space for in-kind services. For example, if an artist helps with your set design each year, offer him or her an advertisement in return for a discount on next season’s design. Not only will this give the entrepreneur a bit of marketing, but it will create an agreement that you’ll work with him or her in the future.
When you’re bartering for in-kind services, keep your ad valuation in mind. If you’re asking for a discount, it should roughly equate to the same value of the ad you’re giving the vendor.
An Essential Checklist of Materials from Advertisers
Once you’ve sold several pages worth of ad space, you’ll need to collect the advertisements from the businesses. If you’re not organized when it comes to this step, you may end up contacting the advertisers multiple times to get all the needed materials. It’s better to put together a comprehensive list of things you need for each ad to streamline the process. Use this checklist to guide your ad collection:
The company name
The best point of contact
Multiple contact methods, such as email, phone and fax
The ad in an easily accessible digital form, like .jpg or .png
Permission to crop or resize the image as needed.
Be clear about the deadline for these materials so you’re not scrambling to get the program together last minute.
Each spring, you’re faced with one of the more unpleasant aspects of owning a dance studio – filing your taxes. If you think personal taxes were confusing, chances are that you’ll find business taxes even more so. There are a number of different deadlines you’ll have to adhere to and a variety of forms that need to be filled out.
If you struggle to keep your paperwork in order and get your taxes done on time, use this guide to straighten yourself out and get your studio’s taxes squared away.
Best Practices for Studio Owners
Your studio taxes will be so much easier if you stay organized throughout the year. If you throw paperwork here, there and everywhere, chances are that you’ll be scrambling to find it once tax season arrives. Make your life a whole lot simpler by setting up an organized filing system for your expenses, receipts, bills, invoices and other important paperwork. If you have office staff, train them to use the new system so that everyone is on the same page.
It’s important to save copies of other materials as well, especially if your studio isn’t making a profit quite yet. Dance Teacher magazine explained that if you don’t make money three out of five years, the IRS could deem your business a “hobby,” leading to you owing more money for losses you’ve claimed. If you’re operating in the red, save evidence that can be used to prove you’re taking steps to improve your studio, whether it’s marketing materials, new business cards, a company roadmap or your day planner.
Start getting your books in order at the end of each calendar year. As tempting as it is, you shouldn’t wait until February or March to start preparing your taxes.
What’s Up with Sales Tax?
Since your studio is an educational institution, you don’t have to charge sales tax on lessons, right? The answer actually depends on what state you live in. Back in 2014, dance studio owners across Missouri were shocked to find they owed back taxes to the state because of a legislative change. Americans for the Arts explained that the state reclassified studios as places of recreation and entertainment, which means they aren’t exempt from sales taxes.
There are actually a number of states where studios must tack sales tax onto tuition bills. DanceStudioOwner.com explained that this is necessary in Iowa, West Virginia, New Mexico, South Dakota, Hawaii and sometimes New Jersey.
“When dance studio owners don’t feel comfortable with sales tax, they’re definitely not alone,” Jessica Sheitler, owner of Financial Groove, explained to DanceStudioOwner.com. “I feel like it’s probably one of the most misunderstood aspects of running a dance studio, honestly. [Taxes are] different in every single state. Even within your state, it can be different within your county and your city.”
Chances are that you should also be charging sales tax on costumes and other merchandise that you sell. However, the regulations vary by state and jurisdiction, so figure out what’s necessary in your area.
Know Your Write-Off Options
You might owe the government more money than you’d originally thought, but the silver lining is that there are a number of expenses you may not have realized you could write off. The Houston Chronicle explained that you can write off reasonable and necessary expenses related to your profession. This means you can write off dance supplies, such as props and music or even office supplies. If you take the bus to work, you can likely file a deduction for the cost of your pass. Similarly, if you travel for the studio, track your mileage and write off the cost of gas.
Talk with your accountant about what expenses can be written off come tax time. Just remember that if you plan to write items off, it’s imperative that you keep any and all receipts related to the purchase or expense. The more detailed your records are, the more likely that the write-off will stick.
Find the Right Help
If all of this sounds overwhelming, it’s in your best interest to find a knowledgeable accountant who can help you get your taxes done right. Be sure to find a professional who has experience working with creative businesses – preferably studios – so you know that he or she can get you as much money back as possible. Once you find an accountant who is a good fit for your needs, don’t be afraid to seek advice for matters other than taxes. Chances are that he or she can help you work toward your other business goals.
“Have a dream for your studio and discuss it,” Lilia Wood, a studio owner who worked with Financial Groove, explained to Dance Teacher magazine. “Take advantage of their expertise so you can make those dreams a financial reality.”