Pricing your classes is one of the hardest and most important decisions you’ll make as a studio owner. You may have gotten into this business to change people’s lives and to make fitness a priority, but you also need to be able to turn a profit in order to sustain that. So how do you go about setting a price for your service? For many studio owners, the strategy is to look around at the competition in their area, see what they’re charging and either follow their lead or try and beat it. (Think: “SoulCycle is $34 a class, and I’m a cycling studio, so I’m going to charge around $32.”) While understanding the marketplace is one of the keys to success, what that doesn’t take into account is the multitude of other factors to consider when determining what you need to charge, like what it actually costs to run your business and what your margin will be based on the projected utilization of your classes.
Bottom line: you can’t rely solely on your competitors for your pricing strategy. Focus first on developing a holistic view of your business, with primary consideration given to your fixed and variable costs and your blended rate. From there, you’ll have a much better sense of the value of your classes in relation to what you need to charge.
Below, we explore the tenants of pricing strategy, why they matter and how you should approach them as a business owner.
FIXED AND VARIABLE COSTS
You should start by understanding the economics of your business and making some assumptions around utilization. Your fixed costs will be the static costs you know you’ll need to account for every month (i.e. rent for your studio space, your salary), while your variable costs are costs that may vary from month to month, depending on your production volume and utilization (instructor costs, towels or water bottles per person if you provide during class, etc.). These fixed and variable costs come out of your revenue earnings to ultimately determine your overall profit (or loss).
Think about how many classes you’ll have in a week and with what number of spots. What do you predict your utilization will be? New studio owners can expect ~40-50% utilization, at most, especially when just starting out, so pricing should account for when your classes are only half full. For every class you should be making enough to cover your variable costs, and what’s left over is there to cover your fixed costs and for your margin.
Also consider your class fees. Will you charge for amenities, such as towel or mat rental, spinning shoes, or water? You may want to include these costs for your clients, which could allow you to potentially charge more per class, or you may decide to charge individually for these items as added revenue not roped into your overall class pricing. Other fees to consider are your late cancellation and missed class fees. Know your stance on these numbers to figure out what you’ll charge overall.
FIGURE OUT YOUR BREAKEVEN
To determine the right pricing for your classes, consider your breakeven, which is the number where your revenue equals your costs. Anything above the breakeven, where revenue is greater than your costs, is your margin.
Let’s do a simple math equation to see what your breakeven pricing would be given the below assumptions:
Fixed costs per month: $5,000
Instructor fees: $50 per class
Front Desk: $20 per class
Towels: $1 per person
On the class/revenue side, let’s make the following assumptions:
Classes per week: 20
People per class: 20
First, you want to calculate your monthly costs assuming these factors:
Monthly costs = Fixed costs/month + Instructor fees/month + Front desk fees/month + Towels per month
($5,000) + ($50/class * 20 classes/week * 4 weeks) + ($20/class * 20 classes/week * 4 weeks) + ($1/towel * 20 classes/week * 20 people/class * 50% utilization * 4 weeks)
Total costs per month = $11,400
Next calculate the volume you will drive with your utilization and class assumptions = Classes/week * People/class * Utilization * 4 weeks
20 * 20 * 50% * 4
Total volume per month = 800
To get breakeven you need to divide costs per month by volume to see what the price per head would need to be: $11,400/800 = $14.25.
So to breakeven you need your average class rate to be ~$14.25.
Then, if you want a margin of ~40%, it needs to be $14.25 * 1.4 = $19.95.
BLENDED RATE: PRICING CHANNELS AND PROMOTIONAL STRATEGY
Now you know what you want to charge for a class, but don’t forget that in the current fitness marketplace, there is often more than one rate you’re taking in for any given class. Maybe you offer a first-time special for new clients, or monthly unlimited packages that incorporate a discount on the individual class price. Your customers may come through ClassPass or from other third party platforms such as Groupon or Gilt. This is why, when thinking about class pricing, it’s important to consider your blended rate, which is the average of all these different rates (your drop-in, plus your other packages or discounts). What percentage of your business pays a different price for your service, and how does this contribute to your overall ability to cover your variable and fixed costs? Even with these discounted opportunities, you need to not just break even, but turn a profit on each of your classes.
Speaking of ClassPass and other third party platforms, consider how you will mix or balance these pricing channels with your own promotional strategy. Determining what the right fit is can be a challenge.
First and foremost, it’s imperative to keep your class purchasing options simple. Too many options to choose from causes decision fatigue amongst your customers. Potential customers should be able to easily understand, digest and remember what your class costs and options are. Most studios have four to five core packages (such as a drop-in, 5- or 10-pack, and monthly unlimited) and then run promotions as well.
The frequency of promotions is another important factor. Will you run a promotion once per month? Once per year? Some studios choose to operate on an ad-hoc basis, running promos only when they need to boost traffic, while others do so on a more set schedule, like having a Black Friday special every year. The cadence of promotions will inform the percent of traffic on discounted rates, so you should take that into consideration when setting them up.
Also consider whether you want to offer a monthly unlimited option. These are attractive ways to build community and ensure recurring revenue. There are risks associated with them, however, especially in regards to the aforementioned breakage: depending on how often your clients actually use the unlimited option, you may win or lose in terms of revenue. Oftentimes the outcome of this is linked to genre. Cycling classes, for example, tend to not have monthly memberships because people are more likely to actually go every day. There are also high variable costs for each seat because of the number of people needed to operate the studio. On the other hand, yoga or barre studios tend to have memberships because of the community factor and because they have fewer variable costs, given they don’t need a huge staff to service the studio for every class.
Again assuming that you want your average class cost to be $19.95, figure out the typical composition of your class and what rate they are paying to then determine what your drop-in rate should be. For example, if you think 20% of your members will be on promos at any given time, 50% on monthly unlimited, 10% on packages and 20% on drop-ins, you need to make sure the blended average of those numbers does not fall below $19.95. This usually means that your drop-in or packages need to be higher than this rate, depending on how much you plan to run promotions or utilize a monthly unlimited option. See the example below:
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It may be difficult to determine before opening what exact percentage of your business will be coming through on what plans, so you should play around with different pricing and percentages until you get ranges you are comfortable with. $15 for a monthly unlimited class may not be bad if only 20% of your business comes from it. However, if 50% of your business comes from unlimited, you may not achieve your ~$19.95 target.
Doing the math about what your classes should cost takes time and careful evaluation of your projected expenses and the marketplace. You’ll need to forecast what you might not be able to predict just yet. That said, it’s important to determine your price and stick to it. Don’t change pricing every few months to match up with competitors or attract customers you don’t have yet. And if you do decide to change your price, either up or down, evaluate the consequences based on your assumptions. Do you have a monopoly on the market? Are your users loyal and willing to pay more, or are they more likely to explore other studios and perhaps leave if you were to increase the price? Can you still cover your costs with a reduced class rate? Calculate the impact on your overall revenue and margins depending on your potential increase or decrease in utilization. There are of course other revenue streams in a business, from merchandise, teacher training, workshops, etc., but classes are typically your bread and butter, which is why it’s important to be thoughtful about your pricing and packaging and make safe assumptions on your utilization and costs. At the end of the day, this is how you’ll make money and be able to continue building on the business you created.