It can be easy to get caught up in throwing money at this or that…
Y’all know I preach on the importance of knowing your numbers, including all your KPIs, or key performance indicators. These are metrics that give you a lot of insight into your business; insights into what’s going right or wrong, and what to do moving forward. And there’s two of these KPIs that I think a lot of massage therapists don’t calculate, but they’re really important; your profit per session and your cost per session. Let’s dig in.
You need to know how much you’re making, but a lot of people don’t calculate much beyond revenue and maybe profit or income as a whole. But knowing what you’re making per massage and what you’re paying out in expenses per massage, comes in pretty handy.
You see, this can help you determine if you need to raise your rates, see more clients, push upgrades and add-ons, or maybe even know that you can see fewer clients and still make plenty. And if you haven’t even started your business yet, this is how you determine your pricing; you have to know what you’ll be spending per massage, and what you want to make after that…that’s what gives you your price per massage. And quite honestly, it also plays to a psychological component as a business owner; how much is your time actually worth? What do you feel is a good profit for you to make for each one of those sessions you do in a day?
So let’s look real quick at how you calculate this and what it means…
So for these examples, we’ll say that you charge $75 per massage, and perform 80 massages per month. That’s $6,000 in revenue each month. And let’s say you have $2,000 in expenses. With me so far?
Alright, so your Cost Per Session is calculated by taking your total expenses and dividing it by your total service count. So your expenses are $2,000, divided by your service count of 80 and that gives you a cost per session of $25. So for each massage you perform, $25 of what the client pays you is going directly to your overhead expenses.
Then your Profit Per Session would be what’s left over. So that’s $75 minus $25 and that means you’re making $50 per massage in profit. For simplicity, if you have varying service prices, you would work your larger numbers…your net profit and divide it by that total service count. So revenue minus expenses equals your net profit. In our example, that’s $6,000 minus $2,000, that leaves you $4,000 in net profit. With me? Then divide that by your total service count of 80, and that gives you the same $50 of profit per session on average. Working with those larger totals is going to be much more accurate at the overall reality of these when you have varying service times and prices. And you can see how things change from month to month when expenses go up or down, revenue goes up or down, client numbers change, and things like that. This also allows you to make better decisions when it comes to raising your prices.
Let’s say your expenses are going up 10%, do you only raise your prices by 10% to accommodate? Probably not. If you’re raising your prices, you want to factor in how much more profit per session you want or need to make. But knowing these numbers if your first step. So get run some reports from your booking software or pull out your calendar and bookkeeping sheets, and do some quick math to determine what your cost per session is and what your profit per session is.
Because if you don’t already track these, it’s time to start. These are super important KPIs to know and it’s just two of the many KPIs that you can track using our business planner if you’re a pen and paper person like me. You can preorder your 2022 Business Planner right now or go ahead and get the print-yourself version RIGHT HERE.