Today for y’all, I’ve got what some might consider a little bit of a hot…
It can be easy to get caught up in throwing money at this or that in hopes it will get you more clients, or overall grow your business and make it better. But do you know if that money is being put to good use or if it’s being wasted? If you’re like most business owners, especially in the early phases of building a business, extra cash isn’t exactly just lying around at your disposal all the time – it’s something you really have to be careful with. Every cent you spend needs to be calculated to determine if it’s worth spending. And even if you’re financially stable, that doesn’t mean you should go around wasting a bunch of money. You’ll obviously have your general overhead (rent, utilities, laundry, supplies, that sort of stuff.), but what about improvements or upgrades? How do you know what’s worth investing in and what’s not?
In order to know what’s worth spending your time and money on, you’ll need to really evaluate any investment….CE classes, marketing work, graphic design, your website, non-CE classes, books, furniture, equipment, enhancements, decorations…anything you use for your business or just professionally speaking, is an investment.
So before you make any investment like those mentioned, you HAVE TO consider the ROI, or Return on Investment. And one great practice that I am a huge proponent of, is looking back; each quarter, each year, or whatever works best for your particular business; but look back regularly at what investments you made, and what your return on them was. If you haven’t kept track of these things so far, definitely start tracking investments now. But also, try to go back and see what you’ve invested in over the last year. Take the time to comb through and see what you spent money on as an investment and write it all out.
So let’s say you took a great Ashiatsu class last year. You paid $1,000 for the class plus $500 for travel and expenses, plus another $500 for a set of bars, $300 on new marketing materials, and $200 on an ad campaign to promote it. You love it, it’s something you’re passionate about, and you’re ready to take on the world with your feet. That’s fantastic! BUT you’ve spent a total of $2500 learning and implementing this new modality – and that doesn’t even count your time! And this is something that so many therapists just don’t even take into financial consideration – but as a business owner and service provider, your time is literally money. Let’s say the class was 50 hours PLUS 10 hours of travel PLUS 10 hours of design and online work to change your marketing materials, add it to your website, run that Facebook ad campaign, and anything else you did to promote it. That’s 70 hours you’ve invested that could have been spent with clients. What would you charge for those 70 hours? Even if only half of those could be considered “billable”, so to speak, if you charge an average of $50 per hour, that’s still $1,750! That means, you’ve spent $2500 straight out of your pocket PLUS that $1750 worth of your time – for a total of $4,250.
That’s a huge investment!
Preferably, before you ever take the class you would be calculating these things. But even looking back you can sit down and figure out what it’s going to take to get a return on that. Maybe you charge $70 an hour specifically for Ashiatsu now – That means those first 60 Ashiatsu massages or so, are simply you getting that money back. Everything after those first 60, would be considered your return on that investment. But how long is it going to take you to get those 60? If you advertise correctly and there’s the market for it, it might not take long at all. If you didn’t take your market into consideration, then you might be in trouble.
So when you’re thinking about taking another CE class, or hiring a graphic designer, building a new website, getting a new table, redecorating your treatment room, or anything else…make a realistic projection of your ROI before you pay a penny. Sit down and run the numbers of what it’s going to cost you, and how much REALISTICALLY you can expect to get as a return on that investment. If you build a new website and it costs you $1,000, but you’ve done the research to see that you should have a huge increase in visitors and a much higher conversion rate, then it will be well worth it. If your research comes up that it won’t make a HUGE difference, can you cut some corners to get it up a little cheaper? Maybe you hire somebody to come up with the design, but you learn how to implement it to cut the cost. If you’re able to look back at these investments that you’ve made, whether that’s time and a small amount of money at a chair massage gig, or a big investment into learning a new modality in a CE class, these are going to help guide you on what investments have worked and paid off, and which have not – giving you a much better idea of where to invest in the future. If that chair massage gig didn’t pan out, then you might not do it again. But if it only cost you 2 hours and $20, then hey, maybe try it one more time, get a better follow-up strategy together, and see if something changes for you.
Now, when we look at calculating our ROI, it’s much better to figure out percentages than just plain old dollar amounts. The reason for this is so that we can get a more accurate depiction of what is really giving us a good return on our investments.
So let’s say that Jane and Jim each made an investment. Jane made a profit of $100 and Jim made a profit of $1500. Looks like Jim did a whole lot better, right?
But wait…What if Jane invested $50 and Jim invested $50,000. Jane had a much better ROI of 200% vs Jim’s 3%. When we look at those percentages it tells the real story of how good our investment was, and how much it really paid off. To calculate that percentage is like calculating any other percentage. Hate to get all mathy with you here, but it’s pretty basic math. Basically speaking, it’s just your profit divided by your investment. For example. If you invested $200 and made $250 total, then you made $50 profit, right? Then you just divide that by the $200, since that was your investment. That gives you .25, and if you remember how to convert to a percentage, you just move the decimal over 2 spaces and wahoo, you’ve got 25%.
Remember, you’re just taking your profit and dividing it by the investment amount. Now why do you care about this? Because this is going to give you a much more accurate depiction of what is really a good investment and what isn’t. If you’re only getting 10% ROI, that’s not all that great. Although you made something, it may not be worth it really. Whereas, if you’re making 100% ROI, you’ve basically doubled your money, right? That’s pretty awesome.
So a real world example here….let’s go back to that investment into learning Ashiatsu. If you invested that $4,250 – when we calculate in your out of pocket costs and your time – but you see 300 Ashiatsu clients over the next year at $70 a piece – that’s $21,000! That’s almost a 390% ROI! That’s fantastic. Even if you just factor in the extra $20 you can charge for Ashiatsu over your regular massage, it’s 40% ROI. That’s not too darn shabby. And that’s just within the first year.
I know financials like this can seem daunting and aren’t everybody’s cup of tea, but if you really want to get serious about your business, increase your income, and ensure you’re profitable in every way possible, calculating your ROI is one of the best steps to take.
If you’re needing some help diving into and understanding your numbers, check out our business classes!