Use these “key performance indicators” to get the financial details on how your dance studio business is doing—and where you could make improvements.
Your dance studio may be a hub of activity, with students in and out to classes all week. But does this mean it’s doing well financially? Or that you won’t face problems in the future? Unless you know your numbers—specifically, the key performance indicators, or KPIs, for your dance studio —you can’t know the answers. (The KPIs that each type of business tracks may differ; see also: “8 Numbers That Tell You How Well Your Dance Retail Business Is Really Doing.”) Track these numbers, and you’ll truly understand the health of your dance studio business—and be able to identify and fix any budding problems with your studio’s finances.
Is the total number of students enrolled at your studio sufficient for you to be profitable? And is that student count growing? You should be tracking it on a monthly basis and comparing it year over year (e.g., how many students are enrolled this January versus last January).
Also track the number of returning students versus new ones. Dance students, particularly young ones, who may have fickle interests and changing schedules, might only stay for a year or less. Attrition rates for dance studios typically run from 20 to 40 percent each year, industry studies show. Keeping tabs on returning students gives you an idea of your retention rate from one year to the next. Having this information may prompt you to direct more marketing dollars toward recruiting new students or revising your plan for the type of classes you schedule.
You’re working hard, but are you making money? Despite having dollars come in the door, the only way to know for sure is to maintain a profit and loss (P&L) statement. Also referred to as an income statement, a statement of operations and a statement of profit, your P&L statement measures profitability by comparing your revenue with expenses during a set period of time.
On your P&L statement, list your income (revenue) and your expenses.
Revenue: This includes tuition and any other revenues your studio generates, such as selling leotards or running a birthday-party program.
Expenses: Typically, operating expenses are broken down into categories, such as:
- Employees’ salaries, benefits and payroll taxes
- Professional fees (your accountant, for example)
- Rent and utilities
(Nonoperating expenses, such as interest on loans and taxes, are separated from operating expenses.)
Businesses typically generate a monthly P&L statement, but you can do so quarterly or annually. The important point is to continually analyze the information from your P&L statement to see whether class tuition needs to be increased and/or expenses need to be cut. There are different analysis approaches. A horizontal analysis lets you compare profitability over time (e.g., from month to month or year over year). A vertical analysis enables you to compare expenses to revenue (e.g., what are you spending on advertising or rent, as compared with your revenue).
You also use the P&L information to compute your operating profit margin by dividing your gross profit from operations (the difference between your income and expenses) by your revenue and multiplying the results by 100 to arrive at a percentage.
Rafael Savino and Valentina Bagala, owners of Ascendance Studio in Doral, FL, have two P&Ls, one for their recreational classes for children in elementary and secondary school and one for their competition classes. There are a couple of reasons for this: The margins are higher for the recreational classes. And the students in the competition classes sign a contract, with income fixed for 9 or 10 months of the year.
As part of your P&L analysis, you may also want to determine your break-even point per class—when the revenue equals your expenses for the class—so you can decide whether you want to continue it or cancel it.
Total up your costs (both direct and indirect costs) and divide the total by the number of classes. If the fees for the class are not at least at breakeven when compared to the expenses allocated for the class, it probably doesn’t pay to continue holding it.
Return on Marketing
Dance studios continually have to be looking for new students. How do you do this? Do you advertise locally? Rely on social media, such as Google Ads or Facebook? Are you dependent on referrals (e.g., bring a friend or sibling or parent to class)? Do you have relationships with local public schools? It’s all about your marketing funnel and tracking the conversion of those efforts into paying students.
You need to track the source of your new students so you know which marketing efforts are paying off. If you spend money on paid advertising but all your new students are coming through referrals, then don’t waste your money.
You also want to figure the conversion rate from an initial response (perhaps a phone call in response to an ad) and attendance at a free class, if you offer one, into a paying student. Knowing your conversion rate enables you to fine-tune your marketing efforts.
Make a System for Tracking Your Numbers
It’s up to you to have a system that will show you the numbers you need to track. Your accounting software can help you generate some of this information, such as your P&L statement. But it’s your responsibility to analyze the numbers.
The Bottom Line
Yes, it’s all about your bottom line—your profit—but the only way to know this is to keep your eye on your numbers. If you can’t do it alone—you don’t have the time or don’t think you fully understand the numbers—reach out to a CPA or other financial advisor. They can help you drill down and understand the true picture of how your studio is doing—and how to make improvements.
Barbara Weltman, an attorney and small-business expert, is the author of J.K. Lasser’s Small Business Taxes 2020: Your Complete Guide to a Better Bottom Line and publisher of Idea of the Day at BigIdeasForSmallBusiness.com.