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How Much Revenue Do You Really Need?

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Fellow business owners,

If you are anything like me, you started your studio with heart and vision. You loved your chosen trade so much that you just knew you had to make it your livelihood. You knew you wanted to make some money at this thing you love. You wanted to be an entrepreneur and set your own hours, create what you like, work with whomever you chose, and provide a valuable service for the people in your community.

But, of course, this entrepreneurial thing is not just doing what you love and serving those you like. It is hard work. It takes time. It takes resources. It takes a lot! And now, as you work to lift up your business through the pandemic, it’s important that you love what you’re doing and make a profit.

As a business coach and “recovering accountant” turned dance studio owner, I’ve come to understand the necessity of being an owner with heart and passion … and a mind for business. I’ve learned there are three things you need to dive into to understand how much revenue your business requires: Your revenue streams, the expenses you incur, and the intersection of the two. The importance of this work cannot be understated, especially as your business moves into recovery.

Understanding Revenue By Classification

As an entrepreneur, you are probably great at launching new things because of your drive and passion. When you create a new class type, a new session, or a new program, you probably get re-energized. But after a time, you start to realize that all those “new” things you created are actually getting splintered attention from you, your staff, and those you serve because you have lost focus on what is truly producing the revenue.

So, what do you do about it? You pull apart your big picture revenue and break it down by classification to really take a look at what is coming in. For me, in my dance studios, my core service is recreational dance classes for ages 2 to 18, but I also have nine specialty teams, three productions, recitals, ancillary preschool programs, and high school pom programs as well. Each of these offerings produces revenue, but unless I look at each of those individually, I don’t know what is actually bringing in revenue. Looking at the classifications of your revenue can be an eye-opening process.

What Does it Cost?

Expenses to produce revenue are just as important to analyze when thinking about how you are doing in business. When was the last time you really picked apart your expenses? Try evaluating them in three tiers:

Tier 1: Expenses that are absolutely necessary for operations (mortgage/rent, utilities, direct staff wage, costs of goods sold, etc.)

Tier 2: Expenses that are helpful to have for operations (some software, office supplies, marketing, etc.)

Tier 3: Expenses that make things much nicer, but are a luxury (some software, meals and entertainment, travel, etc.)

Once you see these tiers, you may realize that you could trim some of your expenses to help your business grow stronger. It is easy for us as entrepreneurs to throw money at problems and buy what we want instead of what we need, and in good times, that might work. But we really notice the effect of overspending in harder times. Reduce expenses to gain revenue strength in your business.

Better than the Market

At the end of the day, you should be looking for a net income or “bottom line” of at least  8-9% of your revenue, preferably more. Why?

Well, the stock market historically returns about this much when you invest there and let it sit while you do nothing but wait and watch. So all of your hard work, passion, and love for your business should be generating at least as much as the market! 

The more you understand the relationship between your revenue and expenses, the better you will get at producing a great return from the most successful revenue streams inside your business. In this COVID recovery period, don’t allow yourself to hang on to parts of your business that don’t produce financially. Focus on what can make your business stronger, allowing you to fuel the passion that made you an entrepreneur.

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