To be a success in the personal training business, it’s not enough for you to be physically fit. Your company needs to be fiscally fit, as well. One of the key indicators of the overall health of your business is its financial status, and it’s important that you monitor your financial progress closely. The only way you can do this is to keep good records. In this chapter, we’ll delve into what you need to know about record-keeping and financial statements, as well as pricing your services and billing clients.
The two primary fee structures you’ll use are hourly and flat-fee contract service agreements. While some trainers use one or the other exclusively, most use a combination. It’s a good idea to offer a variety of service agreements and hourly rate structures, but not so many that your prospective clients are confused. Keep your fee structures simple, but with sufficient options to suit both your clients’ ability to pay and their individual fitness needs.
Finding that perfect rate that isn’t too low or too high is a challenge for most personal trainers. If you’re going to have a successful, profitable company, you can’t price yourself too low. On the other hand, it would be equally unwise to price yourself higher than what your market is willing and able to pay.
Pricing can be tedious and time-consuming, particularly if you don’t have a knack for juggling numbers. Especially in the beginning, don’t rush through this process. You need to consider a number of factors.
Overhead. This includes the various costs involved in operating your business, such as rent/mortgage, payroll, insurance, taxes, advertising, debt service, utilities, professional services such as accountants and attorneys, telephone, office supplies, etc.
Desired income. How much do you want to be able to take out of the business? Depending on your structure, this would be either your salary or the business’s net profit.
Capacity. How much time can you reasonably expect to be working with clients? Another way to think of this is to figure out how many billable hours you’ll have. For example, if you’re working with clients in their homes, your travel time will likely not be billable, so think about how many hours you can realistically expect to be training. You’ll also need to spend time doing administrative tasks; those are not hours you can bill to a client, either.
Calculate your monthly overhead. Some items, such as insurance premiums, may be paid once or twice per year, so you need to prorate those costs and factor them into your figures. Then add on your desired income or profit. Divide that by the number of billable hours you have in a month, and you have an hourly rate baseline. This number can guide what you charge when working by the hour, and serve as the basis when developing contract packages. If this hourly rate is at or under the going rate in your market, you’re in good shape. That will likely be the case if you’re working from your home or only part time and have little overhead.
Flex Time
Though the assumption is that a personal training session is one hour, it doesn’t have to be. You could offer 30-minute sessions; you might also consider a “50-minute hour,” such as counselors and massage therapists generally do.
“There was a school of thought in the ’60s, popularized by Bob Gadja, that said there’s a finite amount of blood in the body and you can’t shunt it into one area when it’s at work in another area, but if you sequence it right you can elevate your heart rate properly to an exertion that creates an amazing workout in a lot less time,” Gunnar Peterson says, and advises new trainers to stay open to all types of fitness education and to read as much as possible.
If the hourly rate you come up with using these calculations is overpriced for your market, you have a few options. You can go back and look for ways to reduce your overhead or your desired income. You can look for possible supplemental income opportunities that will allow you to reduce your hourly rate while still meeting your income requirements. For example, you might consider selling a variety of health and fitness products along with training your clients. If you have a studio, you might be able to sublet or rent out a portion of your space to a related health and fitness service provider who is not in direct competition with you. Or, if you can justify the higher rate and there are enough people in your market who will pay it, market yourself based on specialized services and high quality. Take the approach of the popular cosmetics line that admits to costing more, but says its customers are worth it.
Tyrone Minor believes when people see your service rate is appropriate for the qualifications you’ve earned, then it is better to charge at the high end of that scale, rather than breaking your rate down into a psychologically “discounted” rate to get customers to feel they can afford you. For example, if he offers them one $100 session in which they can get the knowledge they need to quickly accomplish their goals, and he meets with them a few times, it’s actually less expensive for them than a ten-session package at $50 per unit. But for some reason people tend not to understand that.
Barbara Crompton’s yoga class fees encompass three different price points, structured to encourage more frequent attendance in exchange for reduced charges. Pricing varies widely between Canada and Mexico where she offers services, with a drop-in rate and a ten-visit pass offering a 20 percent discount off the drop-in rate. An unlimited usage pass, good for a month, usually also extends an additional 20 percent savings.
aha!
Give yourself a raise. Every year, review your fee structures and, if appropriate, increase what you’re charging. Your clients will understand if you give them sufficient notice.
Bartering for services is a popular means of containing costs. In exchange for training as an apprentice, for example, a technically savvy student may “pay” his or her teacher with website design or photography skills. Or perhaps you can get free hotel accommodations if you bring a dozen or so out-of-town paying guests to the site for a workshop. Jennifer Brilliant, the personal trainer in Brooklyn, bases her fees in large part on how strong the market is and what other trainers are charging. She has steadily increased her fee per session over the years. “The clients I’ve had for a longer time pay less because they started a long time ago,” she says. “The clients I start with now pay a higher rate.”
Lynne Wells, another personal trainer in New York, started out charging the same rate as the staff trainers at the gym she used, but eventually raised her fees. Because she goes to her clients’ homes and offices, she factors travel time into her rates.
Another option is to not charge by the session but rather for a monthly package with a minimum of three months, with clients paying in advance at the first of the month. Or consider offering several tiers of pricing. You can have one for one-on-one training with a long-term commitment. You might also develop several packages designed to target less affluent clients who can’t afford to see you three times per week for several years. Those packages can be designed to help someone get started, make sure they know how to do the exercises correctly, and monitor them periodically to measure their progress and make adjustments as necessary. It’s quite likely that the client who can’t afford $200 per week for a year would still be willing to pay $600 for ten visits over a six-month period.
stat fact
According to the Bureau of Labor Statistics, jobs for fitness workers are expected to increase 8 percent in the decade from 2014–2024, which is as fast as average for other occupations. Jobs will be gained because an increasing number of people are spending time and money on fitness and more businesses are recognizing the benefits of health and fitness programs for their employees.
An important part of your pricing policy is how clients actually pay you. For example, will they pay by the session on an as-you-go basis? Or by the month in advance? Or by the month in arrears?
Certainly, it would be ideal if everyone paid by the month in advance, but Jennifer Brilliant says, “Some people are not comfortable doing that. I have people who pay at the beginning of the month for that month. I have people I invoice at the end of the month, and they pay sometime during the following month.”
Something to keep in mind is that payment in advance on a monthly basis makes it easier to enforce your cancellation policy. You will want to consider how clients pay when setting your fee structure.
Accepting Credit and Debit Cards
The personal trainers we talked with were divided on the issue of accepting debit and credit cards. In general, the small one-person operations did not accept cards, and the owners did not find that to be a problem. Larger operations did accept cards, and owners found it to be an easier way of handling clients on a contract program.
tip
One of the simple tips Peterson gives people is to avoid eating anything that is passed on a tray or that they would eat with their fingers. This advice is especially pertinent to a large part of his client base who, because of their tax bracket status, wind up going to many fancy social functions. This simple rule helps them avoid tons of extra calorie stuffing in the way of the many appetizers, finger foods, and little treats passed on toothpicks that seem so small and harmless. It all adds up.
It’s much easier now to get merchant status than it has been in the past. Today, merchant status providers are competing aggressively for your business. To get a credit card merchant account, start with your own bank. Also check with various professional associations that offer merchant status as a member benefit. Shop around; this is a competitive industry, and it’s worth taking the time to get the best deal.
When you extend credit to someone, you are essentially providing an interest-free loan. You wouldn’t expect someone to lend you money without getting information from you about where you live and work, and your potential ability to repay. It just makes sense that you would want to get this information from someone you are lending money to. Reputable companies and individuals will not object to providing you with credit information. Be sure you have the client’s full name, home and work addresses, telephone numbers, and banking information.
Your credit policy should include a clear collection strategy. Do not ignore overdue bills; the older a bill gets, the less likely it will ever be paid. Be prepared to take action on past-due accounts as soon as they become past due.
tip
Once you’ve established your policies on extending credit, be sure to apply them consistently. Failure to do so will confuse your clients, make them wonder about your professionalism, and leave you open to charges of discrimination.
If you’re extending credit to your clients, you need to establish and follow sound billing procedures. Though most of your clients will be individuals, you may have occasion to bill companies for your services. Coordinate your billing system with their accounts payable procedures. Candidly ask what you can do to ensure prompt payment; that may include confirming the correct billing address and finding out what documentation may be required to help them determine the validity of the invoice. Keep in mind that many large companies pay certain types of invoices on certain days of the month. Find out if your customers do that and schedule your invoices to arrive in time for the next payment cycle.
warning
Mail thieves operate even in the nicest of neighborhoods. If you receive checks in the mail, rent a post office box so you know they’ll be secure.
Most computer bookkeeping software programs include basic invoices. See the sample invoice, Figure 12–1, on page 167. If you design your own invoices and statements, be sure they’re clear and easy to understand. Detail each item and indicate the amount due in bold with the words “Please pay” in front of the total. A confusing invoice may get set aside for clarification, and your payment will be delayed.
Your invoice should also clearly indicate the terms under which you’ve extended credit. Terms include the date the invoice is due, any discount for early payment, and additional charges for late payment. For example, terms of “net 30” means the entire amount is due in 30 days; terms of “2–10, net 30” means that the customer can take a 2 percent discount if the invoice is paid in ten days, but the full amount is due if the invoice is paid in 30 days.
FIGURE 12–1: Sample Invoice
It’s also a good idea to specifically state the date the invoice becomes past due to avoid any possible misunderstanding. If you are going to charge a penalty for late payment, be sure your invoice states that it is a late payment or rebilling fee, not a finance charge.
tip
If you have to raise prices, make sure the price increase is reasonable, give your clients notice, and explain why you’re doing it. You may lose some clients when you increase your prices, but generally the increased revenue will make up for it.
Finally, use your invoice as a marketing tool. Mention any upcoming specials, new services, or other information that may encourage your customers to use more of your services. Add a flier or brochure to the envelope—even though the invoice is going to an existing client, you never know where your brochures will end up.
Keeping good records helps you generate the financial statements that tell you exactly where you stand and what you need to do next. There are a number of excellent computer accounting programs on the market to help you with this task, or you can handle the process manually. You might also want to ask your accountant for assistance getting your system of books set up. The key is to do that from the very beginning, and keep your records current and accurate throughout the life of your company.
The key financial statements you need to understand and use regularly are:
Profit and loss statement. This is also called the P&L or the income statement. It illustrates how much your company is making or losing over a designated period—monthly, quarterly, or annually—by subtracting expenses from revenue to arrive at a net result, which is either a profit or a loss. See the “Sample Income Statement,” Figure 12–2, on page 169 for an idea of what this financial statement looks like for two hypothetical personal training businesses.
Balance sheet. This is a table showing your assets, liabilities, and capital at a specific point. A balance sheet is typically generated monthly, quarterly, or annually when the books are closed.
Cash flow statement. This statement summarizes the operating, investing, and financing activities of your business as they relate to the inflow and outflow of cash. As with the profit and loss statement, a cash flow statement is prepared to reflect a specific accounting period, such as month, quarter, or year.
Successful business owners review these reports regularly, at least monthly, so they always know where they stand and can quickly move to correct minor difficulties before they become major financial problems. Jennifer Brilliant does her bookkeeping weekly and studies her financial statements at the same time. “It’s a discipline I keep up on the weekends after the week is finished, and I can track my financial progress that way,” she says.
FIGURE 12–2: Sample Income Statement
The Taxman Cometh
Businesses are required to pay a wide range of taxes, and there are no exceptions for personal training business owners. Keep good records so you can offset your local, state, and federal income taxes with the expenses of operating your company. If you have employees, you’ll be responsible for payroll taxes. If you operate as a corporation, you’ll have to pay payroll taxes for yourself; as a sole proprietor, you’ll pay self-employment tax. Then there are property taxes, taxes on your equipment and inventory, fees, and taxes to maintain your corporate status, your business license fee (which is really a tax), and other lesser-known taxes. Take the time to review all of your tax liabilities with your accountant.
Revisiting your plans and reassessing your goals every year or two will help you stay clear on where your investments should go. Use the “Strategic Planning Worksheet,” Figure 12–3 on page 171, to figure out where you are now and one year from now. Use it in tandem with your financial projections.
Just about every growing business experiences economic rough spots and requires financing of some type sooner or later. Plan for the costs of growth and watch for signs of developing problems so you can figure out how to best deal with them before they turn into a major crisis.
Asking for money before you need it is especially important if you’re going to be applying for a loan, whether it’s from a private individual or a commercial loan source such as your bank. Most lenders are understandably reluctant to extend credit to a business in trouble. So plan your growth and presell your banker on your financial needs. Such foresight demonstrates that you are an astute business owner on top of every situation. Your chances of obtaining the funding you need will improve significantly.
FIGURE 12–3: Strategic Planning Worksheet