Republish from Mindful Studio Magazine, by Sarvesh Naagari.
In corporate finance, there is a measure that shows how well a company is utilizing its assets. It’s a simple calculation called ROA, which stands for Return on Assets. It’s calculated by taking net income by the average assets that a company has.
For a yoga studio, this may be tricky, especially if the building is not owned. The real assets of a yoga studio are its teachings and teachers. However, there are ways that we can measure the utilization of the space that we rent similar to a return on assets. For most leased studios, the space itself has a utilization rate that can be calculated by the total amount of class time divided by the total hours that the space is available for space utilization.
For example, if a studio has four 1-hour classes per day and has 16 hours available for class time (6:00 a.m. to 10:00 p.m., we exclude overnight), then the space has a 25 percent utilization rate. We could also take net income for any given month and divide that by the cost of the space for a return on the asset itself, the asset being the space.
These measurements provide us two key components, the first of which is the overall utilization of the space available and then the utilization of the space when used. Tracking this month over month provides key insight into the business. Maybe if the utilization rate is low, we add classes and then find that the utilization increases, but profitability doesn’t. Maybe the utilization is high, but the profitability is low, and we need to cut out some classes. Maybe we consider adding ancillary services such as massage, reiki or other fitness classes to increase utilization and profitability.
There are many levers to pull to increase the success of our studios, but independent of the levers that we pull, we should understand the effects on the success or failure of the business as we make the decisions. This is why it is always recommended that we measure our businesses.