Margin & Pricing Audit

All right guys, we're going to go through the pricing and margin audit today. So I've made a couple of example spreadsheets, and you're going to have a template in the school community that you can use for your own margin calculator. So I'm just going to share my screen, and we're going to go through an example of what this would look like. So I've got a, like, a business coaching offer, and then I've also got one for, like, a tradie. Now, if you're not in these businesses, just let me know, I can make one for your specific business because I know some businesses have different, you know, different types of overheads, different types of costs, etc. So I wanna make sure I can serve, you know, everyone that comes through our program. But if you need to, you can always, like down here, you can always add a new row, etc., and add stuff into it. It's the formulas are still gonna work if you are a little bit tech savvy. But if you're not tech savvy, then just let me know and I can do it on your behalf. So let me explain what we're gonna do here. So a lot of people that we work with, they actually have really low margins. So what we wanna do, we wanna Firstly, determine what the actual margin is for the business right now and how, how all your expenses affect your overall bottom line profit. And then we're also gonna work out how much it costs to get a customer or to get a client. And then we're gonna work out how much your margin is per service, because a lot of you guys will have different types of services, and what your margin is per client as well. And then what we're gonna do at the end, we're gonna work out if you were to increase your price, how many cost, how many percentage of customers do you think you'd lose? And then the number of people that you can lose if you were to increase your price by XYZ amount. Because one of the best decisions I ever made was to increase my price and work with better types of clients. And I'm sure you guys are the same. If you worked with, if you were making the same amount of money, or a little bit more money and working with less clients, I guarantee you guys you'd be a lot happier because more clients means more headaches. Okay, so let's get into it. So I'm gonna go through some examples in here, and then I'll give you guys like a random example of what it could look like as well. So this one's $70K monthly revenue, coach's wages are $6,500 a month, VA and support $600, course platform and hosting fees are $500, and then merchant platform fees $2,100. So total cost to deliver the service per month is $9,700. Okay, so gross profit is about 86% margin, which is awesome. Now, because this is an online business, there's no rent. The sales closer and the setup wages about $8K a month, software is about $1,500, and then the ad spend is $28K a month. Now, this is just an example. Of course, you can change these figures if you want, you know, etc., etc. You can see it changes it. Contractors, $4,500 a month. So total overheads is $42K, which means you've got about— out of $60K, you've got about— what's that— about $18K left. Now you also want to put in your pay as well. So in this example, I'm just going to go $10K. So $10K. So you've got a margin of about 11.9%. So not too bad. But ideally we want to get to upwards of around 30% margin, especially if you're like an online business. Okay, online businesses got it way too good sometimes. Okay, then what are you gonna do? This is gonna tell you, tell us your net margin. So in here I've actually got a little bit of a, I suppose, like an indication of where you're at. So it's not too bad, but there's obviously room to improve. So obviously if you're paying yourself $20K a month, you're losing money. So you need to fix that first. Okay, new customers. So we put in here you got $28K a month on ads and let's say it costs you, like you get 12 new clients a month, which means your cost per acquire a client is $2,333. I put it here, the average lifetime value of a client is $5,702 as an example. Again, you can change this, So you want to get at least 3x of contract value, not cash collected, but contract value. Okay, so this is a really good summary of, uh, where you'd be at. Okay, so let's keep going. Let's go by service. So I've just done an example here already. So we got one-on-one coaching group program, and then we've got a self-paced course. So this is $3K, this is $997 per month. So $3K per month, $997 per month, and $1,500 as a standalone. How much we sell of each, how many hours we require for the team, the cost per hour, so it works out the labor cost, and then other random costs that are associated with servicing this client. And then we've got the margin. So one thing to note here You, you saw here it cost us $2,333. One thing to consider here, if this is a $1,500 product standalone, we're actually losing money on this offer. So a lot of you guys— not, sorry, not a lot of you guys, but some people that we work with, they end up trying to scale something that's actually not really making them any money. Prime example, this is not making money. The only reason why you would keep selling the standalone course is to mitigate ad spend, or if people upgrade to the group program or the one-on-one coaching. Okay, so if it's like an extension program, like an ascension program where they start on the course and they upgrade to these ones long term, then that would still work. But something to consider, you guys need to obviously understand the business. So how many people you sell each month, how many hours per month the team works on these client accounts, and then how much it costs per hour. So this is 4 hours at $155, so it costs $600, 55 times 0.8, and then you got obviously no cost for the self-paced one. So that is what's happening at the moment. So we've gone by service. Now we're gonna go via or by client. Afternoon, Scott, or morning to you, mates. Hope you're doing well. I'm just halfway through an example on the margin calculator. I'm just gonna finish this example off, and then I'll go through another example. So you've got it from start to finish, and then we'll go through any questions from from there. But we're trying to basically work out the margins on your business and which types of services you ideally should be growing, which ones you should be kind of getting rid of. So if you have any questions, drop them in the chat as we, as we go. Now we're gonna work out the per client. So in this example, a one-on-one client, which is like the standard one-on-one client, and then heavy support. So you've got $3K, $3K per month. Group member, the typical one is $997 and then $997. How many hours per month is required, the cost per hour. So obviously the one-on-one's a lot, a lot more than the group, how much it costs to service them, and then obviously the margin per service. So obviously based on this margin here, the group offer is the one that gives you the most amount of margin. So it would make more sense to sell more of the group rather than one-on-one. One-on-one is still good for sure. You still get 80% profit margin, but the group gives you the biggest amount of margin. So you can still offer both services, but maybe you offer more the group than the one-on-one. And then we're gonna work on the price modeler. So this is basically gonna tell us how much more money we would make if we were to increase that price by a set percentage. And then how much, how many clients you think you would lose, and then the actual total number that you could lose to make more money. So Scott, basically what we're trying to figure out here is what would happen to the business numbers-wise if you were to increase your price. At the start, we went through your actual margin, which we'll go through in another example in a second. So as an example, like these numbers, you can obviously change. So I got 10%. I were to increase my price by 10% and I'd lose 5% of my clients, I would actually make an extra $43,000 in profit each year based on the numbers that I put in the slide here. So a lot of people are actually pretty scared to increase their price because, you know, they might lose a couple of clients, which that might happen. But if you wanna make the same amount of money, you could lose 10% of your clients and still make the exact same amount of money. It works it out for you. So I'm gonna do another example in a second as well. And then, Scott, if you wanna do a specific one for you, then we can do that as well. 'Cause I've got a few different examples here. So that is like an online coaching business as an example. We're gonna go through like a trades version 1. So a little bit more complicated in terms of expenses and overheads, usually a little bit less margin as well, but I'm going to go through it with you. So revenue does about $100K per month. Wages for the trades and apprentices are $27K and materials are $28K per month. Vehicles and running costs $4K, subbies are $4K, which means the total cost to deliver the service is $65K. So your gross margin is So when you're going through this data here, and Scott, at the end I'll send you through the template so you can do this for your business. The ones in yellow are the ones you want to fill in. Don't touch the ones in white because they're the ones that have got formulas in there. Overheads. So the yard or the rent or the utilities that you got, $3K a month. Office admin, $5K a month. Job management software, $500. Marketing is $3,500, insurance, et cetera. So your total is just under $20K. So not including your personal wage, you've got $34K minus $20K, so you're at $14K a month in profit without your wage included. So we're gonna put your wage in there. Let's say you're making $10K a month. So your net margin is only 4.8%. So pretty small as a trade. So we're gonna go through it in a second. what difference would it make if you were to increase the pricing based on these figures here. Now down the bottom here, how much it costs to actually win a customer. So if you're spending $3.5K on ads and you got 35 new jobs or new deals per month, it's gonna cost you $100 to get the client. That's probably a little bit unrealistic. Let's just say you get 20. So it costs you $175 to acquire a customer. And let's say the average spend per customer is $800. So your return on investment is 4.6x. Every time you put in a dollar, you get $4.60 back. Every time you put in $100, you get $460, etc., etc. Now let's go through the service. So this is super interesting. Again, this is just an example, but I just wanna prove the point of you need to go through this with the types of offers that you guys do. So for you, Scott, you might consider in-person coaching versus online coaching. as your 2 offers. So I can guarantee you, you're gonna make more money from online coaching because obviously you don't have to really hire anyone apart from like the person doing the programming. So emergency callout, maintenance contract per month, just extend that, bathroom renovation and small service call. So this is your pricing, $350, $2.5K, $15K, $180K. How many you're selling per month, this is just an example. How many hours it takes per month, cost per hour, how much the labor costs, and then other random costs that are associated with these job types. You can see there's a clear loser here. The small service call, which costs $180, that you're doing 50 per month, is only a 20% margin. So you either need to make a decision here. You either need to cut that service altogether. Or you increase the price. Okay, this is the whole point of this exercise, that some things that you guys are offering are just not worth your time. Yeah, then we're gonna do per client. The per client is pretty good margin, but you can see the service is pretty, pretty average with the margin. So again, customer type, the revenue per month, hours per month, cost per hour, that works out the cost to deliver the service, and then your margin. So you can see in here the repeat residential customer and the builder referral for renovation are the 2 types of clients that give you the biggest margin. So wouldn't it make sense to just focus on those types of customers? Okay, prime example with live example with me and you, Scott, with PT Mastery. The types of clients that we got, the margin is a lot more with the leveraged CEO business because they're, they're higher level clients, which means there's not as many issues with funds. So higher margin, whereas people working with PTs that are starting out, they don't have a whole lot of money, so there's more chance they're going to default on their payments. Lower margin. Exactly the same process as what I've done in my business. Now let's go through the price, um, model here. So let's just do a small increase, just do 10% to start with. If you were to just increase by 10% and you could lose 5% of your clients— well, not even that, you probably lose maybe 3% of your clients, you would make an extra $104,000 per year, and you could afford to lose up to 22.5% of your clients to make the same amount of money. So I asked this question at the start, Scott, but let us know in the chat, would you be happy to make the same amount of money, if not more, but work with less people? I made a little joke at the start that working with more people isn't necessarily the best option because there's more headaches, more things to do when there's more, more people. Yeah. Okay. So that's 2 live examples. I am gonna attach a couple of documents which explain it a little bit more in more detail. But I've got a blank template here that that we can go through together. And Scott, you're the only one on the call right now. Do you want me to go through this with you together, or do you want to go straight into Q&A? Let us know.

We can, we can go through it together if you want.

Okay. I'm just going to Make a copy of this. This will be a good example to go through. Now, I'm not sure if you're gonna know all these stats right now, but let's just guess, and you can obviously always update it later. Monthly revenue, $25,000.

Yeah, yeah, roughly enough. Yeah.

Okay. How much, how much does your team cost per month?

Well, I haven't yet done a monthly one for the VA, so nothing at the moment.

How much would she cost though per month?

Maybe To say $250.

Cool. How much does your, what's it called? How much does EverFit cost?

It's $1,400 a year, and I just pay it 12 monthly. So $110 a month.

Cool. I'm just gonna make up the platform fees. This will be like Do you actually have like fees for the direct debits?

No, it just comes off the backend, but I'd pay for like Canva Pro, Claude.

Yeah, that's gonna go under your software and stuff.

Oh yeah, right.

Yeah. But this is more like, like if you use Stripe, for example, there's like a 1% fee. I just wasn't sure if you Yeah, I don't pay it.

It just comes off the back end.

Okay. I'm just gonna leave those now. So obviously because you've got a, just obviously got the VA, you've got obviously a huge margin, which is obviously epic. So just tell me roughly off the top of your head, how much would you pay for your software and subscriptions overall, like Claude, Canva Pro, et cetera, et cetera, per month, roughly?

So all those I pay yearly as well.

Roughly, give us a rough estimate. Even I'll tell you, I'll work out per month.

Yeah. Okay. I think Canva is like $180 or $140 a year. Claude, I can't even remember how much Claude was. What else?

Claude's about $400 a year. I'm pretty sure if you're on the pro.

Yeah, zero.

That's about zero.

Wasn't much. That's about it, to be honest.

Okay. I'm gonna say $1,000. Oh, that's $1,000 total. So it'd be about $120 a year. Oh, sorry, $120 a month.

Yeah.

You don't spend anything on ads at the moment?

No, not at the moment.

Sweet. Any other overheads that you've got? Insurances?

Insurances and stuff. Yeah, probably maybe $150 a month. That'd work out to— rent is— rent's $500 a fortnight— a month, sorry.

Oops. Okay. Any other overheads? Was that your business? Jesus Christ.

No, not really.

Do you pay yourself a certain amount each month or each week?

$2,500 a week. Yeah.

So basically $10K a month. Okay. So let me just explain these numbers. You're doing $25K a month. It's costing you just $360 a month to deliver your service at the moment. Obviously, you could probably forecast what it would look like if you had a trainer as well, by the way. This would be a good tool for you to use when you decide what it would look like with a trainer or multiple trainers.

Yep.

So your net margin's 55%, which is awesome. So how many new clients do you get per month? On average?

On average, we'll say, oh, we'll say 5.

Cool. And what's the average spend in total? I'm not sure if you know this, but for example, if your average spend is $100 a week and if they stay with you for 12 weeks, that's $1,200. So would you happen to know roughly your average spend?

Yeah, we'll say my average, well, my average spend is about $200. And probably about 6 months. So, okay.

That'll be 26 weeks. So $5,200. Boom. How good. Now the reason why this is saying it's broken is because it says it costs you $0 to get clients. This is based as if you're spending money on ads. So if we really wanted to, we could just do $1. $26,000 return on investment, which is pretty decent. Okay, so now what we're gonna do, we're gonna go by service. We're gonna do face-to-face. So for those watching the recording, this is for a personal training business. So face-to-face sessions, what's the price per month? Of your face-to-face sessions? Let's just assume you're doing like 2 sessions a week.

Yeah. So the most popular one is the 2 sessions a week, and that is 2—

oh God, 20.

Yeah.

Oops. 220. It's about 80. Now I'm just gonna assume you do 4 of those and 1 online just for this example. How much is online per week?

Uh, $55.

Cool. So that's $220 a month. How many hours, uh, each month does your VA spend on face-to-face clients versus online clients?

Probably more so on the online, but I mean, it's kind of, they're kind of both the same, you know what I mean? It's programming, it's check-ins, it's all that sort of stuff for everyone, no matter if they're online or face-to-face clients. So they kind of both get the same care in that respect.

Okay. What would it be like, maybe like Half an hour a week.

Are we talking for, for 5 clients? How long would it take?

Each client?

Each client. Okay. Each client each week is probably 30 to 45 minutes.

Okay. It's probably 0.6. How much does she cost per hour?

$5.

Boom. So good. I believe there's no other associated costs with this service outside of what we've already discussed. So obviously for this huge, obviously margin because obviously it's just a VA, of course. But what you might wanna consider looking at is How much of the margin would be— is it if you were to have a trainer doing sessions for you?

Yeah, for sure.

Is it better for you just to sell online and just build up like Filipinos and do it that way? Because obviously an Australian trainer is, you know, $50 an hour. It's 10 times more to get a face-to-face trainer than a virtual one. So something to consider for you. Yeah.

And honestly, like, she would, she would be happy to do like full-time hours for me as an online trainer as well. So, yeah.

So yeah, decisions to make for you. Like, you could probably just do both, to be honest.

Yeah, that's what I— that's the plan. Yeah.

Yeah. And then you go by client. Like, we don't have to go through all this because Obviously the, the service is pretty much the same, but for your case, you would do like face-to-face 1 session, you would do face-to-face 2 sessions, face-to-face 3, and then online only. Be basically the same thing. So revenue per month, if we did just for the example, $880, $220, 0.6. Oops, be per month to be— sorry about that— 3 hours. So just working out your monthly margin. Yeah. And how much is one session a week?

$130. $520.

$520. And how much is 3?

So $1,060.

Close. 11:20.

11:20.

And so one session. Yes, this literally all be the same because they're all online, or for your example, it's all online. Cool. And then if we work out, like, obviously you've got a pretty good margin already, obviously. So for you, like, you might just play around with these numbers. Like, if you were to increase by 5%, and let's say you maybe lost 1% of your clients, you'd make an extra $11K profit per year, an extra $1K per month, which is by 5% increase. But yeah, you can obviously play around with the figures on what it would look like. But the whole point of this is to give you options about what you could do, and you can make decisions based off the data rather than based off emotion.

Yeah, I see.

So I'll share this with you because that's literally almost done. You can just play around with it to see what it would look like. If you were to, you know, hire a trainer, because then you can actually forecast what your margin is gonna look like for the business. Any questions on that?

No, it's pretty straightforward. It's good. Awesome.

Alright, I'm gonna stop recording and then we'll get into some Q&A.