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Module 1: Foundation & Numbers
The Real Problem
Revenue is exciting. Costs are not. But growth without cost awareness is just busy work that burns cash. Many center owners discover — often too late — that their most popular program is actually their least profitable because they never accounted for instructor pay ratios, equipment depreciation, and the true cost of facility space per class hour.
Today's Objective
Categorize every expense from the past 12 months as fixed or variable, then calculate your true cost per class hour so you can make data-driven decisions about pricing and scheduling.
The Fixed vs. Variable Audit
Pull your profit and loss statement — or your bank records and credit card statements — for the past 12 months. Categorize every expense:
Fixed Costs (These happen whether you have 1 student or 500)
| Expense Category | Monthly Amount | Annual Total | Notes |
|---|---|---|---|
| Rent or Mortgage | $ | $ | Including CAM charges |
| Insurance (Liability, Property) | $ | $ | |
| Software Subscriptions | $ | $ | Class management, billing, email |
| Utilities (Base) | $ | $ | Electricity, water, gas, internet |
| Equipment Loans / Leases | $ | $ | Mats, bars, sound systems |
| Licenses and Permits | $ | $ | Business license, health permits |
| Accounting / Legal | $ | $ | Bookkeeping, tax prep, legal retainer |
| Marketing (Base) | $ | $ | Website hosting, directory listings |
| Owner Salary (if fixed) | $ | $ | What you pay yourself consistently |
| Total Fixed | $ | $ |
Variable Costs (These scale with enrollment and activity)
| Expense Category | Monthly Amount | Annual Total | Notes |
|---|---|---|---|
| Instructor Wages | $ | $ | Hourly pay for all teachers |
| Payroll Taxes & Benefits | $ | $ | 15-20% of wages typically |
| Credit Card Processing | $ | $ | 2.5-3.5% of revenue |
| Merchandise / Equipment Sold | $ | $ | Cost of goods for items you sell |
| Party Supplies | $ | $ | Plates, decorations, favors |
| Cleaning & Janitorial | $ | $ | May scale with usage |
| Repairs & Maintenance | $ | $ | Mats, equipment wear |
| Marketing (Variable) | $ | $ | Ads, promotions, referral rewards |
| Total Variable | $ | $ |
Total Annual Expenses: $
The Magic Ratio: Payroll as Percentage of Revenue
Calculate this immediately:
Instructor Payroll ÷ Total Revenue = %
Industry benchmarks for children's activity centers:
- Below 25%: Excellent. You have room to invest in staff quality or lower prices to gain share.
- 25-35%: Healthy and normal. Most centers fall here.
- 35-45%: Tight. You may be overstaffing or underpricing.
- Above 45%: Critical. Your payroll is eating your profit. Either raise prices, increase class sizes, or reduce instructor hours.
Cost Per Class Hour
This is one of the most important metrics in your business. Calculate it for your top 3 class types:
| Class Type | Instructor Cost/Hour | Facility Cost/Hour | Total Cost/Hour | Avg Students | Cost Per Student |
|---|---|---|---|---|---|
| Parent-Tot (ages 1-3) | $ | $ | $ | $ | |
| Recreational (ages 6-12) | $ | $ | $ | $ | |
| Advanced / Team | $ | $ | $ | $ |
Facility cost per hour = Annual rent ÷ Total facility hours available per year. If you pay $3,000/month in rent and your facility is available 60 hours per week, your facility cost is approximately $12.50 per hour.
The Breakeven Class Size
For each class type, determine the minimum number of students needed to break even:
Breakeven = Total Cost Per Hour ÷ Price Per Student Per Hour
Example: If your recreational gymnastics class costs $45/hour to run and you charge $22 per student per class, you need 2.05 students — essentially 3 students — to break even. Anything above 3 is profit.
The Daily Action Checklist
- Complete the fixed costs table with actual numbers
- Complete the variable costs table with actual numbers
- Calculate payroll as a percentage of revenue
- Calculate cost per class hour for your top 3 class types
- Calculate breakeven class size for each class type
- Identify your 3 highest-cost activities that might need repricing
The Cost Rule
Every dollar you cut from fixed costs drops straight to profit. Every dollar you add to revenue requires some cost to deliver. This is why cost awareness matters as much as revenue growth. A center that controls costs at $300,000 revenue can be more profitable than a center that ignores costs at $500,000 revenue.
Tomorrow
Day 3 uses these cost figures to calculate your breakeven enrollment — the number of active students you need to cover all expenses and start generating real profit.