Remember when your high school math teacher told you that you’d need to understand algebra to get by later on in life? You probably scoffed, as many kids do. But we’re here again to go over more calculations that are essential to your dance studio’s success. Hang up your dance shoes and break out the calculator, and get ready for part two of our “Crunching the Numbers” series.
Any small business has to do a fair bit of marketing, and your studio is likely no exception. The fliers you print, the ads you run and the referral program you promote are all ways that you market your dance school in hopes of drumming up new business. But how are you supposed to know if your marketing efforts are working? That’s where metrics for marketing for dance studios come in. Read on to learn how you can calculate marketing return on investment, customer acquisition costs and more.
Marketing Return on Investment
First up is return on investment, commonly referred to as ROI. The concept is simple: You need to figure out how much business you’re gaining in relation to what you’re spending on marketing. For this calculation, you’re going to need your gross profit. You can refer back to part one of this series if you need a refresher on how to find this number.
To find marketing ROI, subtract your marketing investment – how much you spent on marketing services – from your gross profit. Then, you divide the answer by the marketing investment. So if your gross profit is $5,000 and you spent $1,000 on marketing, ROI would be $5,000 minus $1,000, then divided by $1,000. This gives you a marketing ROI of $4 – that means for every $1 you spent on marketing efforts, you got $4 worth of business.
This calculation is essential when you’re evaluating your marketing strategy season over season. It’s always good to try new campaigns – whether it’s direct mail, sale sites or something else – but you should evaluate the worth of a strategy after a given season. If your marketing ROI dips, chances are your new marketing efforts aren’t paying off.
Customer Acquisition Cost
Another important marketing metric is the customer acquisition cost, also called CAC. This is essentially how much money you have to spend on marketing in order to get one new student. The calculation is a simple one.
To find your CAC, set a defined time period. A good measure might be over the course of one dance season. Take the total amount you spent on marketing and divide it by the number of new students you acquired. So if you spent $1,000 on marketing and 20 new students signed up, your CAC is $50.
This metric by itself just tells you that you need to spend $50 to get one new student in the door. However, you can use CAC to calculate other more revealing numbers that will help you adjust your marketing and prices.
Time to Pay Back CAC
One way to use CAC to your advantage is to calculate how long it takes you to make back the money spent on acquiring each customer. You can calculate this in terms of seasons or months, whichever works for you.
To calculate time to pay back CAC, start buy subtracting your seasonal cost per student from the revenue per student. Divide your CAC by this number for time to pay back. So working off the example above, if you earn $500 per student per season and spend $300 per student, you’ll need to divide $50 by $200. This leaves you with an answer of 0.25, meaning you break even on a student’s acquisition cost after 1/4 of a season. Easy right?