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Don’t Know Your Per-Student Value? Learn How to Calculate It!

Seems like there are numbers that you need to know for everything that involves making your gym better – and they are all important. But one number that you may have never figured out could really help you in making business decisions – especially when you’re trying to figure out if you’re investing the right amounts in the right things to get the returns that you want.

In marketing, it is critical to know how your per-student value! How much is each new student worth once they sign up to take class? How much do they pay you over the entire course of their time with you?

Once you have this information, you can figure out how much you should reasonably invest (in marketing and advertising) to acquire this new student.

Before you start to calculate, you need to know how much it costs you to acquire a new lead that comes in to take a class or inquire about your gym.

This info will allow you to calculate your lead costs:
“X dollars in advertising can generate X number of leads”

And new student registration conversion:
“X% of the leads that call or walk in become new students”

And the new student average lifetime value:
“For every new student I sign up I can expect to make X dollars of revenue over their life as a client”

The scenario you want to make sure never exists is the one where you’re paying more in advertising than you’re capturing in revenue over time. If your calculations reveal this scenario, change they methods you’re using to market and advertise.

Your goal should be to pay for the cost of your leads as quickly as possible. In fact, the best possible scenario is that you have your cost per lead and cost per acquisition low enough that it is paid off with the new student’s first payment to you.

And then – of course – the rest (minus any other costs) is profit!

How Much Am I Worth? It Depends Who’s Asking…..

“What am I worth?” is an interesting question because it largely depends on who’s asking and why. An insurance advisor is considering your future. A headhunter is examining your track record and potential.

But if the IRS is asking, you may need some help with specific expertise determine this answer.

Let me explain by taking a step back.

As pass-through entities, S corporations generally do not pay entity-level tax on their taxable income. Instead, taxable income is allocated among the shareholders who report the items and pay the corresponding tax on their personal income tax returns.

This S corporation flow-through income has long enjoyed an employment tax advantage over that of sole proprietorships, partnerships and LLCs. This advantage states that a shareholder’s undistributed share of S corporation income is not treated as self-employment income. In contrast, earnings attributed to a sole proprietor, general partner or many LLC members are subject to self-employment taxes.

Payroll taxes on employers, employees and the self-employed have increased dramatically over the years. As these employment tax obligations have climbed, the advantage of operating as an S corporation has become greatly magnified. Because S corporation income is not subject to self-employment tax, there is tremendous motivation for shareholder-employees to minimize salary in favor of distributions, which are also not subject to payroll or self-employment tax.

So if the IRS asks what you are worth as an S Corp owner, you need to play by the IRS’s rules and be ready to defend your self-employment income. Those rules are helpful but not definitive. You’ll need to take a look at the IRS guidelines, combine that with the most recent court cases and lastly do LOTS of research and comparison. As with any other wage determination, you should consider all the available information, and make a reasonable determination that is fully supportable.

It may be hard to believe, but most S Corp owners just give up and guess. The problem with guessing is that without backup for your Reasonable Compensation figure, you have no defense when challenged.

The best advice I can give any S Corp owner is this: Don’t procrastinate and pray. If you are just guessing at a reasonable compensation amount then you have no defense if ever challenged.


EXPRESS PAYROLL
has tons of data and salary comparisons from hundreds of businesses just like yours and has the expertise to help you determine the answer to this very important question when the IRS is asking. We can help get you on the right track.

Express Payroll is run and operated by CPA’s and trained accountants that specialize in the GYMNASTICS, DANCE, SWIMMING, KARATE, MUSIC/ARTS type industries, so we can provide the one-on-one attention and support that a small business owner needs and deserves.  We have the best software product on the market and many of our features were custom built for these type of child focused centers.  We are seamlessly integrated with Jackrabbit’s Time Clock and we have several features that enable owners to delegate the responsibility of processing payroll without allowing them to see what people are paid.   Simply your Life!

Learn more about Express Payroll at www.express-payroll.com. Contact Express Payroll for more information at info@express-payroll.com or 877-774-3327.