Understand financial strategies that impact your business success
Finances are important, but they’re often not a focus area for those who have chosen wellness coaching as a career. Whether you are working for an organization or running your own business, knowledge of at least some basic financial concepts will be very beneficial to your long term success. Keep in mind the concept of “No Margin – No Mission.” A margin is what you have available after you’ve paid your expenses. It’s what is left over after the requirements are covered. In life, if all our energy is used up getting through the day, we have nothing left to give our family or community. There is no mission because we have no margin left. The same concept holds true in our business. If we spend every penny we earn paying our expenses, there is no opportunity for our business to have the sort of impact we desire. The margin is what creates the opportunity for the mission. Understanding the financial side of the business can help expand that margin.
Here are a few of the key financial areas that will enhance your wellness business. This section is written specifically to those who are running their own business, but the concepts apply just as much to those providing wellness within a larger organization.
- Overhead – These are the costs you face even before you get started. Fortunately, in the wellness coaching world, these are somewhat limited. The only significant overhead cost for most wellness coaches is the cost of earning your CWC certification.
- Fixed Costs – Fixed costs are those items that are fixed on a month to month basis, regardless of how many clients you may have. If you’re leasing space, that would be a fixed cost. Your cell phone may be considered a fixed cost (unless you pay more for additional minutes/data). The more fixed costs you have as a business, the higher your risk because you’re unable to adjust up or down based on the size of your clientele.
- Variable costs – On the other end of the spectrum from fixed costs are variable costs. These are components that go up as your business grows and goes down as your business shrinks. Unless the trade-off is extreme (ie, you pay a lot more to move something from a fixed to a variable cost), your preferred route will be to move as many of your expenses into this category and out of the “fixed” category. Doing so will reduce your risk significantly because you’ll be able to easily ramp up when business is growing and scale back if you go through a dry spell.
- Marginal revenue – Most people make the mistake of focusing on “average” revenue, but understanding marginal revenue is much more valuable for your planning. Average is tied to what you earn on average for each of your clients. However, marginal is what you will earn on the NEXT client who comes on board with you. Marginal takes note that your overhead and fixed costs are built into your base of clients, so the only additional cost going forward would be your variable costs. Understanding and tracking this figure will help you make wise business decisions around your key price points.
- Cash flow – Cash flow is the amount of cash you have available, and mismanaging it can spell the end if you have a small business. A lack of cash flow is usually due to receiving money (accounts receivable) running too far behind outgoing money (accounts payable). Unless you have a means by which to cover that gap (savings or a line of credit), limited cash flow can put you out of business even if you have plenty of clients! Plan for this in advance and stick with your plan.
- Pricing – Two final recommendations in the financial arena will likely be very beneficial to your success. The first is the concept of tiers and the second is the utilization of temporary discounts.
o Tiers are something we recommend to those going through the Catalyst Coaching Institute. With tiered pricing, you develop (usually) 3 different levels of pricing based on what you have to offer. Those tiers can be based on just about anything, ranging from how often you meet with the client to additional services you may offer (ie, massage therapy, personal training, etc) or the development of personalized nutritional or exercise plans. Offering tiers provides your clients with options. As they are looking for more service, you have an option. And by the same token, if they need to cut back, you offer them that alternative without them having to stop altogether.
o Finally, we often recommend that new coaches utilize discounts early in their business rather than setting a lower base price point. For example, if you charge $100/month, you may offer a discount to your first 10 clients of just $50/month for the first 6 months. This strategy is FAR superior to setting your initial price point at $50, as it is almost impossible to then raise it to $100 six months down the road without losing all of your clients. Yes – it clearly involves the exact same figures, but your standard rate provides what’s called an “anchor price” to which they will compare everything else. Set your anchor with great care.