Page 14 to 20 – How to easily increase profits and improve your cash flow at your equestrian centre

 

SECTION 4 – Cost control and metrics, continued

Riding School Pricing

This can be complex but is important to assess diligently. Instructors are professionals and should be charged as if professional fees.

The cost to the business of providing a riding school lesson will be:

• the instructor cost for an hour
• the cost of a horse for an hour (mixture of variable and fixed costs)
• the cost of preparation and de-preparation of the horse

The  total income to the business will depend on the number of riders in the lesson multiplied by the price per person.

So, take these scenarios based on staff being paid £6 per hour and the instructor being paid £16 per hour. Hourly equine running costs should be included at the rate for your yard.

	Private lesson	Semi-private	Group
Price	40	30	25
Riders	1	2	4
Revenue	40	60	100
Costs
Instructor	-16	-16	-16
Yard staff	-3	-6	-12
Leaders	-3	-6	-12
Profit	21	38	72
£ per minute	0.67	1.00	1.67
Margin	53%	63%	72%

 

In this example we can see that the profit and the margins change.

If we need the margin of private lessons to match those of group lessons we would have to charge £67.00. However, if 53% margin is enough for the business, we know that group lessons will make us bonus profits so we should do as many of those as possible (assuming we have the number of horses available).

With a careful balance of the various types of lesson, private, semi-private, group, led or unled, we can manipulate our margins to deliver the optimal outcome. In this case the overall gross margin for an equal balance of lesson types is Profit £131 / Revenue £200 = 65.5%

Taking our point about staff costs above, if these increased from £6ph in the previous example to £10ph this is the outcome:

	Private lesson	Semi-private	Group
Price	40	30	25
Riders	1	2	4
Revenue	40	60	100
Costs
Instructor	-16	-16	-16
Yard staff	-5	-10	-20
Leaders	-5	-10	-20
Profit	19	34	64
£ per minute	0.67	1.00	1.67
Margin	48%	57%	64%

 

The total revenue per lesson stays the same but the overall profit has fallen from a total of £131 to £117 = 58.5% which is a dramatic reduction.

By working out what happens in each scenario if the owner can increase semi-private lessons to 3 riders and and group lesson to 6 riders we see this happening:

	Private lesson	Semi-private	Group
Price	40	30	25
Riders	1	3	6
Revenue	40	90	150
Costs
Instructor	-16	-16	-16
Yard staff	-5	-15	-30
Leaders	-5	-15	-30
Profit	19	59	104
£ per minute	0.67	1.50	2.50
Margin	48%	66%	69%

Profit has increased to £182 / revenue £280 and our overall margin is 65.0% which is close to the original, without even increasing pricing and including the wage increase. Regardless of the margin, total profit has increased to the highest level of all 3 scenarios. However, by increasing the rider numbers per lesson has value for money, quality and customer experience been diminished?

Clearly the optimum scenario would be keeping staff costs low, increasing pricing and increasing rider numbers. If this is to be achieved, customer service must be 5*, quality of instruction, facilities and horses has to be high and customer acquisition has to be targeted precisely to match the service provided.

The Owner – what are your charging rates?

If the owner is providing the work (which is less desirable to avoid business distraction) the remuneration needs to be at a much higher rate, and at a rate that not only satisfies the owners earning requirements but also compensates the business for owners being unavailable for that period of time i.e. a premium rate.

This is not unreasonable and is the equal to any professional services business such as solicitors, accountants and healthcare – the higher up that professional sits in the organisation the more they charge for fees.

Owners of riding centres should be no different and in fact the owner providing their time increases the customer experience and therefore the ‘value’ they perceive in the owner providing this service. ‘I had a lesson with the owner’, ‘the owner schooled my horse for me’. All perceived as good value for money.

So, start by calculating your minimum salary requirement to cover household bills and annual expenditure. Base those earnings on an average working week – not likely in the equine sector –  but it must be related to the real world. Then work out what you want to earn as a good living. Then add more to account for the opportunity cost to the business for you being unavailable for an hour.

Example:

You need at least £35,000 per annum to live but would like to earn £70,000 per annum. Your opportunity cost to the business must be at least the gross profit forecast of say 60%, so your required rate of earnings for any given hour of your time should be based on £112,000pa earnings.

Equating this to an hourly rate based on a 45hour week, 48 weeks per year = 2160 hours per year.

112000 / 2160 = £52 per hour as a minimum. It would be wise to add at least 10% to this figure to account for the ‘free’ time you will provide to that customer before / after the session which is inevitable. So, your rate is now £57 per hour (plus VAT?) that you should be charging to the customer. If this sounds high, bear in mind that vets earn around £100 per hour, solicitors and accountants around £200 and so on, so suddenly your charging rate looks cheap.

Instructor and staff assessments

Depending on the size of your centre will depend on the number of employees.

As you grow (as a result of working with Equine Business Consultancy) the owner will take on more staff and become less involved with the coal face. These will be a mixture of yard staff and instructors. By the way, moving away from the coalface is a good thing and should be included in your business planning and development strategy.

To ensure the customer experience and value for money aspects are maintained, and indeed improved, these revenue earning staff will need performance assessing in addition to the usual staff reviews.

Drop off rates are common for riding lessons and livery customers moving on to other livery yards all too common and should not be accepted. Remember, the staff are the eyes and ears of the business but also the voice – therefore they are either an asset, or a liability, depending on how effective the staff management is.

Yard Staff
Listening to livery customers can provide good income opportunities such as increased provision of services, extra schooling, lessons and so on. They can contribute to increased revenue opportunities but also have a negative effect. Sloppy tongues, rumours, gossip and hearsay is poor, creates a negative atmosphere and creates yard cliques. Good advice about services that can be provided only where requested is positive, helpful and improves the client experience. But if the customer does not understand the information provided, or it is insufficient information, or the information is incorrect the customer will be unsatisfied, which may lead to quality, standards and value for money perception declining and the customer will start to look elsewhere. So, whilst advice may be helpful, its only helpful if its 100% correct. Training and development of staff is critical in this revenue making area of the business.

Instructing staff
One measure will be their rebook rate and the quality of their lesson plans. But assuming you have a quality booking system and give customers structured feedback the owner can measure the quality of the feedback after every lesson as well as the quality of the tuition.

Structured feedback is so important to customers which includes the paying customer as well as the rider. This is where, the paying customer especially, can assess the value for money they are receiving. Is the rider doing well, what recommendations are made for progression? What recommendation of the right horse for the rider is made? If the customer does not understand this information, or insufficient information given or the wrong direction is recommended for the rider, the customer will be unsatisfied, quality, standards and value for money perception will decline and the customer will start to look elsewhere. But an instructor that is well trained on your customer development opportunities will make positive recommendations such as new courses, riding club, entering competitions etc that will improve your income dramatically and add to the bonding, retention and lifetime value of your customer.

Owners should ensure there is a monitoring, measuring and training provision for all staff regarding service provision and their ability to maximise revenues and profit.

• Understand pricing and especially any extras charges that apply to livery services. As discussed earlier this can 10’s of £000’s to your annual income.
• When raising invoicing or taking payments, be 100% correct. If charging is incorrect, it gives rise to queries which gives a poor perception to the customers and starts to instigate a ‘barter’ process creating potential future issues. Train staff in correct pricing and charging methods.
• Staff must meet the owner’s standards. These standards must always be adhered to, to provide consistency and ensure the measurement processes work. Check your CPD policy is up to date and working for your business.

Riding school rebooking rates

In the ideal scenario customers will rebook and pay in full after every session. Repeat bookings increase customer retention and maintains quality income without the need to remarket to the same customer.

There are many ways of improving retention rates and here are just 5 examples:

• Make sure instructors bring customers back though the office or reception area to capture the opportunity for a rebooking.
• Encourage block bookings where possible.
• Remind customers of booked lessons 48 hours before each session.
• Ensure you have a wide range of pathways for the rider to follow to maximise their lifetime experience with the business.
• Give customers the right to choose the, day, time and instructor they prefer at every opportunity. The instructor will choose the horse!

Correct invoicing

Customers will pay for a quality service, but only if they are invoiced correctly. Invoicing can also take time and can be an operational drag. Set up your business where livery customers pay in advance based on a comprehensive livery agreement. They will pay monthly in advance and the only thing to ‘invoice’ for is extras which can be done monthly in arrears by sending an email, text etc.

Riding school customers should pay for lessons in advance by card payments which you can set up through your bank. They can easily pay over the phone or in the office and although you will pay card fees they will be more thank paid for by prompt payment and getting the cash in your bank account.

All customers can pay by card, phone, cash or even their watch when buying additional items that you will be selling like drinks, snacks, riding equipment etc.

Your monthly extras for livery customers should easily exceed 10% of your livery income and add tens of £000’s of pounds to annual income overnight – as long as you charge for what you do and not ‘give away’ time as a favour.

Profit is what is left over to reinvest in the business after all costs, including your salary, have been paid. Quite simply income less cost = profit

Costs can be split into:

1. Variable costs -these will vary depending for example on how many customers and horses you have on site from time to time. So feed, bedding, farrier, some staff costs etc will go up and down directly related to the number of horses and customers you have.
2. Fixed costs – these will remain constant such as monthly paid staff, power, insurance, business tax, finance costs etc.

Key Performance Indicators (KPI’s ) will tell you how much control you are maintaining over your costs. With variable costs you can monitor these as a percentage of revenue.

So, instructors can be costed per lesson and their percentage of cost to revenue will go down for larger group lessons and up for private lessons.

Casual staff , feed or bedding should be monitored as a percentage of revenue which will tell you if your gross profit (income minus variable costs) will be improving or declining. You can project ahead with your trends and monitor closely if these percentages are increasing or decreasing your gross profit projections.

By splitting your organisation into business units with multiple KPI’s and metrics you can micro-manage your financial historic, present and future forecasts enabling you to budget effectively and efficiently. Up to 30 metrics produced monthly would not be considered too many.

Equine businesses vary greatly from town to town, county to county and region by region. But unless you have a stud or competition yard or racing yard, most local equine businesses will generally run on the same ratios of feed and bedding cost per horse, staff costs.

The more successful businesses have a low percentage of costs to income and that will have been achieved by forensically managing their business at every level.

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