Outrageous ROI For Your Service Business.
Intelligent spending on digital advertising and content marketing.
A service business has the unique advantage of being able to grow their net profits by an enormous amount, simply by enrolling more clients. Why? Because each new client adds very little, if any, variable costs. You don't have to rely on other businesses to provide the materials and logistics necessary to start or operate a service business. It's important to remember that the person running the show in that moment, is going to be running that same show whether there are three people in attendance or thirty. This is a massive opportunity!
How does it work? Let's look at an example of a high-end startup yoga studio to break it down.
Suzie wants to start her own Yoga studio. She does her research and finds a location best suited to her target demographic, files the articles of organization for the LLC, and secures a small business loan. After paying for the buildout of the space and purchasing class materials, she has $50k left in the bank for living/misc. expenses until her studio begins turning a profit. Suzie has leased an open indoor space that includes plenty of parking and a nice lobby with comfortable seating. She adds cubbies and hooks for customers to place their personal items and a chilled cooler containing eucalyptus-soaked towels for the end of class. She’s organized the back end components of her business (billing, scheduling, etc.), and is ready for her grand opening.
I’ll pause our story for a moment to address something before we continue.
Yes, I know I'm leaving out all the other nuances and effort involved in starting a service business. Rest assured, Suzie's story is presented here as a contextual framework for describing the process of scaling a service business. For now, assume that Suzie has dotted every “i” and crossed every “t” essential to opening a successful yoga studio.
Moving forward, Suzie preps friends, family, and the rest of her local network that she's open for business! Working hard over the next nine months, Suzie has a schedule where she offers three classes per day (morning, midday, and evening), six days a week, and is averaging seven to eight people per class. She settles on a business model where clients enroll at a rate of $150 per month and are eligible to attend up to three classes per week. Suzie has two instructors working for her and they alternate days teaching the midday classes. In total her instructors are scheduled to teach three classes per week and she's agreed to pay them $40 per class.
Although there are a wide variety of models for monetizing a service business, I think this one provides enough context, for someone unfamiliar with how a service business works, to be able to follow the ideas that I'll discuss in the sections to come.
Back to our story. Averaging seven to eight clients per class, each attending three times per week, we can determine that Suzie has approximately 45 clients. To illustrate, I've broken down her 45 clients into groups that come in for classes on set days as follows:
- Monday, Wednesday, and Friday morning (8)
- Tuesday, Thursday, and Saturday morning (7)
- Monday, Wednesday, and Friday midday (5)
- Tuesday, Thursday, and Saturday midday (10)
- Monday, Wednesday, and Friday evening (6)
- Tuesday, Thursday, and Saturday evening (9)
Based on the current number of clients enrolled at her studio, Suzie's total revenue is $6,750 per month. Not a bad start!
Now, we need to figure out her net revenue. To determine Suzie's net revenue we deduct the following from her gross; rent ($2,000 per month), utilities ($450 per month), and payroll (3 classes x $40 per class = $120 x 2 instructors = $240 x 4 weeks in a month = $960) . She saves on other expenses by doing all the sales, billing, and client communication herself. Suzie's monthly expenses total $3,410 leaving her with a net profit of $3,340. Not bad for nine months in but Suzie knows she can do better.
This is where it gets good and the beauty of a service business begins to shine!
Rather than give up hope or become frustrated trying to learn an entirely new skill set that doesn't interest her, she sets out to find another solution. Suzie is smart and understands the reality in business that "you need to spend money to make money." After doing some research she feels that digital marketing will be the best bang for her buck towards achieving her goals. For this, she needs help, and after narrowing down her list of agencies, settles on one she's confident can deliver results. Suzie is focused on long-term success and is willing to reinvest in the business to create something great, something that lasts. After speaking with Suzie about her goals, challenges, and opportunities, the agency creates a proposal for her to review.
Here's the breakdown:
- $3,000 per month is the agency's fee to take her on as a client. Their services will include:
- Keyword research.
- Audience research.
- Business and brand strategy.
- Content creation and promotion on the appropriate platforms.
- Networking with influencers in her niche, both local and non-local.
- General business consulting to help with operational challenges.
- Perspective on other opportunities to create revenue.
- Paid digital advertising, ad creation, placement, and A-B testing on Google Adwords and Yelp.
- SEO work to improve her site's organic results on Google.
- Social Media profile set-up across multiple platforms.
- E-mail marketing campaign set-up and implementation.
- A paid media budget of $500 per month.
The allocation of the paid media dollars will depend on data from an A-B testing phase (testing advert. variations to see which leads to the best conversions) that will be monitored during the first two months of PPC advertising (Pay Per Click). The agency will track consumer engagement and refine placement of the ads as they start to see the data from the channels where they are placed (optimizing the buy).
What really makes this proposal enticing is the agency's 60-day money back guarantee. If Suzie's unhappy for any reason and decides to terminate her contract with the agency within the first 60 days, she will get the monthly fees back less the paid media spend. She decides to pull the trigger and move forward with the agency.
Over the next 4 months Suzie sees the Following results for her business:
- Increased SERP ranking (Search Engine Results Page, the "organic" results).
- Suzie's website has moved up from the abyss that is everything past page 2 on Google. She's now mostly on page two with some queries even displaying her site on the first page!
- A better understanding of her target audience through deeper connections with her clients on social media.
- Clear direction and a plan of action to grow the business over the next 12 months.
- 10-25 clicks to her site PER DAY, a result of the paid advertising on Google Adwords, Yelp, and the most relevant social media platforms.
- An increase in social media followers, a result of her content marketing.
- Qualified leads coming from a variety of sources including her website, paid promotion on social media, and events with industry influencers.
- And the best part? Suzie has enrolled **32 new clients**
The agency and Suzie have developed a great relationship built on the agency's professionalism, communication, and results. Their work has increased brand awareness of her business in her town plus the surrounding area, and Suzie has seen a significant increase in revenue! She now has 77 active clients!
WhY is this so amazing? Consider that in a service business, once you're able to cover your expenses, each new client costs you very little to add and maintain. Once Suzie's studio is in the black, each new student nets her 80-90% profit yield.
Let's take a closer look.
The total number of clients is now 77 (assume no attrition to keep things simple), each paying a recurring monthly fee of $150, which equates to $11,550 in gross revenue each month. If we deduct her monthly overhead of $3,410 (calculated earlier) and the agency's monthly fee of $3,000, Suzie's net profit is $5,140, a 65% increase after just four months! By hiring the agency Suzie's growth rate doubled from one new client per week to two per week and her yearly profit increased from $40,080 to $61,680. To simplify this in terms of ROI:
How would you feel if every time you gave someone three dollars, they handed you back a five-dollar bill? I'll take that trade six days a week and twice on Sundays!
I hope this next part helps crystallize the potential benefits a service business can experience by hiring a digital marketing agency... The growth does not stop there.
Keep in mind that we're only four months into the marketing campaign, and with a service business the ROI gets progressively better over time! Maybe after eight months you're still handing over three dollars, but now, instead of handing you back five, they hand you back seven. Now we're getting somewhere!
If Suzie continues to work with that agency she can see these results continue until she is at max capacity! What's capacity for a high-end yoga studio? Who knows, 300-400 active clients, maybe more? Suzie could expand the schedule, bring in more instructors, and hire a receptionist to handle scheduling and billing. What is Suzie's gross at capacity? $45,000 - $60,000 per month (300-400 clients paying $150/month) or $540,000 to $720,000 per year! This doesn't even include other revenue opportunities, things like selling towels or mats for class with her brand logo, private lessons, guest seminar events, and more! By reinvesting in her business, Suzie has reached an entirely new playing field.
What's next? Open another location, rinse, repeat, and build a beast of a brand!
There you have it. A simple expression of the value a professional digital marketing agency can provide to a service business. When you reinvest in your service business the right way, you position yourself for long-term success.
Are the gears turning?
I sincerely hope you enjoyed reading this article. If you did, please leave a like and share it with others who enjoy this type of content! Please feel free to leave any questions, comments or thoughts you have in the comments section below. If you'd like to learn more about the process described above and how it can be applied to your service business, check out the True MAS Media website. To get the latest updates, guides, and articles like this one, sign up for our newsletter here.
Co-Founder of True MAS Media