By definition a profit center is a part of your business with directly related income and expenses. They are separate stand alone business within your overall business. Profit centers directly add to your bottom line. Evaluating profit centers will help you allocated resources and maximize your overall profit. Profit Centers are the best way to determine which portions of your business are most profitable, areas that need work and possibly areas that operate at a loss.
Most equestrian facilities have several profit centers. Your facility may have some or all of the centers listed below. These would be:
It doesn’t really matter what you call them. Just as long as you and the management of your facility understand what you are referring to. And you can identify the income and expenses related to each of them.
Let’s look at the Profit Center of Lessons: Let’s assume you expect to teach 70 lessons per week in the lesson program. You have 10 lesson horses that are dedicated to the lesson program. You should be able to determine if you are making money through your lesson program very easily.
Projected income would be calculated multipling 70 times the number of weeks in the month.
70 X 4= 280
280 total lessons for the month times the amount you charge per lesson
280 X 65 = 18,200
$18,200 is your projected gross income for the month from lessons.
Then you can figure out you cost involved in the lesson program by multiplying the cost per horse times the number of horses. If each horse cost an average of $680 per month. (The cost of your lesson program needs to include the depreciation of the tack assigned to the lesson horses. See my blog about calculating the cost of a lesson horse for more information.)
10 horse’s X $680 per month = $6800
These numbers are very simple and yours will vary. But even based on averages you will be able to determine where to focus. According to our example, the lesson program contributes $11,400 per month.
$18,200 – $6800 = $11,400
And each horse contributes $1,140 per month.
You can do the same thing with boarders:
If you charge $850 per month for board and it cost you $600 per month to keep the horse, each boarder contributes $250 to your bottom line. Of course, if you require all boarders to take 1 lesson per week at $65 per lesson, each boarder would then contribute $510 per month to your bottom line. Requiring 2 lessons per week would bounce that up to $770 per month.
These are simplified examples of using profit centers to help you manage your business. Using profit centers will help you accurately identify the areas of your business that are most profitable.
For more help with Profit Center analysis or growing your business email me at Molly@ordinarydressagerider.com. Or schedule an initial consultation at the link below.