Studio Profit Analysis: The 35/35/30 Gold Standard
A profit analysis sorts every dollar your studio brings in into three buckets: operating expenses, payroll, and profit. The gold standard is 35% expenses, 35% payroll, 30% profit. Most studios that feel "off" are way off that split and have never measured it.
I ran a studio for nine years and now coach studio and service-business owners on their numbers. A profit analysis is the first thing I do with every client, because you can't fix a business you haven't organized. Here's how to run one yourself this week.
The three buckets
Operating expenses (target: ~35% of revenue). Everything the business spends that isn't payroll: rent, utilities, software, insurance, equipment, cleaning, marketing, merchant fees, subscriptions.
Payroll (target: ~35% of revenue). Everyone who works in the business: instructors, front desk, contractors, and you, for the hours you work. If you teach classes or run the studio, those hours count at the rate you'd pay someone else to do them.
Profit (target: ~30% of revenue). What's left after expenses and payroll. This is your return for owning the business, separate from the hours you work in it.
If your studio only shows a profit because you teach thirty hours a week for free, it isn't profitable. It employs you, without pay, and calls the leftovers profit.
How to run the analysis
Pick the period first and stay inside it. Last full calendar year is best because it contains every season your studio has. Year-to-date works once the year is far enough along. A short window over-weights whichever season you're in.
Pull the period's records: sales reports, expense records, and payroll reports, or your P&Ls.
Total your revenue for the period.
Sort every outflow into expenses or payroll. Owner draws are not an expense; set them aside for step 4.
Price your own labor. Multiply the hours you deliver by what you'd pay someone else to do them. Add that to payroll, even if you never actually paid it to yourself.
Do the division. Expenses ÷ revenue. Payroll ÷ revenue. What remains is your profit percent.
Don’t want to build the spreadsheet? Run your three numbers through my free Studio Profit Analysis Calculator. It sorts the buckets, shows your split against the standard, and hands you the gap in dollars. About two minutes.
A worked example
A studio's last full year comes back at $240,000 of revenue:
Expenses: $103,000 (43%)
Payroll, including the owner's W2 salary: $98,000 (41%)
Profit: $39,000 (16%)
At the standard, that year should have run $84,000 / $84,000 / $72,000. Expenses are about $19,000 heavy, payroll about $14,000 heavy, and profit is $33,000 short for the year.
For context: many studios run at zero profit, some negative once the owner's unpaid hours are counted. So 16% is a strong starting place. It is also $33,000 short of the standard. Both are true.
The analysis doesn't fix anything. It tells you the size and location of the gap.
The analysis is a pricing gauge
When expenses come back over 35%, the instinct is to start cutting. But rent doesn't shrink, insurance isn't optional, and canceling subscriptions doesn't move the percentages much. Cutting has a floor.
The percentages are about the revenue your costs sit inside, not the costs themselves. $103,000 of expenses is 43% of a $240,000 studio and 35% of a $295,000 studio. Same costs, different margins. The analysis is a gauge: it tells you how far revenue has to move, by restructuring and adjusting your pricing, for your real costs to become the right percentage of the business.
Expenses over 35% usually means prices are undersized for the space and the business you're running. If there's waste, trim it, but cutting alone won't reach the standard.
Payroll over 35% is usually a pricing problem: prices that never accounted for what delivery costs per hour. Reprice before you touch the schedule.
Profit under 30% isn’t something you can fix directly. Profit is what’s left after expenses and payroll, so a thin profit means revenue is priced too low for all three buckets to fit inside it. The fix lives in pricing, not in the profit line: recurring revenue and pricing built on your real numbers are how the gap closes.
Run that on the example studio. Its costs stay what they are: $103,000 of expenses, $98,000 of payroll. For $103,000 to equal 35% of revenue, revenue has to be about $295,000 ($103,000 ÷ 0.35). So the finding is a number: this studio's pricing needs to produce roughly $55,000 more per year. That is what the gauge is for.
Where your own pay fits
Two numbers, two buckets. Your working pay (the hours you teach and operate the studio) lives in payroll at market rate. Your owner's return lives in profit. Underneath both is the salary your life requires, which I call your Need Number. Run it free; it takes about ten minutes.
What the analysis can't do
It can't tell you which change to make first, how to change prices without losing current clients, or how to rebuild your offers so the profit bucket fills on purpose. That's the work on top of the math.
For a fast read on your numbers, the Pricing Clarity Diagnostic walks your business through the right questions in about ten minutes. $37.
If your split is far from the standard and you want it fixed properly, book a call. No pitch. We'll look at what the analysis found and whether I'm the right person to help.
Common questions
What's a good profit margin for a fitness or wellness studio?
The standard is 30% of revenue, after real expenses and real payroll, including paying yourself market rate for hours worked. Many studios run at zero before this work. Treat 30% as the destination, not the entry requirement. The gap is usually pricing, not effort.
Shouldn't I just cut expenses to fix my margins?
Cutting has a floor. Rent, insurance, and equipment don't shrink on request. The percentages fall when revenue rises on properly priced offers, because the same costs become a smaller share of a bigger number. The analysis is a gauge for the pricing move, not a list of things to cancel.
Is 35/35/30 realistic for a new studio?
It’s more likely if you properly calculate your pricing from the beginning. This sets a strong foundation. What matters most is knowing your actual split so you can watch it move.
I'm the owner and I teach most classes. Where does my pay go?
Split it. The hours you teach and operate go in payroll at the rate you'd pay someone else to do it. Your return as the owner comes out of profit. If the business can't afford both, that's the finding, and it points at pricing or capacity.
How often should I run a profit analysis?
Quarterly to make quick adjustments. Once a year on the full prior year, with a year-to-date check partway through minimum. If cash feels tight, run the YTD version now instead of waiting.
Does 35/35/30 apply to salons and other service businesses?
Yes. The three-bucket sort works for any service business. Commission-based salons count stylist commissions as payroll. Solo practitioners are one person filling both the payroll and profit buckets, so their split reads differently, but the sort still shows where the money goes.
Educational content, not financial or tax advice. Confirm the big moves with your CPA.
