What Your Rent Says You Should Be Making

By OSJJ

Open Source Jiu-Jitsu

What Your Rent Says You Should Be Making

Restaurants have known for decades what each line of the P&L should be as a share of revenue. Academies have never had that number. This is the Academy Standard: the one figure that sets your revenue target, the six percentages to hit once you are there, and the rule that keeps you from plateauing after.

Justin Hall / Co-Founder, Open Source Jiu-Jitsu

Walk into any restaurant with its profit and loss statement in hand and a person who has run one can tell you in a minute whether it is healthy. Food cost should be around thirty percent of sales. Labor around thirty. Occupancy under ten. Then the long tail of smaller lines, marketing, utilities, supplies, repairs, insurance, that together take another fifteen or twenty. What is left after all of it is net profit, and in that business it is usually a thin five to ten. Nobody in that industry argues about the framework. They argue about whether the kitchen is at thirty-one or thirty-four, and that argument is useful precisely because everyone agrees what the number should be.

Jiu-Jitsu academies have no equivalent. An owner looks at a P&L and sees rent, coaches, ads, software and a net income line, and has no reference for whether any of those is high, low or about right. Ask ten owners what rent should be as a share of revenue and you will get ten answers, and several of them will be "I have never thought about it that way." That is the gap this article fills. What follows is the Academy Standard: one anchor number, six target percentages, and one rule for what happens after you hit them.

Start with rent

Every line on a P&L moves with revenue except one. Rent is fixed by a lease you signed years ago, and it is the one number that does not care how your month went. That makes it the anchor. Instead of asking what percentage rent is of your revenue, which only tells you where you are, turn it around and ask what revenue your rent demands. The standard says occupancy should be fifteen percent of revenue, so:

Target monthly revenue = total monthly occupancy cost ÷ 0.15

Occupancy means what the lease fixes: base rent, CAM (the shared maintenance charge many commercial leases add on top of rent), and the insurance on the space. Utilities are not in it. They move with the season and the thermostat, which makes them a variable cost, and they are treated as one below. The anchor has to be a number that does not change from month to month, and rent is the only one. That one calculation gives every academy a single number, and the number is the most important thing in this article. It is the revenue at which your lease stops being a problem. Below it, the building is eating a share of every dollar that should have gone to coaches, to marketing, or to you. At it, the building takes its fair share and no more. Everything else in the standard only applies once you are there, and here it is.

Why fifteen and not ten or twenty? Below twelve or thirteen the space is probably too small for the revenue, and the room, not the lease, becomes the ceiling. Above twenty, the data from every comparable industry says the same thing: profit disappears. Fifteen is the line at which a lease is doing its job.

The standard

Once you are at target revenue, this is what each line should be. The dollar column uses a target of twenty-five thousand seven hundred and fifty a month, which is what a space costing about three thousand eight hundred and sixty a month demands, so you can see the shape in money rather than percentages. It is the real target of the client you will meet in a moment.

Labor at forty, and you are in it. This is the line academies lie to themselves about. An owner who teaches twenty-five classes a week and takes nothing for it is not running a thirty percent profit margin; he is running a five percent margin and an unpaid job. The standard prices the owner's teaching hours at whatever it would cost to hire someone else to teach them, and puts that inside the forty. If the number still works, the business works. If it only works because you are free, it is not a business yet. Forty also includes a front desk, which is not a luxury hire for later. It is the first hire, because it is the one that makes growth possible.

Marketing at twenty, and this is the one people argue with. Twenty percent is roughly double what the academies we meet are spending, and it is where the no-cost-of-goods margin goes. The argument for it is simple. Every member you have is leaving eventually, at five or six percent a month if you are running the place well, and the only way the room grows is if the people coming in outnumber the people going out by a wide margin every single month. That costs money, and the academies that treat marketing as something you do until the room feels full are the ones that plateau at a hundred and twenty members and stay there for a decade. Twenty is not a growth-mode number to be cut later. It is the standing number.

Admin and everything else at five. Membership software, bookkeeping, payment processing, and the small odds and ends every business has: licenses, bank fees, dues. Processing alone runs close to three percent of collected revenue, so there is not much room in this line and there should not need to be. If this line is at ten, something is being bought that is not needed.

Variable at five. Utilities, cleaning, mats and supplies, belts, event costs. The things that move month to month. Utilities are the biggest of them and the reason this line is not smaller; budget them on a twelve-month average, not on last month's bill, or summer will look like a crisis every year. Small, and it should stay small. What does not live here is the cost of gis and apparel you sell. That is a true cost of goods, it rises with sign-ups rather than with revenue, and it belongs netted against the retail sales it produced, so retail shows up in income at its gross profit. An academy signing up twenty people a month should not look like it is overspending on supplies.

Profit at fifteen. After the owner has been paid for the hours on the mat. This is the return on owning the business rather than working in it, and at target revenue it is a real number: close to four thousand a month in the example above, on top of the owner's pay inside the labor line. Not spectacular. Stable. The spectacular part comes next.

Where the numbers come from

There is no published dataset for Jiu-Jitsu academies, so the standard is built from three places. First, the businesses that look like us structurally: a lease, a schedule of classes, instructors, members paying monthly, and almost nothing to buy and resell. Group fitness gyms, boutique studios, tutoring franchises, dance and gymnastics schools. Across those, the measured numbers cluster tightly. Staff cost lands between thirty-three and forty percent of revenue wherever it has been measured across thousands of locations. Occupancy lands at fifteen, with twenty as the point past which profit erodes. Operating margins for a healthy location run fifteen to twenty-five percent. Second, the books of academies we work with, which is where the two lines no survey isolates, marketing and the small stuff, were set. Third, the one place our industry differs from every comparable, which matters enough to get its own paragraph.

An academy has no cost of goods. A restaurant hands thirty cents of every dollar to its suppliers before it opens the door. A retail shop hands over fifty. An academy hands over nothing. Those thirty points of margin do not disappear; they go somewhere, and where they go is the whole question. In the academies we see, they go to one of two places: into the owner's pocket as a profit margin that looks great until the room stops growing, or into rent on a space the revenue cannot support yet. The standard sends them somewhere else on purpose.

A client, from the beginning

An owner came to us at six thousand dollars a month in recurring revenue. His rent, with CAM and utilities, was about three thousand eight hundred and sixty. That is sixty-four percent of revenue going to the building. Run the formula and his target is twenty-five thousand seven hundred and fifty a month, more than four times where he started.

That number is uncomfortable, and it is also the first useful thing anyone had told him about his business. Before it, he was looking at a P&L that showed a small profit most months and wondering why he could not pay himself. After it, he knew exactly why: the lease was written for an academy four times his size, and until he grew into it every other number on the page was going to be wrong no matter how well he ran the place. He also knew that cutting costs was not the answer, because there was nothing to cut. The only line that mattered was the one that drives revenue.

Nine months in, his most recent month was nine thousand two hundred and fifty, up about fifty percent, with rent now at forty-two percent. Still far from the target. But he is moving toward a number instead of away from a feeling, and every month the gap is measured. That is what the anchor is for. It does not make the climb shorter. It makes the climb visible.

Mapping your P&L onto the six lines

Your bookkeeper does not use these six categories, and a typical chart of accounts is organized for taxes, not for running the business, so the six lines are not visible in it. The agency that runs your ads may sit under Legal and Professional. Processing fees may be lumped with uniforms under General Business. Coaches may be under Contractors while the front desk is under Wages. And an agency that answers your phone and books your intros as well as running your ads is partly a front desk, whatever its invoice says. The rule is that a dollar goes where what it bought goes, not where the vendor sits. Before you compare anything to the table above, roll your categories up like this:

The appendix at the end of this article is a model P&L at target revenue laid out the way a bookkeeper would produce it, every normal category with a dollar figure, rolled up into the six lines with the percentages beside them. Print it, put it next to your own, and the comparison takes ten minutes. It also shows the same mapping for an academy below target so you can see what that looks like too.

The marketing rule

The twenty percent is not arbitrary, and here is the arithmetic that sits under it. An academy grows when the people joining each month outnumber the people leaving. The people leaving are your churn rate times your member count. The people joining are your marketing spend divided by what it costs you to acquire one member. Put those together and the marketing percentage you need just to stop shrinking is:

Minimum marketing % = monthly churn × cost per new member ÷ monthly revenue per member

Take an academy whose members pay an average of a hundred and seventy-five dollars a month. What it costs to acquire a member varies a lot by market, from around two hundred where an agency is dialed in to four hundred where the competition is dense, so take three hundred as a middle case. At six percent churn that academy needs about ten percent of revenue going to marketing just to hold still. At eight it needs fourteen. At ten it needs seventeen, and at twelve it needs twenty-one. Read that against the twenty percent standard and the picture is clear: at six percent churn, twenty percent of revenue buys real growth, with half the spend going to new members rather than replacements. At ten percent churn the same twenty is nearly all replacement. At twelve it buys a flat room. If your churn is at ten, more marketing is not the fix, and the article you need is the one on churn, not this one.

The rule also explains the plateau so many academies hit. An owner sets a marketing budget in dollars, say two thousand a month, and leaves it there. Revenue grows, so the percentage drifts down: eight percent, then six. Meanwhile the member count has grown, so the number of people leaving each month has grown with it. At some point churn times members crosses the number of people two thousand dollars can bring in, and the room stops growing. The owner concludes the market is saturated. It is not. The budget was fixed and the churn was not. Holding marketing at a percentage instead of a dollar figure makes the budget grow with the room, which is the only way the room keeps growing.

Marketing is reinvestment

The twenty percent line is the one owners push back on, and the pushback usually sounds the same: we tried marketing, we paid an agency for a few months, it did not do much. Ask what the return was and the answer is a shrug, because nobody calculated it. That is the real problem. Not that marketing failed, but that nobody measured whether it did.

The measurement is simple. A member is worth their monthly dues divided by your churn rate. At a hundred and seventy-five a month and six percent churn, that is close to three thousand dollars across the time they stay. If it costs three hundred to bring that member in, every dollar spent returns almost ten. Even at twelve percent churn, which is bad, the member is worth about fifteen hundred and the return is nearly five to one. There are very few places an owner can put a dollar and get five back. When marketing "did not work," what that usually means is that the dollar went out and nobody followed it, so the ten that came back were never credited to it. Run the calculation once on your own numbers and the twenty percent stops looking like an expense.

Underneath the marketing line is a habit, and the habit is the thing to learn: a business that is expected to grow has to be fed. The academies that stay at the same size for ten years are not unlucky. Each one made a decision, usually without noticing, to take everything the business produced out of it, and a business that nothing is put back into stays exactly where it is. Marketing is the largest and most measurable form of putting something back. It is not the only one. The owner's own education, a mentor, a coaching program, a community of other owners. The room itself: mats that are not twelve years old, a lobby a parent is comfortable sitting in for an hour, a bathroom you would use. At target, those come out of the profit line by choice. Past target, the standard gives them a line of their own, which is covered below. Twenty percent to marketing is the floor of a reinvestment habit, not the ceiling of one.

After target

Past the target revenue the standard stops being a set of ceilings and becomes a set of floors, because the lines behave differently from here. Rent does not grow when revenue does. Neither does software or bookkeeping. Labor grows very little, because one more class is not one more salary; it is a few more paid hours a week. Only one line is meant to hold its share, marketing, by rule. The variable line drifts down a little, because utilities do not double when the room does. Every other line shrinks as a percentage. One new line appears, and the profit line collects the rest.

One row in that table is zero at target and five past it, and it is the rule that keeps the last row honest. Past target, five percent of revenue is reinvested in the business or the owner, every month, before anyone looks at the profit number. At forty thousand a month that is two thousand dollars that is already gone from profit when the month closes, so the only decision left is what it buys, never whether it gets spent. The first thing it buys is a reserve: three months of operating expenses in the bank, because an academy at forty thousand a month with that reserve is a different business from one at forty thousand with three weeks of rent. Once the reserve is full, the line goes wherever the owner decides. The owner's education. A mentor. The lobby a parent sits in for an hour. The bathroom. The mats. The habit is the thing, and the habit only holds if the number is written down.

The last row is the point of the whole standard. The owner who reaches target, pays himself at market, holds marketing at twenty, reinvests five and lets the fixed lines fall sees the profit margin more than double between twenty-five and fifty thousand a month, and in dollars it goes from under four thousand a month to about sixteen, with another twenty-five hundred a month going back into the business on top. That is what an academy is capable of, and it is why the lease matters so much at the beginning: every dollar of rent you avoid committing to early is a dollar that lands on these two lines later.

One ceiling is worth naming. At some member count the mat is full, and twenty percent of revenue spent on acquiring members you cannot fit is waste. At that point the answers are price, a second room, or a second location, and each of those is its own conversation. The standard tells you when you have arrived there. It does not tell you what to do next.

What to do with this

Three steps, and the first one takes five minutes.

Find your number. Add up rent, CAM and the insurance on the space and divide by 0.15. That is your target revenue. Write it down somewhere you will see it, or let the calculator below do it.

Find out which side of it you are on. If you are below it, the six percentages do not apply to you yet and you should not try to force them. Your rent will be high as a share because your revenue is low, not because the lease is wrong, unless the target is so far away that it is. Your job is one thing: get to the number, and the line that gets you there is marketing. If you are at or above it, pull the last three months of your P&L, put each line against the standard, and you will see in minutes which one is out of place.

Check marketing against the rule. Whatever your churn is, work out the minimum percentage from the formula above. If your spend is below it, you are shrinking in slow motion whether or not it feels that way yet. If it is above twenty and you are still flat, the problem is not the budget.

Run your number

There is a calculator for this, the Academy Standard Calculator, and it does the whole article in about a minute. It lives at opensourcejiu-jitsu.com/academy-standard-calculator. It asks for two sets of numbers and the second set is optional.

What the lease fixes. Base rent, CAM if your lease charges it separately, and the insurance on the space. Monthly figures, straight off the lease and the policy. That is all it needs. From those three it gives you your target revenue, the survivable line at twenty percent, the annual figure, and the full standard in dollars at target, at one and a half times target and at double, with the percentage under every number. If all you do is this, you have the thing the article is about.

Where you are today. Last month's revenue, your active member count, your average dues per member after discounts, your monthly churn, what it costs you to bring in one new member, and how many members your mat can hold. Enter what you have; it works with gaps. With these it tells you how far you are from target in dollars and in members, whether you are above or below it, and it runs the marketing rule: the minimum share of revenue you must spend to hold still at your churn, what a member is worth to you, what each marketing dollar returns, and whether twenty percent of today's revenue buys growth or a treadmill at your current size. It also tells you whether your room can physically hold the members target requires.

How to read it. The big number is the only one that matters until you reach it. If you are below target, ignore the standard table and look at the marketing rule, because the line that gets you to target is marketing and the rule tells you whether your current spend can. If you are at or past target, the standard table is the comparison: pull your last three months of P&L, roll it up with the mapping table above, and lay your lines next to the calculator's. The lines that are off are your work for the quarter.

What it does not do. It does not know your numbers until you type them, it does not save them, and it does not send them anywhere. It also does not know whether your labor line has you in it at market rate. If you teach twenty classes a week and pay yourself nothing, add what it would cost to hire those hours before you compare, or the comparison flatters you.

The two figures to find before you open it are the two that are often not written down anywhere: churn, which is cancellations in the month divided by members at the start of it, and cost per new member, which is three months of marketing spend divided by the members those three months signed. Both are in your membership software and your bank statement. Ten minutes.

Restaurant owners have had their version of this for fifty years, and it is one reason a well-run restaurant is a well-run restaurant anywhere in the country. Academies have been running on feel. This is the number to run on instead.

Appendix. The model P&L

If you want to go further, this is what a healthy academy's profit and loss looks like at target revenue, laid out the way a bookkeeper would produce it and rolled up into the six lines of the Academy Standard. Target revenue is rent divided by 0.15. This example uses a space costing $3,863 a month all in, which sets the target at $25,750. Print it, lay it next to your own P&L, and compare line by line.

Every category above is a normal line on a QuickBooks P&L. Owner teaching hours are the one exception: on your real books that money is probably a draw, or nothing at all. The standard puts it in labor at whatever it would cost to hire the hours, because a profit margin that only exists because the owner is free is not a profit margin.

The same mapping for an academy below target

This is a real client, with the figures rounded. Revenue is his most recent month. The expense lines are his current monthly run rate from the bookkeeper. Rent is the same $3,863 as the model, so the target is the same $25,750. The bookkeeper's categories are on the left, exactly as they appear; the standard line each one belongs to is on the right.

Rolled up into the six lines:

Three things the mapping shows that the original layout does not. Occupancy is forty-four percent of revenue, which says the lease was written for an academy nearly three times this size. The profit margin, twenty-six percent once the owner's own travel and meals are counted as the draw they are, is really an unpaid owner; price his teaching hours and the business loses money every month. And marketing at under seven percent is the only line that can close the gap, which is why it is the one line that should go up before anything else does. None of that can be seen on the left-hand side of the table. All of it can be seen on the right.

Target revenue for this academy: $25,750. Most recent month: $9,250. That number, not the percentages, is the job until it is reached.

Open Minds. Open Mats. Open Source.

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