Space & Light Studios: Cost-Volume-Profit Analysis and the Business of Yoga Custom Case Solution & Analysis

1. Evidence Brief (Case Researcher)

Financial Metrics

• Monthly Rent: $4,500 (Para 4)
• Instructor Pay: $40 per class (Para 5)
• Class Pass Price: $150 for a 10-class card ($15/class) (Para 6)
• Drop-in Rate: $20 per class (Para 6)
• Monthly Unlimited Pass: $120 (Para 6)
• Variable Costs per student (mats/towels/tea): $1.50 (Para 7)
• Current Average Class Size: 12 students (Exhibit 2)

Operational Facts

• Location: Urban retail space, high foot traffic (Para 3)
• Schedule: 30 classes per week; 120 classes per month (Para 5)
• Capacity: 25 students per class (Para 5)
• Staffing: Owner-operated, plus 4 part-time instructors (Para 5)

Stakeholder Positions

• Owner (Sarah): Concerned about cash flow and declining attendance in afternoon slots (Para 8)
• Instructors: Desire higher pay per class (Para 9)

Information Gaps

• Customer Acquisition Cost (CAC) is not explicitly defined.
• Retention rates for monthly pass holders versus drop-ins are missing.
• Marketing spend data is absent.

2. Strategic Analysis (Strategic Analyst)

Core Strategic Question

• How can Space & Light Studios optimize its pricing and scheduling to achieve consistent monthly profitability given high fixed occupancy costs?

Structural Analysis

• Unit Economics: The current average class size of 12 at a blended rate of ~$16 generates $192 revenue against $41.50 variable cost. This contributes $150.50 per class. Total monthly contribution is $18,060, covering the $4,500 rent, but leaving little margin for marketing or owner salary.
• Capacity Utilization: At 12/25 students, the studio operates at 48% capacity. The cost of an empty mat is zero, but the opportunity cost of under-utilized peak hours is high.

Strategic Options

• Option 1: Tiered Peak/Off-Peak Pricing. Increase drop-in rates to $25 during peak hours (6 PM–8 PM) and offer $12 community classes during off-peak (2 PM–4 PM). Trade-off: Potential alienation of price-sensitive regulars vs. higher revenue per mat during high demand.
• Option 2: Membership Pivot. Eliminate drop-ins to focus on $120 monthly subscriptions. Trade-off: Predictable cash flow but limits spontaneous new customer acquisition.
• Option 3: Studio Space Sub-Leasing. Rent the space to independent practitioners (e.g., massage therapists, private tutors) during off-peak hours. Trade-off: Operational complexity vs. guaranteed fixed income.

Preliminary Recommendation

Implement Option 1 combined with a modest increase in the 10-class card price to $170. This captures surplus from peak users while filling empty mats during lulls.

3. Implementation Roadmap (Implementation Specialist)

Critical Path

• Week 1: Conduct survey of current members to gauge price sensitivity.
• Week 2: Update booking software for tiered pricing.
• Week 3: Announce pricing changes to existing members with a 30-day grandfather period.
• Week 4: Launch targeted ad campaign for off-peak community classes.

Key Constraints

• Instructor Buy-in: If instructors feel off-peak classes are devalued, they may exit.
• Retention: Price increases often trigger churn. The 30-day notice is vital to maintain trust.

Risk-Adjusted Implementation

Build a 15% buffer into revenue projections to account for potential attrition. If churn exceeds 10% in Month 1, pause the 10-class card price hike and revert to current pricing for existing members only.

4. Executive Review and BLUF (Executive Critic)

BLUF

The studio is currently a lifestyle business, not a scalable enterprise. Fixed costs are high relative to revenue throughput. Increasing prices without increasing volume is a defensive move that will fail if retention drops. The studio must treat the 2 PM–4 PM slots not as yoga time, but as a sub-leasing opportunity. The primary problem is not pricing; it is the under-utilization of a high-rent physical asset. Stop trying to fill classes that have no demand; convert the space to a hybrid model where the studio serves as a co-working space or therapy clinic during daylight hours. This creates a secondary revenue stream that carries zero additional instructor cost.

Dangerous Assumption

The assumption that yoga students will fill the 2 PM slots if the price is lowered. The constraint is likely customer availability (work schedules), not price.

Unaddressed Risks

• Instructor Attrition: The current pay model is unsustainable. If you raise prices, instructors will demand a share of the increase.
• Market Satiation: The case fails to analyze local competition. If a competitor offers a lower price, the studio has no moat.

Unconsidered Alternative

Relocation. If the $4,500 rent cannot be covered by 48% utilization, the current location is structurally misaligned with the business model. Moving to a lower-rent district or a smaller footprint may be the only path to genuine profitability.

Verdict: APPROVED FOR LEADERSHIP REVIEW