How much to sell a small business dance studio for

There are many ways to value a business; three of the most common are--
* based on the value of assets, both tangible (e.g. equipment) and intangible (accounts receivable, intellectual property like trademarks; 
* based on future projected revenue stream, such as if the business has long-term contract; or 
* based on profit (not revenue: the profit after costs, including payroll, are taken out), in which the sale price is a multiplier of the profit.
The last is the method you were recommended and is a particularly common one. For example, I worked in the publishing industry for many years, for a company which bought other publishing companies, and they always calculated the price by applying a multiplier to the profit. 
Manufacturing businesses, where you have physical things to sell, generally go for around 8 times proft. Professional services businesses, like law firms, often go for around 2 times, because if you lose the people (the current owners or employees) providing the services leave, much of the value leaves with them. For a dance studio, something in the range of 2 - 6 times, broadly speaking, seems appropriate.
But all the above said, all that really matters is that you and the buyer agree on a price you are both happy with. If they are willing to pay it and you are willling to accept it, that's the right price.