How to Set Tuition: That’s Too Much For This Area

How to Set Tuition: That’s Too Much For This Area

Few areas of running a school are as confusing and daunting as deciding how much to charge for lessons and then how to collect that tuition. This series of articles will help you get answers to the questions of how much to charge; what your tuition really means to your school; strategies for balancing paid in fulls with monthly; whether or not to use contracts; and other critical topics related to tuition pricing.

That’s Too Much For This Area

At the start of many of my seminars, I ask the audience of owners if they would be willing to sell me their black belt for $50,000. For $50,000 they erase martial arts from their life.

It would be as though never joined a school. Of course, this is an imaginary bet, but no one has ever said, “I would if I could.” Most people laugh and say they would not do it for a million dollars!

These are often the same owners who claim their area can’t support higher tuition. They’ll say the martial arts is worth more than $50,000 to them, but they are afraid to charge $100 per month for the same experience.

The common excuse is that “That’s too much for this area.” The real message is the owner doesn’t have the confidence to ask for fair tuition. There are a lot of excuses owners will give for why they charge so little, but there is not one good reason.

Most of us are brought up poor or middle class and then left to live the rest of our lives with the belief systems of the poor or the middle class. We’re taught that rich people are bad and that money is the root of all evil.

The truth is that “the love of money” is the root of all evil. To be sure,  there are always evil people, just like there are good people. Money is just a tool. You can build with it or use it to destroy.  

We’re also taught never to ask for money or we’ll appear greedy. This is the first reprogramming you’ll need in order to set fair tuition prices. You have to learn “to ask for the check.” Literally. Practice how to ask for a payment.

Typically, that is something like, “Would you like to use cash or a card?” or, “The total is $149. How would you like to handle that?” Say it over and over in your car as you’re driving around. The first few times, you may be nervous, but it won’t be long before it’s natural to you.

Rule One: If you do not value your martial arts school and its benefits for students, then no else will either.

Why Do-It-Yourself Billing is More Expensive

If you could collect $10,000 without using the billing company, but the billing company could collect the same $10,000, no more or less, you might think you have a $1,000 spread. The truth is there are many expenses involved in DIY (Do It Yourself) billing. Your own time, energy, and hard expenses associated with playing bill collector quickly eat up that $1,000 spread. Here are just some of the hard and soft expenses DIY will cost you:

1. The software to track students (including annual upgrades).

2. The mailing expenses for late notices.

3. The time to run cards, send out late notices, call late students, audit payment histories, and so on ($50,000 annual wage = $24 per hour. Double that if you are earning $100,000 per year).

4. The loss of standing with your students when you wear one hat of the wise instructor and another hat of the bill collector.

5. The loss of students. A good billing company will help you retain students by providing improved customer service and by having a stronger contractual relationship with the student.

6. The reduction in actual collections because students are not as concerned about stiffing you versus a large billing company.

7. The reduction in actual collections because you are a green belt at collections, while the billing company is a veteran black belt at getting students to pay.

What does all of this add up to? It varies with the school, of course, but I wouldn’t be surprised if it were pretty close to that 10 percent mark. I give stress a high expense value. The real costs are in numbers three to five from the list above.

Playing accountant is not what you are good at, nor is it how you make your money. You will always make more by managing others than doing things yourself. A teacher nurtures, guides, and counsels students. A bill collector harasses people for money. These two roles do not mesh well. Your image as the nurturing, caring teacher can be ruined in an instant with one phone call or letter from you about missing money.

Finally, you may be a good black belt, but you are not as scary as a financial institution when it comes to deciding whom to pay. This is why big stores have their credit cards handled by outside firms. A good billing company will always collect more than you. They can be tougher than you, and it keeps you positioned in your community as a teacher, not a bill collector.

Even with the Martial Arts Teachers’ Association tuition at just $37 a month, I use a billing company to handle it. I am a teacher by nature, and that is where I want my efforts expended. I focus on writing, editing, content creation, program development, marketing, and member retention. I enjoy all of those tasks. I do not enjoy bill collecting.

You don’t hire a billing company to match your efforts. You hire them to exceed your efforts. This also allows you to focus on your core strength and responsibility as a school owner, which is creating and keeping students.

What It Costs to Get a New Student

Take a moment to write down all of the expense, effort, and energy that goes into attracting and enrolling new students. Here’s a short list of the resources necessary to turn a stranger into a student:

1 Time to create marketing plans

2 Capital to purchase ads, print flyers, etc.

3 Time and stress to execute marketing plans

4 Time, stress, and money to train your front line staff to set and confirm appointments from the inquiries resulting from your marketing efforts

5 Time, stress, and money to train your staff to teach intros to those appointments

6 Time, stress, and money to train your staff to conduct enrollment conferences

7 Time, stress, and money to train your staff to collect the tuition for these new students

8 Payroll for the staff to carry out 4 through 7

Let’s take a look at some real-world numbers.

A funnel represents your marketing efforts. You pour risk capital, time, and stress into the top of the funnel and, hopefully, black belts come out the other end. The better job you do marketing, the wider the top of the funnel. The better job you do handling the front-end process of turning phone calls into good appointments to take an intro and, later turning intros into enrollments, determines how wide the funnel continues to be.

Of course, how well a job you do in terms of teaching, retention, and student service will determine how wide the bottom of the funnel is.

Despite all the money, time, and stress, you don’t actually get paid until the fourth level, and that is only if a student enrolls. You don’t get paid to market. You don’t get paid to take phone calls. You don’t get paid to set appointments or teach intros. You only get paid when a student goes through that process, signs on the dotted line, and hands you a credit card or check.

As a standard of performance, each level should result in 80 percent of the level above it. If you get 10 calls from an ad, you should set eight appointments (80 percent) and have six or seven intros resulting in at least four or five new students. A similar gauge is that you should be enrolling 50 percent of your phone calls.

Tuition Pricing Strategies

Tuition Pricing Strategies

Few areas of running a school are as confusing and daunting as deciding how much to charge for lessons and then how to collect that tuition. This section will help you get answers to the questions of how much to charge; what your tuition really means to your school; strategies for balancing paid in fulls with monthly; whether or not to use contracts; and other critical topics related to tuition pricing.

That’s Too Much For This Area

At the start of many of my seminars, I ask the audience of owners if they would be willing to sell me their black belt for $10,000. For $10,000 they erase martial arts from their life. It would be as though never joined a school. Of course, this is an imaginary bet, but no one has ever said, “I would if I could.”

This is often the same owner who claims his area can’t support a higher tuition. He says his martial arts is worth more than $10,000 to him, but he is afraid to charge $100 per month for the same experience in his town. The common response is, “That’s too much for this area.” What he is really saying higher tuition might rub the poor people the wrong way in his community. He is also saying I don’t have the confidence yet in the value of what I’m doing to ask for that much money.

There are a lot of excuses owners will give for why they charge so little, but there is not one good reason.

Don’t Let Competition Set Your Prices

Most owners set their tuition by finding out what everyone else in town is charging and then under-cutting them by $10 or so in hopes students will stampede to them. However, our observation through the years is that the largest school in town usually has the highest tuition, so the evidence seems to be that undercutting with tuition can actually reduce your response.

Setting tuition based upon competitors is off target. We think it’s a mistake to base your tuition on the competition rather than how you want to position your school in the market. It’s important to know who your customer is and/or who you want it to be. It’s natural to want to have a price that everyone feels is fair and will enroll. That price doesn’t exist.

Certainly, there are situations where the instructor simply is not that good yet or you are teaching out of a community center where pricing is set by others. However, for commercial storefront schools setting tuition is a critically process that has to be driven from an understanding of:

  1. How you want to position your school
  2. The demographics you want to reach
  3. Your expenses on a month-to-month basis
  4. How much you want to make as a school owner

Nowhere in that list is, “What your competitor is charging.”

Choosing Your Market

Step one in the Black Belt Management System is Image Control. Setting your tuition is a factor of your image control. Set it too low and your school will attract lower income students who may make the school less attractive for the more affluent markets.

Next time you are driving, take a look at the cars on the road. Are they all cheap older models or are there some mid-priced and some luxury cars, mini-vans and SUVs too. The Mercedes Benz dealer doesn’t look at the Ford dealer to determine his pricing. He is not selling to the Ford customer. He is selling to a demographic that can and will spend the money required for a Mercedes.

A key point here is that he knows who he is selling to. For the martial artist, this is not, on the surface, as easy to determine your market. Many of us are stuck in that altruistic implied wisdom myth that their mission is to save the community from the dangers of a world without self-confidence, respect and self-defense. This is the owner who doesn’t want to turn anyone away because he wants to help, “everyone.” The truth, “everyone” doesn’t want help and “everyone” will not use the help if it’s offered for free.

If you are basing your success on how well you help your students improve their lives then you are choosing to live a life of tremendous frustration and long-term stress.

“We can’t help the poor by becoming one of them.” Abraham Lincoln

In order for you to be able to help “anyone” your doors have to be open. If you are at another job because your school can’t support your family then your doors are not open. It takes money to keep the doors open. The vast majority of the money will be in tuition.

It makes sense then that if we need money from our students then let’s look at our student market using money as a guide.

If we were to take 100% of the potential market for your school and divide them by income into five categories:

The Top Third – High Income Earners

The Middle Third – Average Income Earners

The Lower Third – Low Income Earners

Our market is in the top two thirds, not the bottom one third. Once our school is stable and we have a strong cash flow, we may be able to extend scholarships and outreach programs to include the lower third, but if we let the lower third drive our tuition pricing, we will always struggle.

Lets’ compare two schools in the same town, each with 100 students. One school charges $50 per month and the other charges $150 per month. They are in the same town. Why is the 2 nd school earning three times the tuition as the first school? Is it three times better? Is it three times bigger? The difference is the 2 nd school determined that it was going to market to the upper two thirds of the market and then built a program to support that goal. While this school may not be three times bigger or better, it is probably three times cleaner. It’s probably three times easier to work with and three times more professional and safe in its presentation. I can assure you owner spends far more than three times on his own professional education and at least two hours a week on his staff’s. If this school created an outreach program for the lower third market, I bet they could help more than three times the number of people than the school charging $50 per month.

Just using rough figures, lets say each school collects 80% of the tuition it is owed each month. Rarely do 100% of our students pay each month.

School A @ 100 students x $50 per month x .75 = $4,000 per month in tuition.

School B @ 100 students x $150 per month x .75 = $12,000 per month in tuition.

That is an $8,000 per month difference in gross tuition, which equals $96,000 per year!

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