The Lower the Price, the Lower the Expectations

When you read the title of this article – the Lower the Price, the Lower the Expectations – what came to mind? Did you feel that meant that the market would have lower expectations of your school if it was low price? Or did you feel you would not have to meet high expectations if your price was low? For far too many owners, the second description is more accurate.

As your skills as a teacher improve and your system for operating the school becomes more polished and professional, you can begin to raise your standards of performance and your tuition with it.

This is not to say people don’t like a good deal. Everyone does. However, there are certain things you don’t expect to have discounted and, in fact, may not want them if they are. Health care is at the top of that list. Rarely do we say, “Give my kids the cheapest medical exam possible.” Education is much like that. Parents don’t work hard to give their children the cheapest education possible. Your martial arts school is not a gym where club owners compete over $29 membership fees. You want to be compared to the local private schools, not the local gym.

In establishing your tuition, divide your area’s pull potential student base into three levels of income: the lowest third, the middle third, and the highest third of income earners. You want to price your tuition for the middle and highest thirds, not the lowest. It is much easier to manage quality and teach 100 students paying you $150 per month than 300 students paying you $50 per month. The gross is still a projected $15,000 per month, but the amount of work and stress to manage 300 students is much more than just three times what it is for 100.

The top two thirds of income earners are not terribly concerned over $100 or so one way or the other. They are concerned about getting a return on their investment and feeling as though they are valued members of your school. They will also want to train with people in the school who are like them and want to be trained by a staff of professionals.

The Screen Money Provides

To a degree, the high-income earners’ market will want to train at a club that not everyone can afford. This is not out of snobbery as much as the natural screening process that money affords them. This is why people belong to country clubs and private golf courses. I’ve belonged to plenty of each, and usually they are not any nicer than upper-scale public facilities. The difference is that by paying more for what everyone else can have for less, you don’t have to do it with everyone else. The levels of expectation are much higher for the private club, and so is the price.

 

How to Set Your Tuition

In 1974, the tuition at the Florida Karate Academy in Largo, Florida, was a 12-month contract at $25 per month. If you just raised tuition three percent per year from that point, you would have tuition of about $60 per month in 2004. When I opened my school in 1986, my tuition averaged $75 per month. At three percent inflation, this would total $127 per month today. What other service has only increased three percent per year? Not many that I can think of.

While many schools are more in the $60 range, others are north of $200 per month. What is the difference? The most successful martial arts school owners highly value what they do. Tiger Shulmann said this in an interview in my Martial Arts Professional magazine in 2001: “I’ll give you an idea of what I think about the amount of money that we charge for our classes. $1,500 doesn’t scare me at all to charge for martial arts training. I think it’s too little, actually. But we have to stay somewhat within the industry’s standard.”

His implication is that he would charge more, but the industry is holding him back. Tiger clearly values what he does. All the top school owners do. Notice that the first thing he said was he was not scared at all to charge $1,500 for training. Was he also saying other people might be scared to charge that amount? Would you be scared? This is a guy who told me he had more than 20,000 students in over 35 schools at the time. I visited his headquarters and saw the August revenue gross numbers from all the schools on the computer. It was only the third week of what is typically the slowest month of the year, but the lowest gross was in the mid-$30,000s, and the highest was the mid-$90,000s.

Not only was Tiger not scared to charge higher than the competition, the market was not afraid to pay for it either.

Your tuition rate and how it is presented will play a fundamental part in your school’s image. Price is the main factor in a prospect’s decision to join if you make it the main factor. If the most compelling reason for someone to join your school is that you are cheaper than the next guy, you are putting all of your eggs in the wrong basket.

Price is a factor, but not the factor in whether the prospect moves forward to join your school. If a prospect has shopped other schools, then your tuition will naturally be compared to the other schools. That doesn’t mean the lower price wins. It’s just another point of comparison. If the prospect has not shopped other schools, and most do not, your tuition indicates the value you and your current student body place on the training. It also begins to establish in the prospect’s mind what to expect in the school.

How To Raise Tuition

You must charge what you feel the benefits of what you teach is worth. If you feel your benefits are not worth that much, then charge low prices. If however, you feel that you offer a valuable service to your students, then reflect the value of your service in setting the price of your lessons.

Don’t raise the price of lessons on existing students if you can help it. When raising prices, try to avoid the temptation to raise prices on your existing students.
The natural attrition rates of most schools will soon have the balance of the new students at your higher price. Raising the price of lessons on existing students can provide them with the reason they need to drop out.

Communication is the key to price increases. 
If you do need to raise prices on existing students, always explain the reason for your increase. Explain to them that the increase is due to an increase in rent or insurance. Send them a letter and it will fly with ninety five percent of your students.

Simply raise your rates with no explanation and expect to lose scores of students. They will think you just got greedy. Remember, it’s much less expensive to keep an existing student rather than to go and find a new one.

One time you can usually getaway with a price increase across the board is at the beginning of a new year. People almost expect prices to go up in January. Still, handle all price increases with care. You can also give students a chance to renew or cash-out in advance before the new price increase.

Each year, we suggest you have a tuition increase. Here is how you do it.

As with most changes, the best strategy is to make the changes with new students first. So as of January 1st , your tuition raises for all new students. That way the higher paying students will begin to replace the lower paying students.

For your current student body, here is a strategy to raise their tuition. You can tell your students that due to an increase in expenses, tuition will be raised on January 1 st . At that point, just as an example, let’s say the new tuition will be $100 per month. But, since you guys have been loyal to the school your tuition will only increase to $90. This way, it’s almost a relief to them to have it raised only to $90 instead of $100. Again, tell them tuition for new students will go to this level and then find a level in between the current level and the new level to set for current students.

If the current students are at $79 and the new students will be at $99, split the difference with your current students to $89 as a sign of appreciation for their support.

How Much Is Your Tuition Really?

This is a little drill that can make grown black belts cry. Here is an audit you can do to help you understand how much tuition you are really collecting each month per student. 

1. Total Tuition Collected: Take last year’s total tuition collections. This is the sum of paid-in-fulls (PIFs), registration fees (uniform or any other hard costs deducted), and monthly billing received (after deducting refunds and any billing and credit card charges). 

2. Total Student Count: Add all the students you had last year on January 1st to the number of students you enrolled over the next 12 months. If you started the year with 100 students plus you enrolled 10 new students per month (10 x 12 months = 120), you have a grand total of 220 students. Of course, unless you have 100-percent retention, you don’t have 220 students in your school right now, but that’s a different chapter. 

3. Divide last year’s total tuition collected (1) by the total student count (2). This is the annual tuition value of your students 

4. Take that number and divide it by 12. This is the average monthly value of your students. To be more accurate, you would do a month-by-month analysis that removes the dropouts as they stop paying. That would make the average monthly value higher, but this example is designed to be easier to understand and follow. 

Let’s use real numbers. I’ll keep the money high and the expenses low to soften the blow. 

1. Last year you averaged 80 students paying $133 per month in your school. You also have 30 students who cashed out last year or “shorted out” their contract. 

 80 x $133 = $10,640 per month gross. 

 Billing fees, refunds, etc. = approximately 10% in expenses 

 Net monthly billing: $9,576 

 $9,576 x 12 = $114,912 total monthly billing 

 + Total “shorts:” 30 @ average $600 each = $18,000 

 Registration fees: 105 x $199 = $22,885 

 Paid In Fulls for annual: 15 @ $999 each = $14,985 

 = Tuition total: $170,782 

2. Students taking class last year 

 100 students to start with 

 Enrolled 10 per month = 120 

 100 + 120 = 220 students who took classes last year 

3. Last year’s tuition per student per year 

a. $170,782  220 = $776.28 per student per year 

4. Last year’s tuition per student per month 

a. $776.28  12 = $64.69 per student per month 

It’s kind of scary when you realize how much of a hit your tuition takes. Keep in mind these are pretty simple numbers with a too simple formula. The real truth is that often the numbers are worse. Family discounts, cancellations, barters, and students who slipped through the cracks all bring the average tuition per student number down. 

What can we do to pump these numbers up? You may have noticed that we didn’t include any renewals. The reason is simple. Most schools still don’t have a solid renewal plan. The best renewal plan I know of is also the most important to your school’s energy and atmosphere, and that is the Black Belt Club or the Black Sash Club or whatever you want to call a program where the students set black belt as their goal (and you don’t guarantee it). 

1. Let’s take the same example as above, but add in the revenue from renewals. 

 Tuition total from above = $170,782 

 + Renewal registrations: 24 x $299 = $7,176 

 + Renewal PIF: 5 @ $2,999 = $14,995 

 = Tuition total: $192,953 

2. Students taking class last year 

 100 students to start with 

 Enrolled 10 per month = 120 

 100 + 120 = 220 students who took classes last year 

3. Last year’s tuition per student per year 

a. $192,953  220 = $877.05 per student per year 

4. Last year’s tuition per student per month 

a. $73.08 per student per month 

Total difference in net tuition collected = $22,171! Still, the number is far less than the average monthly tuition you are charging. 

Still, if you have been procrastinating about launching a Black Belt Club, I have 22,171 good reasons for you to do it now. Many schools have gone from an agreement-based renewal program to offering the Black Belt Club membership for an annual one-time payment of $500. Regardless of how you charge for Black Belt Club, it will add a significant amount of revenue to your school.

Discounting Past Due Contracts

When I was publishing Martial Arts Professional magazine, we sold advertising to clients who wanted to reach and sell to our readers. Occasionally, an advertiser wanted to cancel the contract. In the publishing world, the process for doing this is called “shorting the contract.” 

In exchange for committing to a set number of ads, the advertiser was given a discount for each ad. Shorting the contract meant that the ads the guy ran would be re-billed at the one-time rate and, if he paid the difference, we would release him from the contract. 

For instance, if he committed to 10 ads at $2,000 each and cancelled after five, he would have paid us $10,000 of a $20,000 contract. However, had he purchased those ads one at time, the cost would have been $2,200 each. So, if he wants out of his contract, he would pay the difference between five ads at $2,000 (what he paid) and the single run price of $2,200. This would be $200 x 5 = $1,000. He would pay the $1,000 to “short out” his contract. It would be a fair deal for both of us. 

You can use this idea in a similar fashion in your martial arts school. Say a student is halfway through a 12-month agreement at $100 per month and stops coming to class and paying. You can offer the student the opportunity to make the agreement good by letting him buy out the balance at a 40-percent discount. 

In this example, he has $600 left, so a 40-percent discount would be $240 off, leaving a new one-time balance of $360. He would be allowed to return to class with all privileges and will also avoid having the billing company breathing down his neck (good motivation). 

You may have to send a portion of that to the billing company (they will usually take it as a credit on your next check), but it’s worth it. You got money that you most likely would not have, and your student is back in class and appreciative that you were willing to help him through a jam.

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