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:
- How you want to position your school
- The demographics you want to reach
- Your expenses on a month-to-month basis
- 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!