Few areas of running a martial arts 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 questions such as how much to charge, what your tuition really means to your school, strategies for balancing paid-in-fulls with monthly payments, 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, as though they 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 their area can’t support higher tuition. They say their martial arts experience is worth more than $10,000 to them, but they are afraid to charge $100 per month for the same experience in their town. The common response is, “That’s too much for this area.” What they are really saying is that higher tuition might rub the poor people the wrong way in their community. They are also saying they don’t have the confidence yet in the value of what they’re 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 undercutting them by $10 or so in hopes students will flock 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 on competitors is off target. It’s a mistake to base your tuition on the competition rather than on 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 critical process that has to be driven by 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 in your image control. Set it too low, and your school will attract lower-income students, which may make the school less attractive for 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 the altruistic implied wisdom myth that our 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 is, “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, we should 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 three 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.
Let’s 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 second school earning three times the tuition as the first school? Is it three times better? Is it three times bigger?
The difference is that the second 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 the 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, let’s 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 0.80 = $4,000 per month in tuition.
- School B @ 100 students x $150 per month x 0.80 = $12,000 per month in tuition.
That is an $8,000 per month difference in gross tuition, which equals $96,000 per year!