Tweet
I thought this was a great article and thought I would share:
Setting Your Prices, Part 1
by Mike Massie
One of the most common questions I receive from instructors, and the one that seems to cause most new instructors to have sleepless nights is, "How much should I charge?”
This seemingly harmless question somehow ends up becoming an area of confusion and frustration for new instructors and seasoned studio owners alike. Mostly, the reasons for this boil down to the following reasons:
Many instructors place too little value on what they have to offer
And even those instructors who feel they are charging too little are often afraid to charge more, due to the possibility of losing current and future students to their competition
In Part One of this article, I'll deal with both of these issues in turn. Then in Part Two I'll give you a couple of approaches you can use to determine your tuition rates. Finally, in Part Three I'll talk about other considerations, such as scholarships and discounts.
Reality Dictates That You Should Value What You Offer
I am going to be honest with you and tell you that I used to feel like instructors shouldn’t charge “too much” for lessons. The thing is, that was back when I was operating from a limited perspective on how much it costs to run a full-time studio.
I changed my tune within the first few months of running a full-time location. After having to pay my rent, utilities, and insurance for a few months, I soon became a realist about how much I needed to charge to pay my bills and still make a decent income that I could comfortably live on.
I raised my rates soon after, and I’ve never regretted it.
Now, I realize that some of you may not have high overhead costs, and that’s great. My bills weren’t that high either, since I had started with almost nothing and had to start my studio on a shoestring budget. But even if you have zero overhead costs, there are other, very good reasons for charging adequately for your services.
Why Raising Your Rates Will Attract More Students
One reason is something that psychologists call social influence. Psychology professor Dr. Robert Cialdini of Arizona State University has done a great deal of research into what influences people to make certain buying decisions. One of the more interesting things he has discovered is that people have a tendency to believe that “expensive = good.”
Cialdini relates the story of Chivas Regal scotch whiskey as an illustration of this principle. At first, the manufacturers of Chivas were having a hard time selling their product, so they decided to price their product much higher than the competition. The brand became a great success shortly thereafter and sales went through the roof.
How do you explain this? Simple. Value is based on perception. Chivas already had a quality product, but by pricing it lower consumers subconsciously perceived it to be of lesser value. By raising their prices they eliminated that perception and also gave the message to consumers that they did indeed make a quality product.
So, when you price your services at the bottom of the market, you are giving consumers the impression that your services are lower in quality. And, whether you believe it or not the fact is you are driving potential students away by under-pricing your services.
Setting Prices, Part 2
Pricing Strategy #1: Applying the Law of Supply and Demand
You should be aware that when a service is not a commodity (easily copied and mass-produced), it is naturally in higher demand and worth more. Our services are unique because very few people make it to black belt and even fewer decide to teach.
Anyone who has taken Economics 101 knows the law of supply and demand, which tells us that scarcity creates demand, and demand drives prices up. So when your services are in demand, you needn’t be afraid to charge more.
If you are the only martial arts school in your area, charge appropriately according to what the market will bear. But how do you determine this?
First, by looking at the cost of other comparable services, like golf and flight lessons for adults, and gymnastics and ballet lessons for children.
Be sure to compare apples to apples when making this comparison! Break the cost down to hourly rates, and take into account whether the classes offer group or private instruction.
Second, by examining the income level of your area. At the time of this writing (May 2005) I believe that $99 per month is the absolute lowest tuition you should charge for two group classes per week.
However, if you are located in an area where the average household income is higher than the national average ($42,000 in 2002) you should raise your rates accordingly.
Visit http://factfinder.census.gov to get economic statistics for your area.
Pricing Strategy #2: Applying a Premium Pricing Strategy
So, what if you’re in an area where there are a ton of martial arts studios? Should you get into a price war with your competition?
Not on your life - or the life of your studio, for that matter! Competing on price is a foolish way to do business. For one, go back to Dr. Cialdini’s research. If “expensive = good”, then “cheap = bad” in the eyes of the consumer.
For an example of this, just look at Hyundai. When they first entered the market, they competed solely on price, offering cheap but mostly low-quality cars.
But for years now, they’ve been improving their quality and offering one of the best warranties in the business. Yet, consumers still perceive Hyundai to be a cheap and unreliable product.
Don’t end up being the “Hyundai” of martial arts schools in your area. Instead, price your rates a minimum of 10% higher than your competitors, and make certain that you can justify this by offering a good quality service.
Pricing Strategy #3: Reverse Engineering
Figure out how much money you want to take home each month, minimum in order to live comfortably. Be reasonable – if you decide $60,000 a year take home is your goal, you need to make a profit of $72,000 a year, or $6,000 a month.
If your monthly overhead costs are $4,000 per month total, and you charge $100 per month tuition, then you’ll hit your mark at 100 students. (I’d try to maintain between 105 and 110, just to account for seasonal fluctuations and attrition.)
By the way, just by increasing your tuition 30% and keeping your overhead costs constant at $4,000 per month, you’d increase your profits by nearly 45% to $9,000 per month or $108,000 per year.
(That’s why I harp on keeping overhead costs down, and maximizing your profit margins. There’s just no reason why you should be paying for more than 1,500 square feet of space or more than 1 or 2 part-time employees with only 110 students.)
How to Collect More Tuition Per Month Per Student
Even if you don't want to raise your base tuition across the board by 30%, there are plenty of other ways to earn more tuition per student. For instance, holding an added-profit event each month (like a special training seminar) that costs around $30 per student (only a percentage will attend, but even if only 30% of 110 students attend, you'll make an additional $1,000 for a few hours work.)
Also, you can charge more for premium membership levels. I know a lot of people don't like the "black belt club" and "master's club" concepts, but no one says you have to call it that.
How about having a "Gold level" and a "Platinum level" membership, and holding a few extra classes a week just for those students? You can charge 25% to 50% more per month for this added service. Or, you could have a basic membership that gets you two classes per week, and charge 10% more per month for each additional class per week that your students want to attend.
------
To wrap things up, pricing your tuition is really not all that difficult a task. The main thing you should remember is that your time and expertise are worth a lot more to your students than you may think. Price your services accordingly, and you will increase your profit and improve the financial stability of your studio.
Setting Your Prices, Part 3
Scholarships
If you’re like me, you started teaching in order to help people, not to become the Donald Trump or Bill Gates of the martial arts industry. Because of this, even after I got some common sense on the realities of what I needed to charge to feed my family and keep my school open, I still wanted to be able to reach under-privileged kids and lower-income adults with my services.
There are a couple of ways to do this. The first one is to offer a “scholarship” program in your studio. Basically, you set some criteria for what you will charge students based on income. You might choose to have a sliding scale, or to just offer reduced rates for people in financial need.
The important thing to remember is that you still aren’t giving your services away for free. You have to charge something to your scholarship students, otherwise they won’t appreciate or value what you are doing. It also allows them to feel that they are contributing to your studio.
Second, you have to make the student earn the scholarship. That means good or improving grades in school for kids, and work/study for adults. This will weed out the people who are just trying to get over on you, and it just makes good sense.
Family Discounts
The most common type of discount program is a family discount. Be aware that most moms and dads want to have their children in the same activities (cuts down on confusion and drive time). Additionally, once one family member starts training others will often wish to follow suit.
However, for some families having three or more family members in martial arts can be prohibitively expensive. That’s why you should offer a family discount program to make your programs more attractive and to encourage other family members to enroll.
A simple method to do this is to offer “x” percent discount for each additional family member. For example, our family program was 20% for the second family member, 30% for the third, 40% for the fourth, and so on.
Just be reasonable when setting your family rates and remember that any money is better than none at all.
Discounts for Special Groups
In order to attract segments of the market that you may not normally attract, you may want to implement discount for certain groups.
For example, if you live in a college town, you’ll want to offer a student discount of between 10 and 25 percent of your regular rates. College students love this type of discount, and they’ll tell their friends.
Also, an “over-55” discount is always a good idea. You’d be surprised how many retirees are interested in learning martial arts. Most of them have plenty of time on their hands, and some disposable income set aside for recreational activities.
Be aware that for the most part retirees live on a fixed income, so discount programs are generally well received by this market segment.
Corporate Discounts
Corporate discounts are another great way to attract students. Just look around for the major employers in your area, and contact their human resources department with an offer for a corporate discount on your services.
More often than not, such employers will offer to list you in a benefits directory for their employees. This alone can bring in a significant amount of students each year, and may even lead to your teaching an “on-site” program.
In Conclusion
Well, that wraps up our article series on tuition pricing. If you have any questions, feel free to post them as topics on the forums.
Now that you know what to do - get out there and implement, implement, implement!
--
Mike Massie is a long-time instructor of Japanese and Korean martial arts. He resides in Austin, Texas where he runs a studio and teaches full-time. You may reach Mike via our contact page.
Setting Your Prices, Part 1
by Mike Massie
One of the most common questions I receive from instructors, and the one that seems to cause most new instructors to have sleepless nights is, "How much should I charge?”
This seemingly harmless question somehow ends up becoming an area of confusion and frustration for new instructors and seasoned studio owners alike. Mostly, the reasons for this boil down to the following reasons:
Many instructors place too little value on what they have to offer
And even those instructors who feel they are charging too little are often afraid to charge more, due to the possibility of losing current and future students to their competition
In Part One of this article, I'll deal with both of these issues in turn. Then in Part Two I'll give you a couple of approaches you can use to determine your tuition rates. Finally, in Part Three I'll talk about other considerations, such as scholarships and discounts.
Reality Dictates That You Should Value What You Offer
I am going to be honest with you and tell you that I used to feel like instructors shouldn’t charge “too much” for lessons. The thing is, that was back when I was operating from a limited perspective on how much it costs to run a full-time studio.
I changed my tune within the first few months of running a full-time location. After having to pay my rent, utilities, and insurance for a few months, I soon became a realist about how much I needed to charge to pay my bills and still make a decent income that I could comfortably live on.
I raised my rates soon after, and I’ve never regretted it.
Now, I realize that some of you may not have high overhead costs, and that’s great. My bills weren’t that high either, since I had started with almost nothing and had to start my studio on a shoestring budget. But even if you have zero overhead costs, there are other, very good reasons for charging adequately for your services.
Why Raising Your Rates Will Attract More Students
One reason is something that psychologists call social influence. Psychology professor Dr. Robert Cialdini of Arizona State University has done a great deal of research into what influences people to make certain buying decisions. One of the more interesting things he has discovered is that people have a tendency to believe that “expensive = good.”
Cialdini relates the story of Chivas Regal scotch whiskey as an illustration of this principle. At first, the manufacturers of Chivas were having a hard time selling their product, so they decided to price their product much higher than the competition. The brand became a great success shortly thereafter and sales went through the roof.
How do you explain this? Simple. Value is based on perception. Chivas already had a quality product, but by pricing it lower consumers subconsciously perceived it to be of lesser value. By raising their prices they eliminated that perception and also gave the message to consumers that they did indeed make a quality product.
So, when you price your services at the bottom of the market, you are giving consumers the impression that your services are lower in quality. And, whether you believe it or not the fact is you are driving potential students away by under-pricing your services.
Setting Prices, Part 2
Pricing Strategy #1: Applying the Law of Supply and Demand
You should be aware that when a service is not a commodity (easily copied and mass-produced), it is naturally in higher demand and worth more. Our services are unique because very few people make it to black belt and even fewer decide to teach.
Anyone who has taken Economics 101 knows the law of supply and demand, which tells us that scarcity creates demand, and demand drives prices up. So when your services are in demand, you needn’t be afraid to charge more.
If you are the only martial arts school in your area, charge appropriately according to what the market will bear. But how do you determine this?
First, by looking at the cost of other comparable services, like golf and flight lessons for adults, and gymnastics and ballet lessons for children.
Be sure to compare apples to apples when making this comparison! Break the cost down to hourly rates, and take into account whether the classes offer group or private instruction.
Second, by examining the income level of your area. At the time of this writing (May 2005) I believe that $99 per month is the absolute lowest tuition you should charge for two group classes per week.
However, if you are located in an area where the average household income is higher than the national average ($42,000 in 2002) you should raise your rates accordingly.
Visit http://factfinder.census.gov to get economic statistics for your area.
Pricing Strategy #2: Applying a Premium Pricing Strategy
So, what if you’re in an area where there are a ton of martial arts studios? Should you get into a price war with your competition?
Not on your life - or the life of your studio, for that matter! Competing on price is a foolish way to do business. For one, go back to Dr. Cialdini’s research. If “expensive = good”, then “cheap = bad” in the eyes of the consumer.
For an example of this, just look at Hyundai. When they first entered the market, they competed solely on price, offering cheap but mostly low-quality cars.
But for years now, they’ve been improving their quality and offering one of the best warranties in the business. Yet, consumers still perceive Hyundai to be a cheap and unreliable product.
Don’t end up being the “Hyundai” of martial arts schools in your area. Instead, price your rates a minimum of 10% higher than your competitors, and make certain that you can justify this by offering a good quality service.
Pricing Strategy #3: Reverse Engineering
Figure out how much money you want to take home each month, minimum in order to live comfortably. Be reasonable – if you decide $60,000 a year take home is your goal, you need to make a profit of $72,000 a year, or $6,000 a month.
If your monthly overhead costs are $4,000 per month total, and you charge $100 per month tuition, then you’ll hit your mark at 100 students. (I’d try to maintain between 105 and 110, just to account for seasonal fluctuations and attrition.)
By the way, just by increasing your tuition 30% and keeping your overhead costs constant at $4,000 per month, you’d increase your profits by nearly 45% to $9,000 per month or $108,000 per year.
(That’s why I harp on keeping overhead costs down, and maximizing your profit margins. There’s just no reason why you should be paying for more than 1,500 square feet of space or more than 1 or 2 part-time employees with only 110 students.)
How to Collect More Tuition Per Month Per Student
Even if you don't want to raise your base tuition across the board by 30%, there are plenty of other ways to earn more tuition per student. For instance, holding an added-profit event each month (like a special training seminar) that costs around $30 per student (only a percentage will attend, but even if only 30% of 110 students attend, you'll make an additional $1,000 for a few hours work.)
Also, you can charge more for premium membership levels. I know a lot of people don't like the "black belt club" and "master's club" concepts, but no one says you have to call it that.
How about having a "Gold level" and a "Platinum level" membership, and holding a few extra classes a week just for those students? You can charge 25% to 50% more per month for this added service. Or, you could have a basic membership that gets you two classes per week, and charge 10% more per month for each additional class per week that your students want to attend.
------
To wrap things up, pricing your tuition is really not all that difficult a task. The main thing you should remember is that your time and expertise are worth a lot more to your students than you may think. Price your services accordingly, and you will increase your profit and improve the financial stability of your studio.
Setting Your Prices, Part 3
Scholarships
If you’re like me, you started teaching in order to help people, not to become the Donald Trump or Bill Gates of the martial arts industry. Because of this, even after I got some common sense on the realities of what I needed to charge to feed my family and keep my school open, I still wanted to be able to reach under-privileged kids and lower-income adults with my services.
There are a couple of ways to do this. The first one is to offer a “scholarship” program in your studio. Basically, you set some criteria for what you will charge students based on income. You might choose to have a sliding scale, or to just offer reduced rates for people in financial need.
The important thing to remember is that you still aren’t giving your services away for free. You have to charge something to your scholarship students, otherwise they won’t appreciate or value what you are doing. It also allows them to feel that they are contributing to your studio.
Second, you have to make the student earn the scholarship. That means good or improving grades in school for kids, and work/study for adults. This will weed out the people who are just trying to get over on you, and it just makes good sense.
Family Discounts
The most common type of discount program is a family discount. Be aware that most moms and dads want to have their children in the same activities (cuts down on confusion and drive time). Additionally, once one family member starts training others will often wish to follow suit.
However, for some families having three or more family members in martial arts can be prohibitively expensive. That’s why you should offer a family discount program to make your programs more attractive and to encourage other family members to enroll.
A simple method to do this is to offer “x” percent discount for each additional family member. For example, our family program was 20% for the second family member, 30% for the third, 40% for the fourth, and so on.
Just be reasonable when setting your family rates and remember that any money is better than none at all.
Discounts for Special Groups
In order to attract segments of the market that you may not normally attract, you may want to implement discount for certain groups.
For example, if you live in a college town, you’ll want to offer a student discount of between 10 and 25 percent of your regular rates. College students love this type of discount, and they’ll tell their friends.
Also, an “over-55” discount is always a good idea. You’d be surprised how many retirees are interested in learning martial arts. Most of them have plenty of time on their hands, and some disposable income set aside for recreational activities.
Be aware that for the most part retirees live on a fixed income, so discount programs are generally well received by this market segment.
Corporate Discounts
Corporate discounts are another great way to attract students. Just look around for the major employers in your area, and contact their human resources department with an offer for a corporate discount on your services.
More often than not, such employers will offer to list you in a benefits directory for their employees. This alone can bring in a significant amount of students each year, and may even lead to your teaching an “on-site” program.
In Conclusion
Well, that wraps up our article series on tuition pricing. If you have any questions, feel free to post them as topics on the forums.
Now that you know what to do - get out there and implement, implement, implement!
--
Mike Massie is a long-time instructor of Japanese and Korean martial arts. He resides in Austin, Texas where he runs a studio and teaches full-time. You may reach Mike via our contact page.