| Friend,
So now that we know we've been massively undercharging people, how do we raise our rates without losing all our students?
Simple. We don't.
"Huh? Massie, you're off your rocker. How am I going to raise my rates, without raising my rates?"
Here's how - you're going to use...
The Grandfather Clause
The best way to raise your rates in your dojo without losing all your current students is by using "the grandfather clause."
Basically, you'll tell all your students that rates are going up to "x" amount on "x" date. However, anyone who wants to lock in their current rate can do so by extending their membership.
After that date ALL NEW STUDENTS will enroll at the new rate, but old students who extended their membership will get to keep their old rate.
How long is up to you, but I recommend that you make everyone extend their membership by at least a year, and tell them that's how long their rate will be locked in. Moreover, tell them that they can extend it as long as they like; so, if they want to sign a five-year agreement to lock in their rate, they can.
Yes, this means using contracts. If you don't, you're a fool, and you'll have zero financial stability in your school. Moreover, your students will feel like they can come and go as they please. Personally, I don't want those type of students.
So, if you're not using contracts - or, incidentally, billing 100% of your students, electronically - then this is a great time to get everyone on contracts and electronic billing.*
The key is to make sure you give everyone plenty of time to switch. Meaning, you have to announce it at least 30 days in advance of the rate increase.
The Results
So, let's look at what this can do for a studio that's been undercharging their students at, say, $100 a month tuition. Let's say this school owner determines that the local market will sustain $140 a month. That's an increase of 40% in revenue, right?
Well, not quite, because the school owner won't start getting that from their current students - but they will have the benefit of getting everyone on contract and having them extend their membership by at least a year.
But how soon will the increased revenues kick in?
Let's say this school has a 5% attrition rate, which is pretty common among martial art schools (and if you think yours is better, you're probably wrong - go buy The Profit-Boosting Principles and run the calculations I provide in the book to get accurate numbers).
That means that, within a year's time, 60% of your students will turn over in your school. I know, it's kind of depressing, but it's also reality. (And, by the way, a very good reason to make sure your marketing is always on point.)
So, if you have 100 students paying you $100 a month at the beginning of the year, that's $10,000 a month in tuition collections. Not bad, and nothing to sneeze at, that's for sure.
But at the end of the year, things improve considerably. At that point you'll have 40 students paying you $100 a month, and 60 students paying you $140 a month.
For a grand total of $12,400 a month, representing an increase in gross revenues of 24%. Not too shabby, right?
"But wait a second Mike," you say. "What about all those people who extended their memberships. Aren't they still going to be around?"
Ah, you are paying attention. Good.
See, this is where the magic comes in...
Typically when you raise your rates like this, you can expect about 95% of your current students to extend their memberships. You were going to lose that other 5% anyway, so whether they refuse to extend and quit or accept the new rates, it shouldn't make a bit of difference to you either way.
So, at the end of the year, you'll actually see numbers that are more like this, because your RETENTION numbers just went through the roof:
90 "old" students paying $100/month = $9,000.00 60 "new" students paying $140/month = $8,400.00
That's 150 students paying a Grand Total of $17,400.00 a month in gross tuition collections.
Meaning, you increased your revenue by 74% over a year's time, just by having the balls to raise your rates to where they should have been all along.
A Few Caveats
Number one, your mileage may vary on this, and the final outcome depends on several factors...
Number one, your actual retention rates. If they're horrible, you won't see increases that are this drastic, but you will still benefit by raising your rates (a big part of The Profit-Boosting Principles deals with improving retention, so if your attrition is out of control, get the book and fix it).
Also, your ability to market your programs and enroll new students is going to impact the outcome. If your marketing sucks, or if your conversion rates (read: " sales skills") suck, you're not going to see these kinds of numbers, either.
But, you'll still see an increase in revenue. Moreover, you'll be bringing in more money, which you can immediately spend on better marketing and learning how to convert leads to students.
So, that about wraps up this email series on raising your rates. I hope this info helps you not only survive this crazy, up and down economy; I hope it helps you thrive in it.
Now, next week I'm going to start covering little extra things you can do to increase your revenue that, when added up, can make a big difference in your bottom line. So, stay tuned.
Until next time,
Mike Massie MartialArtsBusinessDaily.com
Quick-start Guide to My Books and Resources: - Looking for a list of books and resources I've written? Click here! - Looking for one-on-one coaching to grow your dojo? Click here...
P.S. - *Just getting everyone on electronic billing will improve your cash-flow situation drastically. When I switched my clients over from bringing me checks and cash to billing them automatically electronically, my on-time collections went from 70-80% to 97%+, overnight. Suddenly, I had predictable cash-flow, which made it a lot easier to pay myself and pay my bills each month - another very good reason to make this happen in your dojo.
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