Got your number? Good. Let's use that to figure out the bare minimum we need to be charging in tuition to make a living.
Okay, take the number you came up with and add the monthly salary you want to pay yourself. I don't care if it's $4k a month or $10k a month, just add it together with your monthly expenses.
Write that number down.
Now, for the next step you're going to need to know how many people live within a certain distance from your dojo:
- If your dojo is located in a metropolitan area, you're going to go out five miles from your location,
- And if your school is located in a rural area or in a small, isolated town, you're going to go out ten miles from your location.
Use https://www.census.gov or http://www.city-data.com to get this info. (Don't be lazy about this - you need to know everything about the demographics of consumers in your local market. So, be sure to also get info on household size, median income, cost of living, and so on while you're at it. Save that info for later.)
Now, take the local population in the area (either five miles from your school or ten if you're located in a rural area) and multiply by .015 (1.5%). That number represents your approximate local market reach at any given time.
Yes, that's right. At any given time, you're going to reach approximately 1.5% of your local population - meaning, that's the POTENTIAL number of students you can have at any given time in your school.
Now, this number is an estimate, and if you live in a highly populous area (or if you're a hell of a marketer), this number may be greater. However, based on personal experience I've found this calculation to be a more or less accurate estimate of a school's potential enrollment.
So, as an example of this...
My second school was located in a rural community of 10,000 people. So, I could expect a potential enrollment in my school of around 150 students.
That's not to say that I was guaranteed that enrollment, nor is it to say I couldn't have more students than that. However, when I sold that school we had 120 paying accounts, and that was at the tail end of the Great Recession when the town had lost quite a lot of residents due to the mortgage crisis. And we had another full-time school two blocks from us. So, it was a fairly accurate estimate.
So how are you going to use this info?
Take the number you got earlier (overhead + your desired salary) and divide it by your market reach. That's the lowest tuition rate you can afford to charge.
Taking the example above a bit further, my overhead on that dojo was about $5k a month. If I wanted a take home salary of $10k a month, that would mean that I needed to bring in $15,000 a month minimum.
So, if I divided $15,000 by 150 = $100.00 per month was the bare minimum tuition I needed to be charging each student to be able to hit my income goals, based on my local population and estimated market reach.
Again, these numbers are based on a lot of estimates. However, over the last twenty-plus years I've observed this method of calculation to be a very reliable way of determining what a school needs to charge to stay afloat AND pay the owner a nice salary.
Also, be aware that as your dojo grows, your expenses will increase as well. So remember, that number is just the BARE MINIMUM you should be charging. In future emails, we'll look at other factors that will influence your tuition rates as well.
The main reason I want you to do these calculations is to determine if you've been undercharging, and by how much. Tomorrow, we'll talk about price, value, and how your local market's price sensitivity will factor into setting your tuition rates.
