| Friend,
So far in this series we've covered two of the Ten Immutable Laws for Running a Dojo. The first two were: - Clients first.
- Thou shalt have a definite purpose.
Now we move on to the 3rd law...
Thou Shalt Keep Thy Overhead Low to Keep Thy Profits High
This one is a no-brainer to anyone who has read Small Dojo Big Profits. It's the cornerstone of the systems I teach, and a foundational guideline for anyone who wants to run a profitable dojo.
But for posterity's sake, let's review why you want to keep your overhead low in your dojo...
There are three things that kill dojos: - Insufficient or ineffective marketing.
- Insufficient or ineffective retention systems.
- Excessive overhead.
Marketing and recruiting is important because you're always going to be losing students, so you have to replace them if you want to grow your school.
Retention is important for the very same reason. Just because you're going to lose students doesn't mean you shouldn't work to keep them. The lower your attrition numbers are, the faster your school will grow.
And overhead is a killer, because no matter how much your GROSS profit is, or how high your ENROLLMENT is, the only thing that matters at the end of the day is NET... how much you take home.
So basically, you have three areas and five basic metrics that you need to track and improve to grow your dojo. - Recruitment, which includes leads, conversions, and enrollments;
- Attrition;
- and Net Profit.
Tackle those three things, and you pretty much have the formula for running a successful dojo.
But the most important metric is TAKE HOME PROFIT. If you have 50 students and you take home $6,000 a month in profit (and trust me, there are schools that do this), you're much better off than the school that has 150 students that only takes home $4,000 a month (and there are schools that do that as well).
Let's look at how this might happen:
School A - - Charges an average of $200 a month per student (due to membership upgrades, etc.)
- Grosses $10,000 + a month (Pro Shop sales and other income streams not included... this is just counting tuition)
- Keeps overhead below $4,000 a month (rents smaller space in out of the way location with good demographics, schedules classes efficiently, keeps payroll costs to minimum, etc.)
- Takes home $6,000 + a month
School B - - Charges an average of $100 a month per student (competes on price instead of quality and service, a huge mistake)
- Grosses $15,000 + a month
- Overhead costs are $11,000 a month (rents a space that is much too big for their enrollment or in high-rent location, has way too many people on payroll, has to give thousands to a franchise or association each month, etc.)
- Takes home just $4,000 a month, +/- depending on the month
These are just hypotheticals, but they illustrate how even schools with larger enrollments can make very little money. Trust me, I have been in this industry a long time, and I know what goes on behind the scenes.
Many mega-schools don't actually profit that much more than smaller schools. I have spoken with several school owners who own larger and smaller schools, and the schools that make the most profit are smaller, highly-efficient studios.
So, keep your overhead costs down. Keep your ego in check. Rather than being able to brag about having the biggest school, set your business up so you can brag about having the highest profit margins.
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! - Need business coaching to grow your dojo? Click here…
P.S. - Someone snagged those vids right away last week. Alan, thanks for taking them off my hands. Would've been a shame to send them to the landfill.
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