Stephen Oliver: The Way of the Mile High Maverick

Since then, Stephen promoted a NASKA world tournament for 10 years and was their national sanctioned director and board member. He was also a founding member of the EFC Board of Directors. Later on, he was named their number one multi-school operator and was eventually inducted into their prestigious Hall of Fame. Stephen has also become one of the martial arts industry’s leading business and marketing professionals. He is an author, a monthly columnist in Martial Arts Professional Magazine, and a highly sought-after consultant and speaker. Stephen is the founder of Extraordinary Marketing, a double MBA, and the developer of NAPMA Squared, a bimonthly advanced school support program available only through the NAPMA organization. Stephen is now an eighth degree black belt and he runs a highly respected and very exclusive coaching program for school owners. Presently, he works with more than 50 clients who he has accepted into the program.

Just this year, Stephen and his longtime friend and instructor Jeff Smith have embarked upon a mission to grow Mile High Karate Schools internationally, with locations now in Canada, Colorado, Maryland, Philadelphia, Utah, and Florida. Steve is without a doubt one of the sharpest, most successful, and hardest working professionals that I have ever had the opportunity to work with during my career. And that’s yet another reason why it’s such an honor to have him as our special guest this month and next, right here on the Sounds of Success. So without further delay, here now is Way of the Mile High Maverick, my extremely informational and value-packed interview with Stephen Oliver. Stephen Oliver, welcome to the Sounds of Success. Oh, thank you, Rob. It’s really, really great to be with you here today. And where are you right now?

I am being beautiful, Twinsburg, Ohio, of all places. You’re always all over the place. Not exactly Maui. You must be hard at work on something. Yeah, I’m here meeting with my friend Dan Kennedy. We’re doing a little brainstorming on marketing and franchising and all of his vast knowledge applied to running martial arts schools. Wow, that sounds exciting. And I’m sure the NAPMA Squared clients will find out more about that sometime soon. Oh, absolutely. In fact, this month they’re getting a big package of stuff from Dan that’s only available to our members. Hey, that’s super. He’s a really sharp guy. And so are you. And that’s another reason why I’m so excited about this interview. I’m going to do my very best to pick your brain today, sir. No, okay. You have been running the Mile High Karate Schools in Colorado for a long time now.

And recently you’ve actually started expanding internationally. Tell us a little bit about that. Well, it may be to give you a little history and background. You know, I worked my way through college at Georgetown University teaching karate for Jhoon Rhee. And back in the day it was Jeff Smith was the head instructor and Ned Muffley was the general manager and Niko Kienis was the president. And of course Jhoon Rhee owned the place. And when I got done with college, I, in about the same time, started an educational funding company and Jeff Smith shortly thereafter went and opened his world championship Jeff Smith Karate Schools. And Ned Muffley ended up working with Niko Kienis. But I opened the Mile High Karate Schools in Denver. It’s been how many years ago now?

[04:34] 1983. And of course we told the story a bunch of times. I basically got in the car and put a bunch of credit cards in my pocket and my parents loaned me $10,000 and I opened five schools in 18 months. And you know, my vision at the time, frankly, before I ended up leaving Washington I had this vision that I was going to be kind of the national franchise director for the Jhoon Rhee Institute. So I thought here I am going to come out of Georgetown, get my honors degree and it was in economics and be involved with helping them develop what had been articulated as a strategy but really never followed through on at the time. And the national franchise rolled out with them. When I moved to Denver, I refocused my efforts on thinking I was going to do corporate locations which was in fact the way Jhoon Rhee had to do.

At that time he had nine schools and probably was doing a couple million dollars a year in revenue in 1982, 1983. And you were already thinking franchises back in the early 80s. Well I was thinking I was going to be involved with Jeff Smith and Nick O’Keenis and Ned Muffly and Jhoon Rhee and all the rest of the Jhoon Rhee staff doing it. So I really thought that after I graduated from college my next step was to be involved with all those people at that level. And unfortunately for a variety of reasons, all of those people, myself included, all ended up going separate ways. Yeah, that’s pretty common actually. Yeah, yeah. So unfortunately it didn’t unfold. But in Denver, I opened five schools in 18 months and really grew up, ended up adding another location a few years later but got to a point where 48 people or so on the payroll, of course most of them were part time.

But with probably at peak 19 or 20 full time people on payroll, I really didn’t see now making it 12, 18, 24, 36, 50, 62 that I owned outright. And I have some very close friends who have big multiple school locations that they own. For instance, Master Clark is a good friend of mine but they just have a different skill set than I do. And I never really saw that I was well suited to having lots of locations that were corporate owned locations. And so I started converting the schools to franchises very slowly, about five years ago. And the intent really was always to then now grow the school dramatically as it always been my dream. But I really wanted to slowly put the pieces in place. The legal implications of putting together a solid franchise, which rarely is done properly or legally in our industry, is really pretty complicated and frankly extremely expensive.

And so that took a while. And secondarily, as we kept having to tweak and tune the model, which I attribute Dan Kennedy helping me out a lot with that, but also a few other franchise industry experts that people would never have heard of but who are very, very good at this from other angles, helping me put together a format that will support locations all over North America. So, you know, I just didn’t want to roll it out randomly and have some guy in, for instance, in Cleveland, Ohio, that with me trying to support him in Denver. But now we have the structure that will support that. I understand. And obviously, in order to do what you’re doing, you must be very strong in the area of setting up systems within a martial arts school. In your opinion, Steve, why is this so important?

[08:13] Talk to us about setting up systems. Well, and again, within the context of what we’re doing, I have to say that’s something I mastered in the earlier mid-80s. As soon as you, and I don’t know when the E-Myth came out, I had read it many years later at, I think Tom Callis had first suggested, but he gets it essentially right. Gerber, when you read the book, he talks about basically any business, whether it’s an individual location, mom and pop, or whether you’re looking to do a bigger multi-unit or whatever expansion, that any business should be set up like you’re going to franchise it. I see. And so it should be set up. And with Dan Kennedy, with another client, we were just having this conversation about every role, every responsibility, every function that needs to happen, frankly, needs to be organized and scripted, and you need to know exactly what the outcomes and the countabilities are.

And in your experience, would you say that most martial arts schools simply do not do that?

Yeah, most martial arts schools get by on the personality of the owner. Yeah, yeah, I would agree. And so what you see is there are some that are run by an incredibly likable, extremely charismatic, high-energy, high-talent person. And therefore, things can be kind of falling apart all around them, but it still works. Understood. Seen it many times. Yeah, and then you see others that perhaps the owner isn’t as energetic and capable, but he really has a solid system and a solid procedure in place because without sounding too callous, the people really should be interchangeable. You should have a function and then find a person with the appropriate skill set for that function, and there should be lots of them available to do that. Yeah, let’s break it down to some specifics. What are some specific examples of systems that you’ve helped instructors implement, and what difference have these systems made in their schools?

Well, let’s start with the three basic categories. And of course, you know, Muse Gerber is an example. The favorite thing that I like about his book is he talks about most business owners are a technician who one day had an entrepreneurial seizure. And the truth is that if you’re running a business, and it doesn’t matter whether it’s a martial arts school or a shoe shop, but if you’re running a business, there are basic functions that every business has. In our case, teaching martial arts, not doing it, but teaching it is the service delivery. Prior to the service delivery, you have a sales function. Prior to the sales function, you have an advertising, and some people inappropriately label as marketing, but you have an external promotional activity and an internal promotional activity to feed prospects. Wrapped around to support all that, you have billing, and you have the accounting systems, you have legal issues, you have all of the pieces that need to be in place to make sure your taxes are paid and that your employees are dealt well.

So really, you have kind of a mini HR department. You have a legal department, you have an accounting department, you have a finance department, you have a billing department. So there’s all that kind of stuff that’s administrative support. And frankly, luckily in our industry, an awful lot of that, at least our individual franchisees now, they get rid of all that stuff. So all that stuff gets handled for them. I see. And in the corporate office or the headquarters handles all these things?

Yep. Or we’ve got systems set up in place that we can then outsource. And of course, most martial arts schools are already outsourcing billing, which is a smart thing to do. But then let’s come back to the core systems. So the core systems have to be marketing systems so that you get either through internal activity or through external advertising or promotions or demos or however you go about it, where you get enough lead flow. You’ve got to have systems in place for lead flow. Then you’ve got to have systems in place for handling the point of first contact through to making the first sale and systems in place to support them up through however many levels of sale you’re going to do. In a martial arts school, we call it an upgrade or a renewal. You’ve got to have a system in place to take them from prospect to enrolled student to upgrade to whatever the highest level upgrade or longest term enrollment you have.

[12:41] Then we have to have all the service delivery layered in on top of it to make sure that they’re really having a good experience. I understand. If a martial arts school owner doesn’t have a system for marketing, they don’t have a system for sales, they don’t have a system for upgrades, and you could go even further and say they don’t have a system for retail sales or a system for introductory lessons or whatever, how could this school really succeed and prosper beyond the personality of the instructor?

Well, the answer is it can’t. What you just left out there is most martial arts schools think that they have a system of martial arts and a system of teaching. They just think they need to become a better salesperson or a better marketer or something like that. In most cases, they don’t even have that. Keep in mind our industry is to some extent populated by associations that propagate a curriculum that are unrelated with effective education methodology. Their teaching pedagogy isn’t terribly good. Then it’s unrelated to the rest of the outcomes of the business. Many times, even the actual curriculum that they teach is either chunked wrong, so they’re trying to teach too much at once, or they teach too little at a certain level. Typically, they don’t have metrics. They don’t have tracking systems to know when there’s gaps and problems.

They oftentimes really don’t have a systemized way of teaching that helps students internalize while they’re enjoying the process and facilitate long-term retention and also, frankly, facilitate making the sale. I understand. For a school owner listening to you right now, they’re probably thinking, okay, I don’t have systems. I need these systems. Where do I get these systems?

Well, if you look very specifically in the martial arts industry right now, in the martial arts industry, you have a spectrum of options. At one end of the spectrum is you’re completely independent or you’re part of some martial arts association. What that means is you may have a martial arts style, but probably don’t have a system of teaching and a system of structuring that style so that it’s most easily assimilatable. Really, at that end of the spectrum, you really have to learn and create everything yourself. The opposite end of the spectrum is you’re somebody who plugs into our franchise system or that could be somebody who’s involved with Tiger Shulman or somebody who sells their school to Timidic, Ovar. Or Don Barnes. You join an organization like this and the systems are going to basically be handed to you on a silver platter.

Well, yeah. At the level I’m talking about, it isn’t where Don is at, I don’t believe, but it’s a level at which basically all of it can be given to you. So now you’re not having to reinvent anything, but everything from marketing systems, sales methodologies, teaching structure, as well as either administrative systems being given to you or being handled for you. We’re going to talk a little bit more about the benefits of franchising towards the end of this interview because there are certain people that are definitely interested in that. Let’s move on, Steve. But again, to go back to answering your question, that’s the two ends of the spectrum. In the middle, you have a licensed curriculum program. You have what NAPMA obviously provides and at a deeper and richer level, what Maximum Impact or NAPMA Squared provides.

[16:26] So you have in the middle level systems that are either partial or they’re rich with learning but they don’t do it for you. And so you really have that opportunity to choose where you want to be on the spectrum. In my stage, my hope had been, frankly, is to take a system that was already done for me and run with it and it just ended up not being available to do that. So I had to reinvent a lot of what I did. But I got to tell you what, that learning curve, I’ve invested $20 plus million and a few more gray hairs and then I want to invest in hair color to cover up in doing that. So it’s all a matter of what somebody’s predisposition is. Yeah. And obviously what their goals are too. Absolutely.

Yeah. If they want to kind of reinvent the wheel and really enjoy getting deeply and academically involved in learning all this stuff, they want to be at one end. And if they would prefer to just really make this a career quickly, they probably prefer to gravitate towards being a franchise or selling their school to a large organization and being one of those options. Yeah. That makes a lot of sense. If a mild-high karate school owner has, say, 200 active students, approximately how much should they be grossing each month?

Well, in my coaching group, their minimum target is to be at $200 per month per student. And so if a school has 200 active students, we’d want them to be in the range of $40,000 a month. And now that’s a solid, sustainable, every month, not a one or two month big cash hit. Our target for a mild-high karate school is now $300 a month. So we’re targeting if a school has 200 active students, that that should be a $60,000 a month school. Now, I’m not representing that they all are there, but our target is to move them towards that $300 a month average per active student revenue. That’s really fascinating. Let’s break that down a little bit further. So where’s the money coming from?

Obviously, you have tuition and the associated down payments. You’ve got product sales, special events. How are you getting a student up to $300 a month?

Well, in our case, now, that $300 a month isn’t factoring in retail at all. So that $300 a month is average tuition revenue received per student. And there’s really only a small number of ways you can get that. You have group number one is from enrollment. Group number two is from upgrade to some sort, whether that’s Black Belt Club, which we don’t have anymore, but Leadership, Master Club, some level of upgrade. You can do down payments on enrollments, obviously monthly payments received from enrollments, paid in full enrollments, which with our Mahi credit schools, we don’t do much of that. And then you have down payments on upgrades. You have monthly payments received from upgrades and you have paid in full on upgrades, which frankly, we do shoot to do a fair percentage, probably about a third of our upgrades are cash, but now those are big cash deals.

So those are 12, 14, $15,000. Interesting. And we’re going to talk more as we go through here about Black Belt Club and your tuition structure and so forth. Moving on, I’d like to touch upon staff compensation for a moment. The two most important employees in a school are typically the chief instructor and the program director. Give us some ideas on how to compensate each of these two employees so that it’s a real win-win so that the employees aren’t always looking over their shoulder for another job and so the owner is happy. How do you pay these people?

[20:08] I think first is to start with a principle, which is, as I’ve worked with, you know, I don’t know how many schools now I keep finding that as you delve into the finances of most, whether it be small multi-school operations or individual owner operators, that something happens, which is school owners typically way overspend on facilities and typically that’s too much square foot for what they’re doing. And they way underspend on marketing and they overspend on headcount. In other words, they want to have too many people in the payroll, but they understand on quality people. And so getting to those last two points, they’re right with your question, which is if you’ve got somebody who’s good and by good I mean they’re performing at a high level, not to have a pleasing personality or you know, you’ve raised them since they were 12, but you have somebody who really can perform in their job function.

It’s very important that they be making equal to or greater than what their other opportunities would be in the market. And what we have a tendency to think is that we’ve got to pay them as much as like the karate school down the street would pay them. Well, that’s not what their other opportunities are in the market. Their other opportunities are in the market is to go to work for their father-in-law or to go to work for Best Buy or to go to work for IBM. I mean their other opportunities in the market is if they’re good, there’s a real job market out there for them. But I think you said once, not only pay them that, but 10% more. I like to shoot for 20. Wow. And now what that comes back to is somebody who’s really good has to be getting paid a percentage of the school.

Okay, now I don’t mean you give them equity shares, but you really have to pay them based upon what the revenue of the school is and or I love to have some level of function based on retention, which I think Nick Okeenis came up with probably 30 years ago, was a pay scale based upon test candidates even without doing test fees and based on gross. Now I’m not doing that right now just because it’s become a little too complicated with what we’re doing, but frankly, it’s a good system. What’s a good percentage to give, say, a dynamite top-notch, well-performing chief instructor?

Well I would say you want their payroll to average out between 10% and 12% of the school’s gross revenue. Great. Because if the school does half a million a year, he should be making maybe 60,000 a year. Okay. And now, again, part of it depends upon structure. So let’s say that you have a school that is less than 300 active students, probably fits most schools on the call. And their owner operated, so the person who owns the school is in there every day. Well, what I would say with that one is you want about 25% of the gross of the school going to payroll. And of course, keep in mind the owner’s keeping everything that’s left. So he’s going to do better. And part of that goes to the owner, and part of that goes to whatever full-time employee he has, which hopefully is probably head instructor.

And then the rest… And a program director that’s full-time, doing a great job, how would you pay them?

Same ratios. Really? I’d want them to be in the 10 to 12% of the gross range. So is the old method of giving them a base salary plus a bonus for every enrollment, is that an outdated method?

I wouldn’t say it’s outdated. I mean, as long as their total income ends up coming up to a reasonable percentage of what you’re doing, then… And what I do see with pay systems a lot though is that they become too complicated. And really what I want is I want to the closest extent possible, I want my employee to be perfectly aligned. So the more I can get his pay to align with what I’m trying to accomplish, the better. So in other words, if your goal is to grow the school and somebody’s being paid a percentage of the growth of the school, then you guys have alignment. Absolutely. Now, he’s only paid on enrollments. And so now I have a program director who’s only paid on enrollments. Well, there’s enrollments and then there’s enrollments, right?

[24:30] There’s a really solid, dedicated student who’s been told the truth and who feels a high level of rapport. There’s going to be a good upgrade candidate. And then there’s the guy who’s paid for to get you to shut up. And basically you promise him the world to get the paper signed. And I’ve seen program directors who were only paid a percentage of the growth of enrollments. And now the guy’s whole incentive is to get you to write a check or prepay for a cash enrollment. He didn’t get incentive on anything else. Well, he’s not now incentive for what I’m interested in. I follow you completely. Interesting. Well, that was a very good answer, Steve. Let’s move on to introductory lessons. Do you teach intros at Mile High Karate?

We do. And how many do you teach? Two, three, one?

Well, yeah. To put that maybe in a broader context, I’ve seen schools that I work with and with friends of mine who do either one lesson or two lessons and make that very effective. I’ve rarely seen anybody who set up for three or more. In other words, I’ve seen some schools who try to do two or three weeks before we enroll them, or they try to do four or five weeks before you enroll them, or they come in for a tour and then you do a one month enrollment. I’ve never seen any of those variations work. Now, I think the main difference between doing enrollment on the first lesson and doing enrollment on two lessons, and again with our Mile High Karate schools, 95% or more of the enrollments we do are on the second lesson.

Okay. But I think the main difference is one is whether you’re dealing with an enrollment of an adult or a child. Right. And whether you have all decision makers present. You know, we’re dealing with about, you know, I’d say 80, 85% of our new enrollments start with the kid now. Our ratio of adults is much higher because we have a lot of parents of the kids. So with kids, it’s very important, in my estimation, at least at the price point, to have mom and dad there. And they’re both really engaged and enthusiastic and they both have, you know, or one of the other has their credit card or checkbook or cash in their pocket and really ready to make a decision. – Because what I do find with sales is going for a decision before they’re ready is pretty damaging.

On the other hand, not going for the sale when they’re ready lets them die in the vine. Absolutely. So it’s real important to time it out properly. So you’re doing two intros for the most part and how many minutes are those intros?

You know, 15 to 20. Yeah, that’s what I would have figured. And after these, oh, and by the way, with respect to these intros, are you doing them in a private intro room or say like out on the deck with the regular group?

It depends upon how they, you know, we have a variety of marketing systems in place. So a part of it depends upon whether they’ve already come in for a big group class or whether they’ve been involved with some external program that we’re doing. – But in most cases, if they’re, you know, the standard, they called from an advertisement. Right. Or came in the first time because their buddy told them. They’re typically get a private or semi-private first lesson and then they, the second class lesson may be with a small number of other beginners with somebody holding their hand. And preferably it’s a couple of private lessons, but the scheduling and the volume doesn’t always allow for that. The reason I’m asking this question is as I travel the country, a lot of times I’m in schools and they just have private intro rooms, period.

[28:06] And that’s where all the intros are done. When you’re, say, building a Mile High Karate franchise, are you building a private intro room?

Yes, yes. And we’re setting up that room where it doubles as the office for enrollment. Ah, interesting. So my preference is, is wherever we’re sitting there teaching classes the same place we finalize the enrollment, because there is a dynamic that happens of let’s walk from a classroom space into a sales office. And suddenly their mentality and their state changes. And I’d much rather have somebody sitting there in uniform and we’re in a little room where we’re teaching the class and then we can just go straight into doing a little progress evaluation and finish up with the enrollment right there. That’s very interesting. So after these intro lessons are complete, what’s the next step?

Is there one choice such as a trial program or are there several choices?

What happens? On a new enrollment? Yes, sir. Well, we’re doing all of our enrollments for a year. And the presentation basically, and I won’t go through all of it unless you want to, but basically they’re doing 397 to enroll. One 97 a month. And it’s a year enrollment. But the important part of the enrollment is that most of the conversation in the enrollment conferences, pre-framing them, in other words, getting them predisposed to thinking about this is something they’re committing to Black Belt and beyond. Okay. So in essence, you know, if you’re enrolling your son, I’m going to be saying now, Mr. Colasanti, what the program is, is Joey is seven now. He would be a Black Belt by the time he’s 10, maybe 11. And obviously when a child gets to Black Belt when they’re 10, they continue to train to second and third degree Black Belt.

So he’s in second degree Black Belt by the time he’s probably about 13. And by the time he’s 16 or 17, he could be working his way through college. And high school for that matter, teaching karate. And as a second degree Black Belt at that age, is he considered a junior Black Belt?

No, we don’t have that designation. Really? I’m surprised to hear that. No. And why don’t, you just had a curiosity. What’s your philosophy on that?

Why don’t you have a junior Black Belt program?

Well, you know, I think having a, to some extent, having a junior Black Belt is kind of like getting women Black Belts with white stripes like they used to do, pretending they’re not really Black Belts. And, you know, the reality is, let’s say that I’ve got a 12 year old. Now, and then Rob, nothing against you, but you say you started martial arts today. And four years you’re ready for Black Belt, and four years that 12 year old is ready for Black Belt now, you know, without any other information, who’s going to be better?

Me of course. Yeah, right. So, so, you know, I mean, I’m 46 now. And if I started martial arts today with no experience and the seven year old starts martial arts today with no experience, I gotta tell you, when I’m 49 and he’s nine, he’s going to be better than I am. And so, you know, I think part of it is people thought of junior Black Belts as meaning they’re like, not as good a fighter, or they’re maybe not as capable as kind of like, you know, treating women like they’re second class citizens because they weren’t physically as strong. But, you know, we all know that there’s a lot of elements to martial arts that aren’t just physical combat. Although trends now in the industry have, you know, led people to think differently again, unfortunately. But really it’s about the developmental focus and discipline.

It’s about how thoroughly they’ve internalized success principles. It’s about developing physically. You know, again, I mean, we all know that part of martial arts is kind of like gymnastics floor exercise. I mean, the forms or katas or hyungs, however you want to describe them. Kids peek at that at 15 or 16. If you don’t believe that, go look at the NASKA circuit right now. And if you don’t know the history of it, you know, all of us Turner promoters years ago decided that there should be separate adult kids divisions because Ernie Reyes Jr. was making all the adults look bad. So the reality is, you know, kids, same as in gymnastics, 15 or 16 years old, they peek at that level. Then you have the fighting element and, you know, Jeff Smith when he was 27, 28, 29 years old was still a heck of a fighter.

[32:26] But, you know, I don’t think he would say that now at 58 that he could go back and fight with people that he fought with in his prime. And so, you know, you peek at the fighting element in your in your late 20s, maybe early 30s. But you rarely see a professional martial artist, whether it’s mixed martial arts or kick boxing or boxer who is much past their mid 30s who are still active. Very interesting. Let’s go back to the financial arrangements for a moment. You said that your trial program was 12 months. Why did you settle in on 12 and not say six?

And I ask that because so many schools I talk to now are moving it from 12 to six. Yeah. And you can argue that one two ways. And I’m not sure I have a strong opinion either way. But you can argue it two ways. You can argue with that a six month enrollment makes somebody easier and more predisposed to the upgrade in a shorter period of time. Right. And I like that argument. It’s just that when I experimented with six months versus 12 months, I in general wasn’t finding that too. So I really wasn’t finding a higher percentage of people who enrolled for six months who are eager and ready to upgrade in two months or two weeks or three months than people who enrolled for a year. And I think that the biggest difference is that if you’re really good at prefacing in the enrollment that now we’re just going to start with a trial level and the next couple of weeks we’re going to be evaluating.

And if we approve you and you find this really is a goal you want, but mostly if we approve that you can do it, we’ll go ahead and be talking about training to Blackstone and beyond if you’re really good at prepping them to think that way. It doesn’t make that big a difference. So you’re pre framing the upgrade. Now let’s move on to upgrades. Now, yeah, and hold that thought. If you say we’re going to enroll for a year and at the end of the year we’re going to talk more about what you do next. And now you go back to them and in a few weeks start talking about black belt and commitments and renewals. It doesn’t work. You know, they’ve got to know that at the time that you’re doing that contract it’s really it’s an exposure to the program is a chance for you to evaluate them.

So it’s an elongated admissions process. And when do you actually speak with students in general about upgrading their program?

Well, in one sense in the first and second intro in the sense of moving them forward towards actually a renewal conference. Yes. I would say the first conversation starts in a couple of weeks and our target is to have about half of the people that we enrolled renewed before they get their goal belt. Now that’s approximately two months. Wow. So now there’s two sides of this. One is you’ve got to be careful with not chasing them down with like a big cash discount if you do it now for the renewal a week and a half two weeks into the program because now you’re jumping the gun on them. And nobody decides on the renewal based upon financial considerations. What you do want it to be is you want it to be I really have a lot of desire for this.

I love the program. I trust you. I can visualize because you’ve helped me see it my seven year old being a black belt when he’s 11. I really see the long term outcome and now I’m deciding based on whether I can afford it or not based upon you know some picture making me. And this conversation is taking place in the first month?

[36:07] Well it could be in the first couple of weeks although I would have to say that’s mostly fairly rare. And so in the first couple weeks I want to be sitting down having a conversation with them about it. But an awful lot of that conversation is all about let’s make sure you’re started off well. Let’s make sure you have some long term goals and vision of what’s going on. Let’s make sure you’re excited about it. Now you’re going to get some people who frankly if you had talked to them about it in the enrollment conference would have done it then. So at that point you know if they’re ready to go they’re ready to go again. You want to close the sale when they’re ready. So if a guy seems ready and willing in the initial enrollment conference right after that intro you’ll go for it then.

I wouldn’t go for it at the enrollment conference but I would let them do it in a couple weeks. Why wouldn’t you go for it in the enrollment conference if they’re ready such as break the system. And I guess I have in part a predisposition of dealing with lots of different program directors. I understand. Because what happens is now when you build that into the system more often than not you get people who are jumping the gun and scaring away prospects. Yeah that would make sense especially if they’re getting a higher commission for those increased contract values. What upgrade programs do you offer in Mile High Karate?

Well right now we just have two. We have well and two early on. Obviously they can continue to renew this second and third degree and fourth degree black belt but we have master clubbing leadership. Interesting. And both of them by the way take them to second degree black belt. And the reason that we started making it to second degree had nothing to do with getting the sale up front and had to do with getting rid of black belt attrition. So we really don’t have a program where you enroll the black belt which I kind of think of. You know the I just got my high school diploma and now let me think about whether I’m going to college or not. That’s a very interesting approach. So so really everyone who is enrolled get their black but is enrolled to train beyond black but as well.

So a guy that enrolls in your program and say two months later he upgrades to a master’s club. How long of an agreement is he signing?

Well it’s about six years. About six years. Now you know in the sales process there’s objections that come with that link and there’s also states where you have legal issues you have to deal with. But I guess in principle to make it that way because even with our schools now you know we have a little different way of doing it in British Columbia as we’ll have to do it in California as we would have to do it in New Hampshire because of state regulation. But in general the main thing is to not have them feeling like they’re ending the program at Black Belt. That’s continuing on beyond Black Belt. Leave it up to you to come up with something like that. That’s really clever. Now you said earlier $3.97 down and $1.97 a month for 12 months.

The renewal program say masters or leadership what are those tuitions?

Well for master club it’s about $2.59 a month for leadership it’s about $3.59 a month. Interesting. And again probably about 20-25% of those will end up being prepaid. And again there’s legal issues in some areas so you’ve got to be aware of that instruction. One thing that I must ask you is if your student was in masters club student A and student B was in the leadership program what is the real difference there for the extra hundred bucks a month?

Well here’s the explanation we give to parents which frankly is the most important component. And by the way I stole this from Steve Covey. Okay. Is we explain to parents that there’s four levels that we have students move through as they train to Black Belt. Is they first learn how to be a good student and Steve Covey says the maturity continuum as you go from being dependent to independent to interdependent. So my theft of that idea is that we first teach them to be an excellent student. So in the early stages they’re learning how to you know the old thing focus your eyes focus your ears focus your mind right. They’re learning how to focus your body they’re learning how to be an effective student how to listen well how to be respectful to the teacher how to really internalize the material that’s happening in the next level they’re learning how to be an effective independent self starter and independent learner.

[40:39] They’re learning how to set goals and focus how to achieve without rewards and punishments but because of the intrinsic value and decisions they’ve made the next level they learn how to be an effective team member in other words and so they now learn how to work with other people work and the fourth levels in our leadership can now to be. What you’re saying here is some very deep stuff and I suspect that you’ve just intrigued many of our listeners and you know the way I guess what I’m wondering is if someone were to become say a program director at a mile high karate school or a mile high karate franchisee is this the kind of thing that you’re training them to be able to present to a parent. Absolutely. Yeah that’s good stuff. And we have in other words we have we have an infomercial for the upgrade that we give new white belts that has tons of parent discussions and testimonials that you know of visuals of what the black belt process and testing is all about and has me explaining it to the parent on video.

So we have a variety of systems including teleconferences and websites and infomercials that all make this communication to the parents so that they kind of get it without the instructor or program director having to be quite as articulate at this. And one of our upcoming guests on the Sounds of Success here will be a guy by the name of Chet Holmes who you’ve heard of him. He’s one of the presidents for Warren Buffett and he’s consulted with about 60 of the Fortune 500 companies. He one of his areas is called the stadium pitch and he’s going to be teaching school owners how to use that. And it’s so very similar to what you just described. It’s amazing. So if any of you out there are listening and you want to know more about that, stay tuned because we’ll have more information on that sometime soon.

Yeah, he’s got great stuff. But now all that is in the context of you said what’s the difference between leadership and master club. So the conversation to the parent is the master club program takes them to black belt, teaches them to be an excellent student, teaches them to be an independent self starter so by the time they get through high school and college they’re going to be good at setting their own goals and be impervious to peer pressure and being able to achieve at a high level without you trying to always catch them to give them external discipline. Now the leadership program takes them to the next two levels which teaches them how to be an effective team member, work well in a group and work well with other people and how to be an effective team leader and an effective public speaker and an effective teacher.

And do they get more classes each week, Steve?

Well, I got to tell you that the question leads to this issue is the objection that many parents will have against moving into a new program is they now have to come three or four times a week. So you’ve got to be very careful about it. It’s not that you have to drive down here more often because a lot of the parents are already stressed with getting there twice a week. Oh yeah, no doubt. So in reality what we do is most of the differentiation of the program comes in the two classes a week that they’re coming to. And so they’re getting, in our case, they’re coming to a class that the first 45 minutes is Master Club and leadership together. The last 15 minutes is just leadership. Yeah, I think Paul Garcia does something similar.

[44:28] I know what you mean. That’s ingenious. Are you usually the most expensive school in your area?

I believe so. I put that in context as I stopped paying attention probably 20 years ago. But generally we’re one of the more expensive schools in the country and I certainly would imagine we’re in Denver anyway, one of the most expensive schools in Denver. And of course we’re in areas all over the country now. And it doesn’t sound like your enrollments are suffering even so your prices are higher typically than your competition. Well, just the opposite. I mean, I can go back to the mid 80s. You know, in the mid 80s we had the number one market share, if that’s even a term that should be applied to martial arts schools, but by far the most active students of any school in any region that we were in with also prices that were sometimes double money.

I’ll tell you, I’m not going to say that I’m going to say that I’m going to say that I’m going to double what anybody else has worked. Yeah. And in fact, I’ve often found it in our own experience and this is, you know, in practical application theory, it’s an inverse relationship. It was almost like the more we charge the more our traffic went up and there’s a relationship which is people determine perception of value based on price. So you’ve got to be careful thinking because in our industry you can’t price compete with other people. So you’ve got to be careful thinking because in our industry you can’t price compete with other people. And I think that’s a very interesting question because I think that people compete with other people because people don’t shop for a martial arts school that way.

Right. Now it is possible to price your clientele out of a range that’s affordable for them. You do want to be a little careful about that although I’ll tell you in our industry, you know, 99% of the time is people have limited expectations of what they can charge rather than are overcharging for their market. Well, let’s go. Let’s touch upon that. It leads me to my next question. You and I both know that many instructors are still way undercharging for their tuition. Well, I think maybe it’s a combination of three or four things. And one thing I see a lot is making up for deficits in the way they present the school and the way they present the program and the way they communicate with people with trying to price it cheaply. And so I always explain to our staff that it’s like this.

You know, you and I are both black belts who have been training for many years. And if you took any group of black belts that you’ve developed, Rob, in your schools, and you look at them and you had a conversation with them and say, if you look back over, let’s say that I have a time machine and I can take you back to the moment that you decided to do martial arts or not do martial arts and take away all the knowledge and take away all the people that you’ve worked with and all the relationships you’ve built and let you go back to that point. And at the same time I gave you back all the money, would you take the deal?

No way. Nobody ever takes it. Right. Nobody ever takes it. Right. Now if I make it a hundred thousand dollars, would you take that deal?

Never. No. How about a million dollars? Wouldn’t do it. Okay. So see, our sales challenge is getting somebody who hasn’t been through that experience to see what it looks like having been there and looking backwards. Okay. Because if we could really get them to internalize what we accomplish, then this guy would be the limit. Well, what our challenge is, is that we’re not very effective at really presenting what the program are. And as you know, if somebody were to say to you, well, you know, for a million dollars, you know, I’m going to make it where your knee doesn’t work so well, and you don’t have a vertical sidekick anymore, you might take that deal. See, so what you’re, what you’re not giving up for a million dollars is all of the emotional component, all the social component, all the mental and physical development that went with the program.

[48:06] It doesn’t have to do with being like the world champion or not. Right?

Yeah. So what we have a challenge is we focus on physical and not mental, emotional outcomes, and it all comes from us. So now we have a deficit in how to present it. So, so one element is they’re just not very good at presenting what their program is all about. And so they do get price objections. A second element is people look at others around them and underestimate what they can afford. And you know, all you have to do is look in your sphere of influence and think of people that in your mind aren’t very well off. Okay. But look at things that they spend money on stupidly. Yeah. Good point. You know, in my case, I know a lot of friends who are golfers and and to me it’s stupid because I’ve never gotten into golf and I can’t understand it.

I’ve never played golf. I don’t either. But, you know, I read all the business magazines. So all the time when you’re seeing all the little sections on private planes and stuff, which I read because I’m fascinated with that. Yeah. They’re always talking about how many golf bags and how many golfers and 35,000 rounds for it to go to some special golf course. I see. And so, you know, somebody who’s really into something will often spend much more money than you would ever think they could. Yeah. Good point. How does it how does an instructor determine the right amount to charge for lessons? What are some of the factors to take into consideration?

Well, you know, you do have to keep in mind that the socioeconomic makeup of your community and within the school location, you know, you have I’ve seen a lot of instructors trying to, you know, turn a sousier into a silk purse. Is, you know, if you’re in the ghetto, you know, no amount of getting really good at everything you do is going to fix your financial issues. You know, you just need to move. But assuming that’s not the case, you know, if you want to if you want to fix your price and say, just take take a child to still and learning centers and walk them through the process that they have and figure out what they’re going to charge. I heard somebody recently for a six week program on, you know, remedial math, it was like fifteen hundred dollars.

And, you know, my question is, is will a year of martial arts or six week of their lower medial study do more for a child who’s having difficulty in school?

Well, I think we’ll do a lot more. Yeah, me too. And so so in part, you know, what I tell my coaching guys is I get there anywhere below one hundred thirty nine dollars a month. They should just raise their price to like thirty nine to enroll. And then the upgrade should be at least a 50 percent bump. So if it’s one thirty nine, that means the upgrade should be in the range of two hundred twenty dollars a month. And then it’s a matter of incrementally, you know, testing it from there. Most of the limitations are in the belief system of the staff or the owner, not in the perspective students. I understand. Steve, about a year or two ago, cash outs were all the rage. Have you seen any evidence of fallout from instructors doing too many cash outs or doing them incorrectly?

Well, you know, there’s quite a few of them in bankruptcy court right now. So if you consider that fallout, that’s fallout. All right. I think there’s two elements to it. And, you know, again, I always hate to be the guy who sounds like a professional kind of look like one to. Yeah, thank you for that. But, you know, there’s two ends of the spectrum. And I really think both of them overstate their case. Well, at one end of the spectrum, you have the billing companies who do try to convince you that it’s illegal and moral and unethical to take cash. And in some jurisdictions it is. So you do have to be careful that you’re complying with, say, New Hampshire laws or with California laws or whatever. I mean, the last thing you want to do is go to jail or have the state or federal government come shut you down.

[52:07] On the other end of the spectrum is the guys that say anybody who can and will pay cash, get them to pay cash. Because here’s the problem is, and again, I will steal from Nic O’Keeenen, who’s a mentor of mine for many years. But, you know, his analogy was always completely accurate, by the way, is if you go to the store and you buy a suit of clothes and you pay them leave the store with a suit of clothes, there’s nothing. I have a suit. They don’t owe me anything. I gave them the money. I don’t owe them anything. It’s a tune comes in and pays you $500 or let’s make it a bigger number, $10,000 for lessons. What you now have is you have their $10,000. You owe them lessons for a year or for five years or for 10 years.

And you now have a debt on the books. And what he used to say about this is you should have the contingent liability fund. So all the money that you haven’t earned yet should go in the bank and you should only take it out as you earned it. Now, the fallout in the industry has been the guys who take the $10,000 and go buy a Corvette or go to a YE or go buy Rolex and expect they’re going to keep having that kind of deal flow come in. And a lot of what I’ve seen is a school owner who’s never done this before is they suddenly get trained in sales skills and get trained to ask for cash. And now what they do is they make a run to the school and end up with one or two things.

Either people get real mad at them or giving them a lot of cash and they do double or triple or quadruple what they’ve ever done before in a couple of months and think it’s going to continue that way. So I’ve seen a lot of schools who maybe they were doing $20,000 a month, got this cash bug, did $40, $50, $60 for a couple of months, which I mean, I can get any school to do that. And then they’re back down to like $7,000 or $8,000. Wow. And so that’s a real devastating cycle. And the reason that the drop off occurred is because they just basically hit everybody up they could for cash outs and then the well runs dry. Is that what I mean?

You’ve got to have it. If you’re going to do that and you can make an argument for that being a reasonable business model, although I don’t particularly like it or agree with it. Okay. Is you’ve got to have extremely effective marketing systems that are not purely labor intensive on the front end to keep feeding the pipeline. Yeah, you need those fresh people coming in constantly all the time. All the time. I mean, I got I got my gist back up in the early 80s. I was in health club sales for about a year. And back in that environment, it was all cash. So everybody paid cash. But you know, you started this late clean beginning of every month. And you know what I do like and I all of my schools for sure and my guys I work with in coaching as well.

I want them to open the doors with all their bills paid. So, you know, again, both ends of the spectrum, if you open the doors and 90% of your gross for that month is the billing check. Okay, so your philosophy on cash outs is that you certainly don’t oppose them. But do you think you should do them intelligently?

Yeah, absolutely. Absolutely. But you should also make sure that the billing check covers all your base expenses. Okay. So you pay the rent, you pay the salaries, you pay the light bill with that. So you have a more stable operation. And you should also probably balance the revenue to about 5050. So you have about 50% of the revenue is from monthly payments. About 50% is from from doing cash deals. If you get much out of that ratio, it seems like on one end you’re leaving money on the table. And at the other end, you’re creating too risky a situation to be stable unless you’re really, really good as a money manager. And that 50% on cash outs is going into a contingent liability fund?

Yeah, well, that would be the ideal. Now in practice, most schools don’t do that. Okay. Oh, so in practice, that’s why it’s important to have that billing check cover all your expenses so that you’re not now going to go out of business, only them six years of tuition. I see. I know that from our previous conversations, you’re pretty big on maximizing student value. Explain to us how a school owner listening to this CD can determine student value and then give us some tips on how to increase it. Well, yeah, you know, there’s a lot of formulas that what I’ve come across over the last few years, which I think is easiest for most martial arts schools to understand is how much average revenue per month you’re doing for how many active students. Okay. Okay. Now, you know, the older formula of student value, which still I think is is is even more appropriate, but it just is is more difficult to watch on a month-long basis is really the lifetime value of a customer.

[56:54] The J for him, marginal net worth. Dan Kennedy, those guys, that’s what they’re talking about. They’re talking about when you enroll a new client, how much are they going to on average pay you over the length of them being a customer. That’s a very important number as well. But the way that that I found is pretty easy from our school owners to get it is what on average revenue are you doing per month per student who’s actually training in the school. Okay. And so that’s that number we were talking about before that two to three hundred dollars a month. So give us an example. Say a mile high karate school is doing forty thousand dollars a month with two hundred students. Okay. So what is the average student value then?

Well, and that by that formula, that’d be two hundred dollars a month. Okay. So you just generalize it over the course of the whole student base. You bet. Now the other number is what’s the average gross that the average student is going to contribute. Then it was take your total gross divide by the number of intros, which is a reasonable number as well. And that’s the number that the average student comes in for an intro is going to spend in the school. Okay. And there is value in each of those numbers. I mean, if you know what your intro student value is, that tells you how much money in marketing you’d be willing to spend to get them into an intro. Exactly. And it filters out the sales ratios. Now, if you look at your enrollment student value, that’s giving you a better idea of once you filter out what your sales ratios are on the front end, that’s filtering out what the average student, the way you come up with that number of intros for that period of time.

So let’s say a guy listening to the CD has two hundred students and he’s grossing, say, what would be a good number, 20,000 bucks a month. So his average student value is a hundred bucks a month. How does, how does he get that number up to say 125, 150, 175?

What advice would you give him? Well, it’s real simple, although most people find it difficult to do is you first look at how much you’re charging for for an enrollment and you look at how much you’re charging and tuition on a monthly basis. You look at the down payment and obviously you know, unless you’re already at a point of maximizing that out, you raise what the monthly payment would be, you raise what the down payment would be. One of my coaching clients who has multiple schools, we added like 95,000 to his revenue last year by just looking at what he was doing and figuring out if he had an extra hundred dollars a month to the new enrollment that it turned in like 80, $90,000 in that profit. And that was the initial investment for the new enrollment?

Yeah, the initial investment was the check they write to enroll. I see. So, you know, you start with how much are they paying monthly? How much are they paying down payment for the enrollment? Two is how much are they paying down payment? How much are they paying monthly for the upgrade? Are there multiple options for upgrades, which is valuable to at least a couple of options. It’s more expensive. You mean like a master’s and a leadership?

[1:00:02] Exactly. Okay. Exactly. You’ve been. Yeah. But in our case, we’re doing about 80% of the people who renew or are going to leadership. So about 80% are doing the $359 a month program. And they’re on the average paying about $750 a month is a down or about $750 a month is a down payment. Now, the next element to get that number up is then cash outs. Because if you’re not doing any, if you start adding some, it will make your gross go up. Do it intelligently. It’ll make your gross permanently go up. If you do it stupidly, it’ll make it go up for a couple of months and then you’ll implode. Okay. So you do have to be careful with that. And what is an example of doing it stupidly?

Well, not having 20 new students a month coming in consistently. And at the same time, cashing out all the new enrollment. Gotcha. Because then the well runs dry again. Exactly. Yeah. You have, you’ve become really well known Steve as I would guess you could say the preeminent marketing guru of the martial arts industry. That was a mouthful. Plus you’re a double MBA. What type of marketing is getting the best results these days in the Mile High Karate organization?

How are you getting your leads? Well, you know, it’s all over the board. And again, somebody that a lot of the members been exposed to this Jay Abraham and something sold from Jay is the idea of the Parthenon. Okay. And he talks about if you only have one method of feeding traffic into the school, you know, it’s like a diving board. But you need the Parthenon, so you need a whole bunch of different methods. So in part, it’s very important for school owners to look at it and not have like one thing that’s working. And, you know, and I’ve seen this happen, you know, some of the people out there working with school owners are teaching VIP. So you take a clipboard out, stay on the street corner and give them passes and make appointments. Well, if that’s the only thing you got and you get too busy or the staff members not in the mood or you can’t get the guy to do the five hours a week anymore or you get tired of doing it, then all of a sudden everything implodes because you don’t have any traffic.

Understood. I’ve seen some other school owners who do it all through like internal referrals. Now that’s great. But again, you know, it’s that constant treadmill. You got to keep doing the same thing the same way over and over and over again or it implodes. So I’d much rather see there be 20 things all of which work. And some of those can be labor intensive. Some of them can be more traditional advertising and media purchases. Can you give us just a couple of quick examples?

I mean, are we talking you know, lead boxes, door hangers, referral contests?

What are you referring to? Well, I mean, in practical means is you end up with as a school, school’s growth increases. Everyone has a tendency to move more and more towards purchasing traffic rather than labor. I see. So so if I have a school 15,000 a month or 20,000 a month versus a school, let’s say one of ours doing 50, 60, 70,000. The school at the higher level is really much more capable of spending money in media and buying traffic. So they don’t have to do as much personal labor, but they’re going to spend more money. Got it. And so at the lower end and again, some of these things are things you should do no matter where you’re at. But at the lower end birthday parties. So birthday parties are a marvelous lead generation. Yes.

I’ve seen some people do well with lead boxes. We’ve done well in the past with lead boxes. We’re not doing much with it right now. I’ve seen some people do well with the with the VIP. I think every school has to have lots of different referral systems. Let’s go. What is the and I’m glad you brought that up because I’ve been getting a lot of questions about referral systems at NAPMA. We know they’re the least expensive source of new business and probably the highest quality leads that you can get. What’s the best referral system you’ve ever seen?

[1:04:07] A bunch of them. You know, I would have to say one of the best guys I’ve ever see it at perpetuating constantly is internal referrals is my friend Steve LaValle in Florida. OK. And you know, if I were to if I were going to define what his premise is, which is what’s important about it, is his premise is is that it’s much easier to get somebody to bring a friend to an event than it is to get them to just like drag them down for lessons. So what he tries to orchestrate and does it very effectively. He tries to organize like the monthly belt testing and anything else that a student would be involved with in the school to be a marvelous spectator or bring your friend activity and make sure that all of those bring your friend or spectator activities at the same time anybody who’s not enrolled student they get name, address and phone number.

Nowadays, email address, fax number if you can. They work to schedule them for an appointment and if they don’t get them scheduled for an appointment that they at least get contact information to follow up on. The second element that that’s they have a big belt graduation a couple days later they’ll have a big open house where those people are immediately invited back to come in and now be a participant rather than a spectator. I see. So so the principal I think creative events and the you know I mean the other way is you offer people a hundred dollar incentive to bring a friend and you get them a bunch of passes to get out to their friends. You know if I can interject something here there’s a lot of guys that are having events at their school but they’re probably not of the kind of mindset that Master LaValle is.

They’re not they’re not taking advantage of the situation. Yeah. And the and the thing that I probably most strongly bring to the table but you know my friend Keith after is also a master of this is the idea that when you are going to build in a system to bring friends in the school and capture their contact information name address phone number email address. You really have to follow up with them forever. So what a lot of us try to do is you bring a bunch of people down to the school and you make an announcement that anybody who’s not enrolled come down next Tuesday for a free lesson and then that’s it. Well most people aren’t going to take action or initiative on their own very effectively. Number one number two is just because they came down on the third week in September or first week in October whatever doesn’t mean that that’s the right time for them to get started into activity.

Keep them on the list forever. Yeah. I mean it may be that they’re in the middle of an activity right now or it may be that grandmother is in the hospital or it may be that they’re on the way out of town for a family trip for a month. And if you are going back to him with mail and you’re going back to him with email and you’re going back to him with telephone calls periodically and continuing to have events that you invite them back to October may not be the right time but January may be the right time. Yeah. I agree totally with that. I looked at one school who was doing a flood of enrollments from birthday parties. And the reality it was most of the enrollments didn’t come from when they came in the birthday party.

Most of the enrollments came from the direct mail follow up that got them on average back in the school in about five months. Yeah. There’s some good synergy there. Be sure to tune in next month for the conclusion of Rob Colasanti’s interview with Stephen Oliver. Till then I’m Mark Raden. Thanks for listening. The Sounds of Success is produced in Clearwater Florida. It is intended exclusively from members of the National Association of Professional Martial Artists and their staffs.