Recently we had a typical event for martial arts school owners happen. Unusual for me over the past 27-plus years actually. I’ve only had it happen directly once before, but now 2009 was a blockbuster. What am I referring to specifically? Well, it’s the disgruntled former employee. Who after earning a good living, being treated fairly, and contributing to the bottom line, ends up in a slump. Then (since they are on commission) their income suffers. Then wife, girlfriend, husband or boyfriend and family members, friends, even students, start whispering in their ear about how they are making you rich.
How after all these years their income should have continued to go up and how they are the only reason for the success of the school, the owner or the students (conveniently forgetting the commission percentage thing along the way, or who taught them how to run the business in the first place.) Next comes the inevitable buildup. They start to look for small or large “inequities.” Start justifying their increasingly disloyal behavior.
Increasingly argue for or demand more and more money for less and less effort and performance.
Eventually, deciding that they should just take “their students” down the street to fully benefit from their own labor, and in the meantime, making an effort to stab at the owner, burning all bridges in the process. Now, over the years this has happened to just about all of my friends at one time or another. In some cases several times. It’s especially a plague among multischool operators.
That having been said, again I had been virtually immune to that syndrome from 1983 to 2009 . Then “out of the blue,” I had four in a row at some level or another. A couple very blatant, on-the-border of criminal (probably the other side of the border) . Oh, well As Nick Cokinos used to say: “Leave them to heaven.” Over the years MANY, probably even most, employees who at one time or another “left in a huff” have come back to apologize and ended up appreciating the training, opportunity, and income that they received. As often said, the grass is always greener…but, just as hard to mow.
By being the cheapest in town, for those who do compare, you end up pigeon-holed as the lowest quality school rather than as the highest or comparable.
One in specific stands out. Not as being particularly vicious, but in just the stupidity of the approach. A staff member who was practically raised in the organization (from age seven through mid-20s), who had really never had another job other than working directly for me or for one of our franchisee owner-operators, decided to burn out, leave in a huff, then move a couple of miles down the street and stab out while burning his bridge permanently.
Along the way he decided that the $60,000-$70,000-plus income that he had earned as young 20 something high school graduate and the skills he had learned were somehow wrong or misdirected. One particular thing stands out. He decided to become the cheapest school in the area by charging less than half of our prices. Advertising no down payment, no contract, no renewals and the lowest monthly tuition in the area.
It’s fascinating he intentionally (I say intentionally, because he certainly should have known better. I spent hundreds of hours training him) set out to cut his new student tuition in half and overall student value to one-third or one-quarter of what we were charging very successfully. Now understand the ramifications.
That means that he needs at least three students to our one to make a comparable gross revenue . If our average income per student is $300 and he committed himself to $99, then if we have 100 students, he needs 300 for the same gross revenue. And, never forget: to have a comparable student-teacher ratio, then you need more staff (perhaps much more) to have the same level of service and a comparable retention rate.
A few principles to remember about human nature as it relates to pricing:
First: “Absent other objective criteria–price determines perception of quality .” By being the cheapest in town, for those who do compare, you end up pigeon-holed as the lowest quality school rather than as the highest or comparable . Martial arts instruction is not “Sam’s Club vs. Wal-Mart vs. Safeway vs. 7-11 .” In those examples you can buy the SAME brand and type of toilet paper, wood cleaner or whatever and know that it’s an identical product. For martial arts instruction there is no such comparable. Ultimately, prospective students and parents want the highest possible quality that they can reasonably afford. They do not want the lowest quality.
Second: Rarely do prospective students shop around. They may ask early on about price, mostly because they don’t know what else to ask.
However, the decision making process for a new student is that they first decide whether they want to take lessons from you or not. Once they’ve decided that (in a vacuum unrelated to price), then they decide whether they can, in fact, afford lessons. It’s okay if you lose a reasonable percentage of prospective students to the condition of being unable to afford your standard tuition . It’s never okay to lose a prospect because they think that your lessons are overpriced or too expensive. If so, that means that you are poorly communicating the benefits of your program.
Third: It’s impossible to “Make it Up in Volume.” You will never have students flocking to you due to low price. You’ve got to approach prospective students about the benefits of your program and then find an adequate number who both love what you do and can afford a reasonable tuition rate. If you are getting more than say 20% who can’t afford your tuition then you may be “fishing in the wrong pond.” If that happens evaluate how you are marketing to get new students. If you already have a school full of “broke people” then focusing on referrals is likely not the best strategy since people tend to associate with others of similar socio-economic status.
One other very important principle:
You must be constantly on the lookout for ways to improve the value of your program and effectively communicate that value to new and existing students . Added value is about both real outcomes and about focusing more an more about ensuring that students truly achieve their desired outcomes.
This conversation about pricing leads back to considering how to think about pricing in all areas . Certainly anytime you are purchasing “generic products” or branded products and choosing among different vendors then low price is a useful tool unless lowest price involves too much inconvenience or a requirement for too much quantity.
In all businesses there will always be vendors who are willing to lower quality, to cut corners, or to skip steps to offer cut rate prices. In the martial arts business we’ve seen many “consultants” and “teacher’s associations” whose primary distinction is that they offer what looks similar at lower pricing. In some cases it’s “online only,” and in others it’s poorly assembled support tools put together by those who really have little or no concept of how to move your school to the level you desire. It’s fascinating to see the range of bad advice that school owners are willing to tolerate. We’ve pulled back the covers at NAPMA and made sure that we are truly providing the information and tools to move schools to $30,000, $50,000, $75,000 or more per month.
Some high-profile consultants have never owned a school and have never helped a school move from $15,000 a month to $50,000+. Other’s last operated a school 15 years ago, 20 years ago or more. Frankly, the business has changed A LOT since then.
In the case of The Karate Kid recently several others imitated what we were offering but often designed and organized by individuals who had either never had experience in this type of movie promotion or who have never run a successful school themselves. We’ve received emails, Facebook communications, and watched external discussion boards . Some who pursued low price–and obviously didn’t know the difference of quality versus price ended up with one or two enrollments from The Karate Kid versus as many as 500 appointments and 50 to 100 enrollments. Saving a few hundred dollars cost them $100,000 to $350,000 or more in lost revenue.
Oh, and next month I’ll discuss the steps to prevent staff members from ending.
