Setting tuition prices for your youth activity center can be tough.
While various factors can affect a business’s bottom line, one of the most important components to bringing revenue into your business is through tuition payments. That’s why we’ve put together these three easy-to-understand strategies you can start implementing now to help grow your business’s bottom line.
Before we dive in to ways to increase revenue, let’s first understand what percentage of your revenue is profit.
Understanding your profit margin
Profit margin is the amount by which your businesses revenue from sales exceeds costs.
As an owner or director of a youth activity facility, chances are you collect tuition on a monthly or per session basis. We’ll talk more about these options later. Until then, do you know what percentage of those tuition fees you profit from?
If your business follows industry norms, tuition income typically gets divided in the following ways:
- 40 percent goes to labor costs;
- 20 percent goes to rent;
- 30 percent falls into the other category for things such as utility expenses, marketing expenses, insurance and benefits, credit card processing fees, etc.;
- 10 percent of each tuition fee collected going toward your business’s profit margin.
Before we go any further, let’s examine some benchmarks for profit margin.
As a former gymnastics gym owner turned CPA, Sean Dever knows a thing or two about the financial side of the youth activity center industry. According to Sean, a profit margin of 10 percent is average. If you’re in this range, you’re doing good as a business owner.
He continues that a profit margin of 15 percent, if you aren’t there, is an excellent goal. And any profit in the 20 to 25 percent range shows that you’ve got a strong pricing strategy and are good at keeping costs in line. While this higher percent profit margin is rare, it’s never a bad idea to set goals for your business to increase its profit margin over time.
3 ways to increase your bottom line
Now that you have a better understanding of what portion of tuition payments is going toward your profit margin, let’s look at some ways you can beef up your bottom line.
Lucky for you we’ve put together these three easy-to-understand strategies you can start implementing now to help keep your profits where they belong– with you.
1. Bill tuition monthly
Traditionally, youth activity centers bill students per session, but that practice is quickly becoming outdated.
When was the last time you paid your heating bill at the beginning of fall? How about never.
As consumers, we’re used to being billed for utilities monthly. Whether it’s our cell phone, power, gym membership or mortgage bills, we survive on a month-to-month billing cycle.
Your customers are conditioned to make payments in the same way, so do them a favor and bill monthly.
If you’re holding on to the per session billing cycle because you’re concerned about tracking down monthly payments, let that fear go. While you’re updating billing policies, go ahead and make it a policy that every family needs an active credit card on file. That way when you go to batch process your facility’s monthly payments, you won’t have to hunt down unpaid accounts.
2. Increase tuition consistently
There’s no better opportunity to increase your bottom line than through pricing and price increases.
When was the last time you increased your tuition fees? Did you increase by a dollar amount or a percentage?
As a rule of thumb, always think in terms of percentages when increasing your facility’s tuition fees, and always increase your fees consistently. Don’t know where to start? Use 5 percent as a guideline to increase tuition and then apply that increase annually.
Let’s compare percentage increases to dollar increases to put things into perspective:
A $3 monthly increase to tuition in year one could equate to a 5-6 percent increase, while in your second year that same $3 may only represent 3-4 percent increase, and so on and so on. As your denominator increases year-over-year, that set dollar amount increase will become less and less impactful to your bottom line than an annual percentage increase would be.
Whatever percentage you choose to increase tuition fees by, stick to it. Your customers expect the increase anyway. Because no price ever stays the same, right?
Another tip when increasing tuition fees is to push the market.
What does that mean, you ask? It means that if you increase prices and you don’t lose a customer, then you didn’t increase tuition prices enough. When your facility is full or classes are at capacity, you should strive to decrease your clientele by no more than 20 percent with each price increase.
3. Stop discounting
The most dramatic way to see an increase to your bottom line is to stop offering discounts. Notice I didn’t say incentives.
So what’s the difference between a discount and an incentive anyway?
Discounts are a deduction from the usual cost of something- such as tuition- typically given for prompt payment or for buying in bulk. Incentives, on the other hand, are discounts on goods or services offered to customers, usually as a reward for repeat business or for bringing in other customers.
An incentive is more of a one-time offer, while discounts are typically recurring.
In the youth activity center industry, we see discounts in many forms and amounts, such as discounts for siblings and students taking multiple classes at the same facility.
In a recent webinar given by Sean, who in addition to being a CPA is also a discounting guru, he used the following example as a way to put discounting’s affect on your bottom line into perspective.
Remember your facility’s profit margin from above? Let’s say your profit margin is 10 percent. Did you know that any discount you offer is taken out of that 10 percent?
So if you’re offering a 5 percent sibling discount to a family and another 5 percent multi-class discount to a member in that same family, you’re completely erased your profit margin.
Take some time between now and the end of the year to really examine your discounting structure. If it turns out your discounts are equivalent to your profit margin, or that in some cases you’re actually losing money off families- make a plan to stop discounting.
A great way to achieve a no discounting policy is to not offer discounts to new enrolling students. Then take a year to grandfather everyone who is currently receiving discounts at your facility to the new no-discount policy.