The formula for Karate School financial success

A powerful formula that I shared with you already while discussing how a Mile High Karate school generates revenue. Here I will expand upon that formula.

The formula again is as follows:

New Enrollments X Tuition Rate X Retention Rates X Renewal Upsells X Cash Ratio

Really, I believe that properly applied this formula encompasses just about every important factor in improving the financial results of your school. An improvement in any piece of this formula can have a dramatic impact on your “bottom line – net profit” and, on your “top-line revenue.”

Let's take a quick look at three of these factors: Retention Rates, Renewal Upsells, and Cash Ratio.

There has been a creeping mythology by some of the billing companies – that accepting cash up front as opposed to a monthly payment is a bad or, even illegal activity. This goes right along with the myth that students should enroll at a given price per lesson or month – and, just go right along paying that rate forever (which of course means until they dropout.)

There is a huge problem with the philosophy of never accepting cash: Students dropout.

Certainly one factor (but, only one) in the long-term financial health of a school is minimizing student attrition (drop-outs.) The industry average dropout rates probably range from 7-10% per month. Now to give you a comparism – I did a little research and found that Harvard University (not known for it's easy curriculum) has a graduation rate of 93% -- put differently Harvard has 7% of their entering freshment who will dropout sometime in the four or five year process of getting their degree – 93% of those entering freshmen will hang in their all the way to their degree.

What would happen if you could get your school to have a 93% graduation rate to Black Belt? If you enrolled 250 new students this year you would graduate over 225 Black Belts in four years.

The absolute BEST dropout rate I've been able to find in our industry is around 2% per month – or approximately 100% by the end of four years – again compared to Harvard's 7% by the end of four years. Again, I believe that our industry average ranges from 7% to 10% PER MONTH dropping out.

If the numbers I've just quoted are anywhere near accurate what that leads us to is two conclusions.

First, I someone pays you upfront for three or four years ahead – then there will be a bump in revenue as opposed to them paying monthly over that same period of time.

Second, A huge opportunity for improvement in all martial arts schools is figuring out how to extend the average length of time that a student continues to train in your school. Dropping the attrition rate monthly from 7% to 3.5% per month will DOUBLE your active count – and, boost your revenue per student dramatically.

Next – the Renewal Upsell.

If you are a good martial arts instructor – do you think that it is possible to build a perception of value over a couple of months that exceeds their perception after one or two introductory lessons? It seems obvious to me that if your program is high quality and if your instructors are good – then a student after a couple of weeks or after a couple of months should be more tuned into the value of instruction than on their initial couple of visits.

Also, in the long-term of your program is the value of a white belt lesson comparable to the lesson a Black Belt would receive?

Maybe going back to my example from academics. Is tuition for a quality private high school, BA level college classes, Master's level college classes, and a Ph.D. program of comparable value? Do they price them the same? If you don't know the price per class hour typically escalates significantly at each step up (and, at the same time the number of students at each level typically declines significantly.) When I completed my MBA – it was an Executive program only accepting individuals with a minimum of 10 years in management experience. The director of the program gleefully explained that we were in the highest profit per student program at the university.

A very successful school operator that I knows works it out like this: Basic course (new enrollment) $120 per month, Black Belt Course: $150 per month, Master Club: $175 per month, Leadership program $200 per month.

At Mile High Karate we do it this way: New enrollment: $159 per month – Master Club $250 per month.

To sum up this initial overview:

First, go to work on your student retention rates. Make every effort to extend the average training time of each student.

Second, have a renewal upsell that you implement quickly into their enrollment (2 – 4 months.) That renewal program should bump up their tuition and, give them a cash option with some incentives to pre-pay the tuition.

hird, Target a fairly high percentage of cash programs at the renewal. We target 35% or more cash at Master Club. It boosts our average revenue per student – and, gives those students more incentive to continue training to the completion of their Black Belt.