Contract Schools.

arnisador

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Your outdated feeling about how a school should be run and operated is no burden to lay on a layperson. Contract schools will outlast any mom and pop school. The number of students they retain will make the experience more positive all around for everyone. They will have better equipment, more instructors, and the security that the other fellow students aren't just bums off the street itching to hurt as many people as possible before they flake away.

I don't like contract schools for myself, but for anyone trying to run a business the use of contracts is important for maintaining a steady cash flow. Bills must be paid all year round and it's hard to make a budget with month-to-month payments. Some people do it, but at a certain size it becomes very difficult.

I think it's fair to suggest that people consider the many benefits of not being tied into a contract and the risks that signing one entails, but it's not the case that a contract school is necessarily bad--more that contracts can be a necessary evil.

It is important to point out that some schools with long-term contracts, frequent and expensive belt fees, required private lessons at additional fees, etc., are basically financial scams intended to deparate parents from their cash in the name of their children.
 

Cruentus

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Bottom line: Schools have overhead, and need to make $$ to survive. What I find is that many martial arts instructors are not good business people, and this is the problem. Fee's are fine. The problem is a lot of owners don't know how to charge, what to charge, how to do a balance sheet, how to budget, etc.

These people usually make the mistake of not disclosing all the fee's involved ahead of time. They may fail to mention testing fee's, uniform fee's, equipment fee's, etc. This tends to piss people off; nobody like to get a suprise of more fee's once fee's are spent already.

Plus, people don't do enough hypotheticals to figure out the best way to structure their fee's.

For instance; one person might have a $150 start-up fee, and $60 a month tuition. This is quite common. If the student stays in for a year, it would cost them $870 for the year at this rate. The problem is they have to fork over $210 just to start training, and they don't even know if they are going to quit in 3 months. They might hesitate to start training this way, procrastinate, or just plain not join at all.

They instead could give the student the 1st 2 weeks at no cost or obligation for a trial run. If they like it, then they could pay $150 up front. This will cover their first and last months training, including the 2 week trial that they already took. The monthly fee is $75 instead, which they start paying the next month (in 2 weeks really, because they already had their 1st 2 weeks of lessons). If they do a year of lessons that way you end up with 900 per year from that student, plus a 75 month cushion of "last months tuition" which makes it $975 per year really. That is over $100 difference for the owner that the client will be happier to pay, as I'll explain below. Also, if they were to quit for, say, 6 months, then they would require to pay 1st and last month when they start up again. Just like insurance.

This does a variety of things:
#1 The student/parent doesn't feel like they are possibly getting screwed by having to fork over $210 upfront, when they don't know what they are getting into. One trial class isn't enough. They have 2 weeks to decide. Most likely if they were really interested they will like the 1st 2 weeks, and will be happy to sign up, and they won't feel like they are getting screwed.

#2 A "start-up" fee doesn't make sense in the Martial Arts business. Start-up fee's make sense when there is a considerable cost or labor that goes into starting a program or product. There isn't a cost or labor that the school would incure in starting up a student. The student knows this as well. No matter what arguement is used to justify it, the "start-up fee" just seems like a way to get extra $$ to them, which it is. If you say it's 1st and last months tuition, like insurance, then this is likely to make more sense, yet you are still getting your upfront charge that will help you keep a roof over your head.

#3 There is no difference in the long run between 60 or 75 a month for the client. If they find value in what you are doing, an etra $15 per month won't matter. It would matter, however, if there is a seemingly unjustified start-up fee to them, and they may not join. The extra $15 will matter to you, however, when you are paying your bills.

#4 By having had them pre-pay last months tuition, you are saving yourself a ton of headaches. You don't have to hound people, or track them down every month to get them to pay, hearing stuff like "oh, I forgot, I'll bring it next time." You set the payment date, but if they forget, they don't have to stop classes right then for them until they pay, or continue classes for them leaving you to wonder if they are going to bolt w/o paying for their last few lessons. You have a month to sort it out.

You also get more of a "heads up" if they are going to discontinue their lessons. Usually, when tuition is due, they will come to you and say, "I'm going to use my last month up this month, then I'm going to take a break for a while." As an instructor, it is good to get a heads up with these matters.

#5 Your getting more $$ in the long run per student, while making the new student more comfortable in starting by having the chance to experience it for awhile with no strings attatched, and by not having to pay fee's that seem useless and bring no value to them (like start-up fees). The difference between the 2 is $105 per year per student. This may not seem like a lot, but if you figure that you have 100 students, this means the difference between 87,000 and 97,500 per year in tuition $$ to run your school. an extra $10,500 in this case is a hell of a difference.


This is just one example how carefully planning and doing a hypothetical analysis can benefit both the school and the students in the long run. There are a million other ways to do these things that I can think of, depending on the situation.

Other problems are when schools have hidden charges because they are scam artists, and they are trying to "suck" people into spending more $$. Again, this is not only unethical, but this is a poor business practice, and will not benefit an owner in the long run.


Whew...I didn't expect my post to be this long! :soapbox:
 

Touch Of Death

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Yes, contracts require you to make a commitment. If one year is to long then exactly how long does it take to learn karate? You will just have to be resolved in the fact that if you choose a contract school, your child will either have one year of training or no years training. Yes this chases dabblers away. A thousand dollars worth of cigarrets vs a thousand dollars worth of karate. Its not a hard choice for some. Hey at least those that chose the cigarrets can get their kids one of those cool inhalers to use in PE.
 

KenpoTess

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when Seig and I opened our school.. we were flat out anti contracts.. thought they were just wrong for business.. well 2 plus years down the line.. we have rethought this concept and unfortunately are going to go to the contract.. Too many of the kids parents are, irresponsible in payment or the child just doesn't feel like going to class anymore and whammo.. there goes the rent money..
As far as business people.. I agree.. most martial artists are not good in business.. and unless they majored in it.. or had experience other in their lives.. why would any of us be good in it... too busy training :) We need Mentors at times.. hmmm striking an idea here..

Yeah that's it.. People who are good businessmen/women.. fellow martial artists who can donate time and knowlege to school owners.. now what a good concept that is :)


contracts. bah.. but necessary.. yeah.. in most cases.. always an exception to the rule.. We won't be asking our current student body to sign one.. but anyone new.. oh yeah..

we'll see how it goes over.. ~!
 

don bohrer

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I don't agree with yearly contracts for a new student. You should go month by month until you can evailuate the school and instructor. The only plus of a contract is most people quit shortly after they start. The dropout is usually associated with a realization that it's going to be work, and I don't move like the guys on TV. However if you can get through that little realization then you may find martial arts is right for you. Long time students who do sign should get a discount for they're commitment.

That's it in a nut shell for me.

Back to you Paul and Touch'O' Death!
 

don bohrer

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Tess,

I do understand the payment problem and accountability part. One of our students got $150 bucks a week... a week for allowance. We still had trouble getting his parents to pay. :mad: Go figure!

Are you and Seig going to offer a short trial period, or a small discount on monthly tuitions if under a contract?
 
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arnisador

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The twin ideas of chasing dabblers away and keeping students in long enough for them to get over that initial discouragement are both important.

Sometimes you can't give martial arts instruction away. If you don't charge but teach for free, many people put little value on it--they show up irregularly, take it less seriously, and so on. I always recommend that instructors charge at least a "token fee' to keep dabblers away and to put a value on it for others. The fee can be dropped after the student has been coming for a while and made some gains.

It's only good business sense to keep students coming for a while so they can get into the rhythm of it. It's a business model similar to a gym. Some have month-to-month contracts, but most don't--for many reasons (the collection issue is another).

PAUL, great post!
 

phlaw

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"CON"tracts suck. The instructor I train with has been teaching successfully for well over 15 years with no contratcs. If the instructor is good and fare then the students will respect you and pay on time.

I will never go to a school with contracts.
 

Touch Of Death

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Originally posted by phlaw
"CON"tracts suck. The instructor I train with has been teaching successfully for well over 15 years with no contratcs. If the instructor is good and fare then the students will respect you and pay on time.

I will never go to a school with contracts.
Success is relative.
 

OULobo

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(Sorry for the length on this one)

Originally posted by Touch'O'Death
Yes, contracts require you to make a commitment. If one year is to long then exactly how long does it take to learn karate? You will just have to be resolved in the fact that if you choose a contract school, your child will either have one year of training or no years training. Yes this chases dabblers away. A thousand dollars worth of cigarrets vs a thousand dollars worth of karate. Its not a hard choice for some. Hey at least those that chose the cigarrets can get their kids one of those cool inhalers to use in PE.

Or you can learn MAs from a school that doesn't have contracts, stay off the cigs and save the differance in cost to spend on video games. ;)

I'm not attacking you TOD, I just think there are more options than you listed. Personally, I dislike contracts. I don't see them as dishonest or dishonorable, I just see them as one sided. I do understand how some MA businesses require them, but my problem is that I don't see MAs as a business. I think MAs should only be taught to the deserving and respectful, and businesses seek to maximize enrollment to make more money. My current instructor has no contracts, but he doesn't run the school like a business. He was a partner at a school that was run like a business for a while and he left because his best and most loyal students wouldn't obey the policies that his partner had applied to the school as a whole. Solution: new school, familiar students only to start and add friends as the days progress. There are still monthly dues, and he still has to "put the hammer down" every so often, but all he has to do is warn a few times or in the odd occurance this doesn't work, tell the nonpaying student that things have gotten out of hand and he is not welcome to practice until dues are paid. Attendance quickly (under a year) out grew the old school and things are running smooth. No contracts needed.

Originally posted by arnisador
Sometimes you can't give martial arts instruction away. If you don't charge but teach for free, many people put little value on it--they show up irregularly, take it less seriously, and so on.

When I was in college we had a university sponsored club for MAs. We charged $15/quarter, that's $45/year. This was only charged because it was required by the university. Eventhough we were basically giving away the knowledge many people didn't see the value or didn't have the motivation. The fact is that in college, MAs (and studies) take a back seat to lifestyle (read drinking and video games) when it comes to budgeting time and money. When we had a our core group of people we waived thier fee and just chugged along with training. If new people wanted in, they were more than welcome, free of expectations and dues. All that was important is that you showed up and trained. I do have to add though, that we had the benefit of universtiy sponsorship. That means no bills or rent or costs except equipment (and we could get funds for that too if needed). There was no greed because if dues were charged then it went to the university club fund and had to be spent on equipment or events. Any extra went to the university. We actually had times when we were looking for ways to spend money.

I guess my bottom line is that contracts are great for businesses but martial arts is for family (my MA brothers are as close as family to me anyway) not business.
 
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Elfan

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Originally posted by PAUL

#2 A "start-up" fee doesn't make sense in the Martial Arts business. Start-up fee's make sense when there is a considerable cost or labor that goes into starting a program or product. There isn't a cost or labor that the school would incure in starting up a student. The student knows this as well. No matter what arguement is used to justify it, the "start-up fee" just seems like a way to get extra $$ to them, which it is. If you say it's 1st and last months tuition, like insurance, then this is likely to make more sense, yet you are still getting your upfront charge that will help you keep a roof over your head.

I know of one martial arts school owner who experimented between free start up and fee of some sort. He found that he got many more sign ups with the start up fee because people fealt they were getting something of value because they had to pay for it.
 
L

lvwhitebir

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Originally posted by PAUL
#2 A "start-up" fee doesn't make sense in the Martial Arts business. Start-up fee's make sense when there is a considerable cost or labor that goes into starting a program or product. There isn't a cost or labor that the school would incure in starting up a student. The student knows this as well. No matter what arguement is used to justify it, the "start-up fee" just seems like a way to get extra $$ to them, which it is. If you say it's 1st and last months tuition, like insurance, then this is likely to make more sense, yet you are still getting your upfront charge that will help you keep a roof over your head.

Start up fees sometimes do apply. My students get approximately $100 worth of gear when they first come in. I don't do long-term contracts, but do have 3-month contracts. I found long-term contracts too taxing for those that want to leave early and are willing to give you the verbal abuse until you let them. Never liked the headache.

Contracts help the student in a few ways:
1. They make a committment. It helps them to stick with it.
2. It fixes their price for the period of the contract. The instructor can't raise his price on you for any reason.
3. Usually longer-term contracts have a significantly lower monthly rate because the instructor knows he has your business.

I like the idea of short-term contracts until the student has been there a while and has shown their commitment. Then you can bring out the longer ones.

WhiteBirch
 

Cruentus

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Another thing that might help is to have different "contract options." The longer the sign up, the better the cost advantage is in the long run.

Here is an example of a payment structure that allows different options:

#1 Pay per class, upfront each class, $15 per class.

#2 Pay per month, with 1st and last month upfront, $100 per month.

#3 Pay for 3 months, $255. That equals out to be $85 per month.

#4 Pay for 6 months, $450. Equals $75 per month.

#5 Pay for year, $720. Equals $60 per month.

#6 Pay to black belt. 3 year time limit, unlimited lessons until black belt, or three year time period. $1,800 (not including testing fees). This equals out to be $50 per month if they use the full three years.

This is just one example, but if you are doing contracts you can make it advantagious to get into longer contracts. And...who cares if they don't? This just puts more $$ in your pocket. If a student only wants to pay per class, they will have spent $90 by their 6th class. If they only want to pay per month, then it costs them 1,200 a year if you don't include "last months rent".

Customers like options. They don't like to feel like they are being conned or forced into a "contract." By giving them differen't options, they feel better because they are choosing how they want to pay and for how long, rather then you "backing them into a corner" with contract requirements. Not everyone is the same, so differen't payment contracts will suit different people. And, it will be cost effective for you to do it this way.

I would only give a student a week of a trial run before they have to choose how they want to pay, especially if they have the option to pay per class.

For fun...here is a hypothetical. Here is a student/payment outline for a school for 1 year.

My proposed fee structure:
A. 15 students pay for 3 classes and drop out - total: $675
B. 4 students show up for 4 classes per month, and pay per class - total: $2,880
C. 30 students pay per month, but drop out in 6 months: $18,000
D. 20 Students pay per month, and stick with it for the year: 24,000
E. 10 students pay for 3 months, and drop out: $2,550
F. 10 students pay for 3 months 3 different times, and drop out: $7650
G. 10 students pay for 6 months, and drop out: $4,500
H. 15 students pay 6 mo. twice (don't drop out): $13,500
I. 20 students pay for the year: $14,400
J. 3 students pay for the 3 yr: 5,400

Total students: 137 Annual school Income: 93,555

Same Hypo with a manditory yearly contract of $800 per year.

A. Out of the 15 students who would have dropped, only 1 signed up for a year and is very unhappy and taking you to small claims court: $800
B. Out of the 4 students who would have paid per class, You must figure that they have schedules that only allow them to average once a week for training. So, none of them wanted to commit for a year: $0
C. Out of the 30 students who would have paid per month and dropped out in 6, you gotta figure that only about have of these would actually commit to a year. So 15 year commitments, 8 unhappy after 6 months: $12,000
D. Out of the 20 that payed for per month and stuck with it, You gotta figure that only about 60% would actually commit for a year. They wouldn't have paid per month if they knew they would have been in for a year in the 1st place. They'd rather pay 100 per month with the option of quiting anytime, then pay 800 for a year. So about 8 went to the neighboring school w/o the year long contract. This leaves 12 year long contracts: $9,600
E. Out of the 10 students who paid for 3 months and dropped, most of these only did it because they realized that 255 for 3 months is better then 200 upfront for 1st and last month, plus 100 per month. Considering this you gotta figure that only about 3 of these would be convinced enough to do a year contract, and that they'd be unhappy after 3 months. 3 contracts: $2,400
F. Out of the 10 who paid at 3 mo. intervals at 3 different times, probably about 6 of these might have done a year. You gotta figure that they were only on the fence in the beginning, otherwise they would have signed up for a year. The other 4 went down the street. 6 contracts: $4,800
G. Out of 10 who paid for 6 and dropped, the odds are better that they would have paid for a year. so, lets figure 8 do a year: 6,400
H. The odds are also better that out of the 15 who paid for 6 mo. twice, they'd do a year in the beginning. So figure 13 out of 15 contracts: $10,400
I. All 20 payed for a year: 16,000
J. The three that would have paid for 3 yrs paid for a year: 2,400

Total students actually commiting to a year: 81
Gross income for the school: $64,800

Also, notice with year long contract hypo, there are a lot of unhappy people for whom the year long contract wasn't suited for them. These will all be former students who will be going around town talking about how big of scam artists your school is for forcing people into unfair contract agreements. So, which school do you wanna be? The figures don't lie; and I don't think I was unrealistic in my numbers. If anything I was modest in the # of students who actually attended, and generous in the amount who would actually commit for the year.

PAUL

Disclaimer: Please keep in mind that I typed this a lot faster then you might think. So, Arnisador can check my math (lol, I know he will anyways, even if I didn't say that). If I was wrong in something, which I son;t think I was, please understand that this was only a hypo, and that I have a real job to attend to with little time to check spelling or #'s on my martialtalk posts! :D
 

Cruentus

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Originally posted by Elfan
I know of one martial arts school owner who experimented between free start up and fee of some sort. He found that he got many more sign ups with the start up fee because people fealt they were getting something of value because they had to pay for it.

I agree that you have to charge something, otherwise they won't value it. However, start-up fee's just for the sake of having a fee doesn't bring as much value to your product as having that fee actually represent something. Whether it be 1st and last months tuition as in my example, or whether the fee includes your uniform/gear, or perhaps it represents your 1st testing fee, or some combo of the three.

It's not the $$ that's a problem, it is what is that $$ representing. If it represents nothing more then a fee "just to start taking classes" outside of the monthly tuition, clients will not see the value in having to spend that fee.
 

Nightingale

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I really liked the way my old instructor did contracts:

start up fee: $29.99. this pretty much covered the cost of the mid weight uniform and patches.
included in start up was 3 private lessons and two weeks of group classes.

after the two weeks, if you wanted to continue, you were required to sign a contract.
contracts were either 3 months, 6 months or 12 months.
3 months at $65 a month, 6 months at $60 a month, and 12 months at $50 a month. After the initial contract concluded, no further contract was required... you could go month to month at $75 a month if you wanted to.

his reasoning: "I can't teach you anything worth knowing that's going to stick in your head long enough to be useful if you won't make the commitment to give me at least three months... and, if you sign a longer contract, making the commitment to the school that you'll be here, in exchange for that commitment, I'll give you a bit of a price break."

I really liked the flexible terms of the contract, and that after your contract expired, you weren't forced to sign another one if you didn't want to.

The main purpose of the three month minimum was to get people over the initial uncertainty of feeling out of their league, like they can't do it, they're too out of shape, or whatever. once people passed three months, they tended to stay for quite a while.
 

Cruentus

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Originally posted by Nightingale
I really liked the way my old instructor did contracts:

start up fee: $29.99. this pretty much covered the cost of the mid weight uniform and patches.
included in start up was 3 private lessons and two weeks of group classes.

after the two weeks, if you wanted to continue, you were required to sign a contract.
contracts were either 3 months, 6 months or 12 months.
3 months at $65 a month, 6 months at $60 a month, and 12 months at $50 a month. After the initial contract concluded, no further contract was required... you could go month to month at $75 a month if you wanted to.

his reasoning: "I can't teach you anything worth knowing that's going to stick in your head long enough to be useful if you won't make the commitment to give me at least three months... and, if you sign a longer contract, making the commitment to the school that you'll be here, in exchange for that commitment, I'll give you a bit of a price break."

I really liked the flexible terms of the contract, and that after your contract expired, you weren't forced to sign another one if you didn't want to.

The main purpose of the three month minimum was to get people over the initial uncertainty of feeling out of their league, like they can't do it, they're too out of shape, or whatever. once people passed three months, they tended to stay for quite a while.

That's not that bad either. Using a low start-up cost (29.99) so they can get a feel for it, but they aren't having to feel presured into a contract, and the school still gets some $ for it. Then they are required to make a commitment to continue, getting price breaks for the longer commitments. Good idea. If I were an owner doing it that way, I'd probably have to go about $10 more expensive then the figures listed to cover for inflation (you did mention "old" instructor, so maybe this was a few years ago) and the S**tty economy, but that;s just me. ;)
 
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