Contracts are used to keep people who decide to join your school paying. In my opinion, they scare away a lot of customers from joining a school in the first place. A person training because they have a contract is not the same as a person training because they want to be there. Things also happen in life that limit people from continuing thier training. I don't think it is right to force a guy to buy out his contract if he's lost a job, moved, going through family isssues, health issues, etc.
I don't see any problem with contracts, depending upon how they're used in a school. As with any lease, month to month payments should be reasonable and fair, but if a school owner offered a discount for paying 6 months or a year at a time, I think that's great.
If it were me, I'd offer the discount for longer term payments, and if someone decides to quit, I'd charge the difference between their discount and the full price. In other words, they don't get the discount, but I wouldn't screw them either.
They can be a tool for a school owner to realize long term contracts as immediate cash flow. Ex. school owner sells a 36 month contract to student at $100 a month saying it is a $135 a month value (what he would charge for a month-to-month arrangement). He in turn sells the contract to an external billing company at $80 a month who takes over the collections and cuts the school owner a check for the total amount ($80 * 36).
Risk assessment aside for either the student or school owner, that is the frequently the point to these long term contracts. They give the school owner upfront money to use to make improvements around the school or for any other reason.
Thanks for the input. I remember when I was a young buck trying to find a worthy school, I found a school that interested me, so I talked to the owner and he offered me a free lesson, so I took it but didn't sign anything. After the lesson was over I decided that his school was not what I was looking for so i never returned. A month later I get a call from a collection agency saying that I owed alot of money to that school. I was very upset. So at my school we don't do contracts either we call them agreements between us and them, and if something comes up all we ask is that they come talk to us and if we can work something out then great, if not then we part with no attachments. Most of the time they come back at some point and we are happy to receive them again.
At our school we do use contracts, though we do call them agreements as well. We also give discounts for longer term agreements. Our basic program has a 3mth, 6mth and 12mth. We also offer a 2 year and 3 year program for our special programs. Contracts are useful as they do help hold people accountable more so than non-contracts. Plus they help you better plan to see where you are in meeting your expenses on a month to month basis. It can help you set goals for your business.
The trick is to be flexible when needed. There are times that life happens and some one may need to get out of their contract due to moving or injury which will prohibit them from doing activities, or other circumstances. Place in there that you will need a notification so that you will not be left high and dry if they just suddenly decide to leave due to Johnny wanting to play baseball instead of doing martial arts. A lot of people treat contracts as bad things, but in the end you pretty much have to sign a contact for almost everything you do...health club, rent a house, buying a car, etc.
Our GM uses them (and I think a lot of other schools in this area), and when my fiance and I open our school (next month!) we're going to also. It's a way of maintaining a reasonably consistent cashflow, so you can plan ahead and make sure you can pay the rent and stay in business.
Of course, you have to be reasonable about it, and let people out of the contract if they move away or lose their job or whatever. It's really just the same as a gym.