We live in excited times. Granted, there is the litany of global chaos which often puts a spanner in the works when it comes
to keeping morale upbeat, but one of the nice consequences of living in the modern era, is we have the possibility to work with what we love and to do it well – in this case Jiu Jitsu. There is however a catch called “emotion” (has anyone read the Chimp Paradox by Prof Steve Peters?) which often robs us of the vision to see things really clearly and to understand that paying ourselves well to look after students is a necessity, not a luxury. Thankfully we know more now about different kinds of business management, and leadership so ideology and hard strategy can co-exist very nicely. Paying yourself a well-earned salary simply means you can do more of what you love, and can do it in the way you want to do it.
Now for a lesson on pricing in ferocious detail!
What should the right price be? Something that’s fair and profitable, without also being a deterrent for the student to enter the academy. Academies usually set the price looking at the market, looking at the competition.
“This is definitely not the right way to do it, and I’ll explain why.”
Imagine that I have an academy with a maximum capacity of 100 students, and I charge for example R$200 a month (Brazilian currency, but it’s all relative!) because the academy next to me charges R$210 (I want to charge a little bit cheaper to be more attractive). The other academy however has a capacity of 400 students which means your calculations done this way can often be wrong – you can compromise both your capacity for growth and your revenue, which consequently has an effect on your profit. Sometimes you can have an academy at maximum capacity which is one of the hardest things to do, without generating profit, and this situation is difficult to revert because once you make a mistake on pricing, it’s really difficult to re-adjust the price without having any reason to do so. Maybe if you move academy, or if you do big upgrades you can justify charging more, but even in this situation it will be difficult to convince your student to pay more while he’s receiving the same service.
“The moment to price the gym is really important”
I will explain here the way to choose the right monthly price for your academy.
Let’s think about the maximum capacity of your gym. How will we calculate the maximum capacity? We will have a free 3-part YouTube workshop about this (and lots of other things) starting on August 13th where I talk about building a timetable. To do this effectively, we also need to divide the levels. You know that popular peak time which runs at the same time every day from Monday to Friday at 7pm? In that workshop I talk about a mat that’s 100m2 which can generate a 28-student capacity. By dividing this linear time into two different classes, the potential rises to 50 students. It’s a difference of 78% with respect to growing a student base, so we need to use that formula to create our timetable, to increase the number of students. We can reach that 50-student-maximum for a single 100m2 tatami.
Obviously, I can’t have this maximum capacity in every class so what do we need to understand? That 35% of the students are concentrated in the morning. The other hours in the afternoon e.g. 4pm, 5pm, 6pm, 7pm, 8pm are responsible for the other 65% of students.
What does this have to do with the calculation of maximum capacity? If I reach my maximum capacity at peak hours, it will represent 65% of my total. The rest is the other 35% – I can’t count the student maximum in all the time slots in the gym because it’s not real. If I could divide my hours with 50 students per hour, that would be great, but it doesn’t work like this. I have to think that I have 65% in the afternoon hours, and 35% of the frequency in the morning hours. This will take an academy with 100m2 and create a total capacity of 230 students. This will be the maximum you can achieve if you have one tatami with 100m2.
Obviously, to reach the maximum capacity you need to have perfection in your work. But we’ll use this as a base to give you an idea of your price. Remembering we’re trying to get your ideal price. If I have 230 students, paying me a monthly fee of R$100, I will have a revenue of R$23, 000. This is how we’re going to get to your monthly fee. This value is your total earnings. 30% of this will be your profit. But you need to ask yourself: Will I be happy to get 30% of this money here? R$6900 of profit? Will this money make me happy? To do all of this work? Could the profit be better? If yes, you need to increase your monthly fee.
Understand, this is maximum capacity multiplied by profit, which is your 30% on top of your maximum earning. Obviously, we need to factor in that there are other ways to increase profit. We have the shop, private lessons, and other options that we’ll talk about later. But I want you to understand that in terms of profit, your academy will give you 30% of your total earnings. When you get this number (profit) multiplied by maximum capacity, you’ll find your monthly price. Depending on the amount you want to earn, this will dictate your monthly fee. Understand that the frequency of the student that comes at night is always going to be greater than the student that comes during the day. If I can have a peak in my three main hours, these hours will concentrate 150 students, and what happens in the day time is 35% of this, at the most.
“This will take an academy with 100m2 and create a total capacity of 230 students.”
So, if you understand this division, you can understand your profit and you can easily work out your price. So, we got our monthly price from our maximum earnings, from our maximum capacity of students on a tatami of 100m2. I just need you to understand something before, because you might say: “that formula is easy. I got there. I found my monthly fee.” I need you to realize that the maximum capacity is an objective that’s often difficult to attain. To reach maximum capacity in your gym is a series of other factors, so I want you to take into consideration, the route. Let’s say I have an objective of 230 students, but I’m starting with 70 students. Between 70 students and 230 students is a long time, and within this period obviously you’ll need to be making money – you’ll need to set your monthly fee taking into consideration the path that you’ll take. If you have 70 students, and a monthly fee of R$100, you’ll have a total revenue of R$7000. Probably you’ll not going to have 30% profit with this number of students, so you can do this calculation until the moment where you say, R$100 a month is too small because only R$700 is left (10% of my revenue).
You’ll need to adjust your price to find a figure in the middle. Understand this maximum number; your objective and the number you’re aiming to reach. Have awareness of your route from 70 students to 230 students. It’s long and you’ll want to make money throughout this process, so you’ll have to find your monthly fee somewhere in between this. If I have 150 students, I’ll have a revenue of R$15,000. If I earn 30% profit which is our objective, I’ll make R$4500. This money is comfortable for me, so this is the kind of question you need to be asking, because your profit must be a value that is comfortable for you, that compensates you for your work. I want you to have success in your business, but also that the work you do with Jiu Jitsu is done in a way that makes you happy.