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STEPHEN OLIVER'S EXTRAORDINARY MARKETING
"HOW MUCH CAN YOU SPEND TO GENERATE ENROLLMENT?"
Everyone has heard that you should spend approximately 10% of
your gross revenue on advertising. However, that doesn't
answer many important questions about how to structure your marketing
for your school. Even within the 10% number - some of the
very TOP schools in the country vary from -0- direct advertising
budget up to as much as 20%. How do you figure out what to
Ultimately you must start with a number of what you are able to
pay for an ENROLLMENT - then track your enrollment ratios and figure
out - if for some reason it's important to you - what you can pay
for a call. And, how much you have to spend monthly to hit
your target numbers.
How much you can afford to spend for an enrollment ultimately
boils down to two factors:
Student Retention Rate and Your Tuition
This may not be what you expected - however,
how much you will be willing to pay for an enrollment will be greatly
dependent upon what the average enrollment is worth to you over
the life-time of their participation in your school.
Let me give you two extreme (but real) examples:
1st A school operates a kickboxing
program that has an average student life span of 3 months. In
other words - 33% drop out per month or, to maintain approximately
200 active students they must enroll 600 new members per year. Their
average monthly tuition per student is $49 for an average life-time
value per new member of $147.
2nd A school operates a very
solid martial arts program. That has an average student life-span
of 33 months. 3% of their students drop out on a monthly basis. Their
monthly tuition averages $130 per month. Their average life-time
value per new member exceeds $4,000.
In the first example - what would you be willing
to pay for a new student? Well if you kept your student acquisition
cost to 10% then you would be able to spend $14.70 per enrollment. If
you enrolled ½ of your inquiries you are down to $7 per info call.
In the second example at 10% you would be willing
to pay over $400 per new enrollment. If from a particular media
source your conversion ratio from call to enrollment was 50% then
you would be able to pay $200 per call.
See from these examples what a huge difference tuition
rate and student longevity make on your thinking?
When the Tae Bo and cardio kickboxing craze came along I have
to admit that it began to peak my interest - why? Cheap
info calls. I threw a couple of ads out and started getting
$5, $10, $15 info calls. That looked really great. However
after a few months I realized the huge gap in the economics between
my traditional martial arts program and this cardio craze.
Now I know that quite a few schools had some success with this - but
what I saw most often was successful martial artists taking their
eye of the ball on their traditional program lured by the sexiness
and popularity of the cardio craze. I saw some schools with
strong volume - 400, 500, 600 cardio students really only making
$5,000 to $10,000 gross per month from the cardio program. If
you can do that without disrupting your regular program then fine - however
this was often a matter of giving up dollars to chase dimes (or
Let's take the above discussion to a couple of more layers of
First - if we are to keep our average marketing budget
to around 10% of our gross - there is one other factor to keep
in mind. How many FREE enrollments do you get. What
do I mean by FREE? How many referrals do you get? How
many walk-ins? How many family add-ons? How many from
demos? How many from birthday parties? How many from
other labor intensive but non-advertising sources?
If you get ½ of your enrollments from sources like these. Then
you could double the amounts that I discussed above and still remain
within about 10% of your total gross going for advertising.
From example number 2. If that school has an average life-time
student value of $4,000+ and they spent $800 for an enrollment
from paid advertising sources. Assuming that ½ of their enrollments
were from free sources then they would still average 10% or $400
per enrollment - even if their student acquisition cost were $800
for paid advertising generated traffic.
Second - costs "At the Margin" versus "The Average." There
is an interesting concept from economics that applies here. First
understand what we mean by at the margin. If you spent $5,000
for the month on advertising the next marginal expenditure is dollar
$5,001. Often times in marketing efforts you may encounter "declining
marginal return" in other words for each additional dollar you
spend - you get less and less return per dollar.
In a sense this is what happens in every school starting with
the first dollar spent:
A school spends $0 on marketing and advertising in any given month. For
that month they get 5 new students as referrals and 2 as walk-ins. They
have 8 new students at $0 direct costs. If they then
spend $1,000 in advertising and get two additional students. They
now have 2 more students at a marginal cost of $500 each. Their
marginal cost per new student acquisition jumped from $0 to $500
immediately. Their average cost jumped from $0 to $200 per
How much are you willing to pay at the margin?
Ultimately look at that question like this one:
What is the most you would be willing to pay today - in order
to receive $4,000 over the next 33 months? Ultimately at the
margin you should be willing to pay a relatively HUGE amount of
money for one additional student.
Before we go any further:
Remember. All of the above discussion depends upon
the life-time value of your student. This number includes
all monies that that student will pay into your school including
down payments, exam fees, gross profit on retail items, monthly
tuition payments, and pre-paid tuition paid.
To get an easy approximation of this number for your school. Take
you year's gross and divide by the number of enrollments. Ie. $500,000
gross divided by 250 enrollments equals $2,000 average value per
student. If your numbers have been changing rapidly (especially
if that means you are growing rapidly) take the last 3 years numbers
and look at the sum from that longer term perspective.
How do you get your life time value of a student up?
1. Greater RETENTION (more longevity within your
2. Higher tuition rate;
3. Lower family discounts for 2nd, 3rd,
4th family members.
4. More retail sales;
5. Find more things to sell your students (supplements,
This article is from "Direct Marketing for Your Martial
Arts School" by Stephen Oliver, MBA it is a part of the Extraordinary
Marketing Program. Available at www.ExtraordinaryMarketing.com/EFC
(c) copyright 2001 Stephen
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Putting up a Web Site
a Great Advertisement?
the Things I Wish I Knew When I Was 22": Part 2
Everything is Negotiable
the Things I Wish I Knew When I Was 22": Part 3
Wealth vs. Lifestyle
Much Can You Spend to Generate Enrollment?
and other Diversions