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 do specifically?
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 Rate.
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 even pennies.)
Let’s take the above discussion to a couple of more layers of complexity.
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 enrollment.
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 students;)
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, clothing, etc.)
This article is from “Direct Marketing for Your Martial Arts School” by Stephen Oliver, MBA.
To contact Stephen Oliver and his Martial Arts Wealth Mastery visit their listing on the Martial Arts Schools and Businesses Directory by clicking on the image on the left.