After School Pricing that Makes Sense and Cents
4 min read
Setting afterschool class pricing can be tricky, but no matter what type of afterschool program you have, the fee you charge for your services will have a direct effect on the success of your business. Your mission might be helping parents and children with enriching classes and activities, but you must also realize you have a business, and in order to stay in business and provide for kids, you need to make money, even if you’re running a nonprofit.
There are several after school pricing strategies, and while it might seem complex, the basic rules of pricing are straightforward:
-All prices must cover costs and profits.
-If you want to lower prices, you must lower your costs.
-Review prices frequently to assure that they reflect the dynamics of cost, market demand, response to the competition, and profit objectives.
-Establish appropriate prices to assure sales.
-Before setting a price for your activities, you have to know the costs of running your program. If the fee for your classes doesn’t cover costs, your cash flow will be negative, you’ll exhaust your financial resources, and your program will ultimately fail.
Know Your Customer
First, you are going to have to get your hands dirty and do some market research in order to truly know your customer base and what they are willing to pay. Luckily, after school pricing research doesn’t require hiring an expensive firm. You can simply look for programs in your area through Google searches or call local schools.
Find out how much customers will pay, as well as how much competitors charge. You can then decide whether to match or beat them. Simply matching a price is dangerous though, because you need to be sure that all your costs, both direct and indirect, are covered.
The price your customer is willing to pay will depend on where you offer your classes. Are the courses on school campuses, at the park, or your own brick and mortar location? The location will determine if your customers are the budget-sensitive or the convenience-centered type, as well as whether or not status makes a difference.
Once you know the type of customer, aka “the parents”,you’re dealing with, you’ll be able to set prices accordingly.
Know Your Costs
The foundation of a good after school price is to charge above your cost to make a profit. That means you have to know how much it costs to run your classes. There are three main costs to running an afterschool program:
1. Materials for the activity
2. Instructor Fees
3. General business costs like marketing, website hosting, office space, supplies, etc.
Material and staff costs are easy to calculate on a per-class basis and those costs are easy to cover. However, the skill in pricing afterschool programs is to also cover your general overhead while still turning a profit. Overhead costs may include fixed costs like rent and variable costs like liability insurance. You must include all these costs in your calculations.
So how do you ensure a profitable program? Trial and error on a napkin is the best way. After you’ve conducted your research, pick a price that “seems right” and see if you cover all your costs and make a profit.
For example, say I’m going to charge $12 per class for an 8-week session. That means I will collect $96 per student for all 8 courses. I’ve decided to set my minimum number of students needed to run the class at 8, which means that I will gross $768 for the session. To effectively run the course, it costs me $128 for all the materials and $320 to pay my instructor. That leaves me with $320 before considering any overhead costs. Ok, if I haven’t lost you just yet, we can jump into our overhead costs.
When adding up all my monthly expenses, both fixed and variable, I get to $20,000 for the year. If I divide $20,000 by $320, it will tell me the number of classes I need to run in a year to cover all my costs, which is 62.5. So, what in the world does that tell us? If you charge $12 a class, you’ll need to run 63 classes with 8 students enrolled for 8 weeks to cover $48,000 of expenses.
Now that we know the bare minimum number of classes we need to fill in order to cover our costs, we can make some business decisions. You can choose to keep that price and work hard to ensure that you can fill more than 62.5 classes in a year. Or, you can increase the price. At this point, you’re deciding on how much money you can pay yourself or use to reinvest in the business.
Changes over Time
Clearly, you can’t be a soothsayer, but you can keep track of outside factors that will impact the demand for your classes in the future. These factors can range from something as simple as an increase in materials cost or a change in wages.
Prices can’t stay the same forever. Your costs, customers, and competitors can change, so you will have to shift your prices to keep up with the market. Keep an eye on what’s going on and talk to your customers regularly to make sure your prices remain optimal.