In my last post I suggested you double your prices. If you’re marketing stinks though, you’ll never find students to fill your studio at those prices. Your low prices may have found you students just because you were inexpensive, and there was little risk on the part of the students. When you raise your prices however, you need to do a much better job at marketing yourself.
Before we can talk about advertising we all need to be on the same page about important metrics.
Lifetime Value (LTV)
This is how much a student is worth to you over their lifetime as a student with you. I typically think about lifetime less on a student basis and more on a client basis. If one family of students has 3 kids, that client is worth more to you than just one student. Most often the costs to acquire all types of clients are the same, and you don’t have a lot of control of how many students end up taking lessons, so it’s best to think of LTV as a reflection of the entire family, not at a per student level.
Aside from increasing their lifetime however, you need to know the actual LTV number. So how do you come up with this number? Well ideally you’ve been keeping track of how much each individual has paid over their tenure with you. You would then take all of those totals and average them out. It may take years of numbers to be accurate. But when advertising, this is one of the most important metrics. Each individual teacher can have drastically different numbers. Here are some factors that contribute to lifetime value:
- Lifetime – the length of time students stay with you
- Lessons Per Month – How often a student takes lessons with you
- Your Price
- Length of Lessons
- If you’re a multiple teacher studio, your margins.
- Cost of Travel – If you travel to your student make sure you factor in the cost of gas
If you have no numbers, I’ll let you use mine. I’ve placed thousands of students with hundreds of teachers, and on average students stay around for 6-8 months. Some teachers do much better than this, so it’s important to get your individual number, but if you don’t have one that’s something to start from.
On average, students take about 3.4 lessons a month. That includes months with five potential lessons.
Let’s assume you charge $50/hour. I’ve found most students take a half hour lesson. So on average your students will pay you about 1.4 times your half hour rate. That’s the average of the half hour lessons with the occasional hour lesson. That means on average you would make $35 per lesson.
Now let’s calculate an average client’s LTV. When you receive a new client it’s basically like you just received $35*3.4 weeks*7 months or $833. $833 would be your LTV
Cost Per Acquisition (CPA)
How much money does it cost you to acquire a new client? If you find a client by word of mouth or craigslist, it’s likely $0. That means your profit for a new client would be $833. If however, you find the student through a paid advertising channel, your CPA becomes very important.
When I was starting off I was terrified of spending money on advertising. I find that most teachers have the same fears, and they really shouldn’t. You’ve heard the old adage that you need to spend money to make money right? Well it’s absolutely true. Let’s say you spend money on google ads to find yourself students. After spending some money, you find out that it pretty reliably sends you a new student for every $150 you spend. $150?! Sounds like a lot right? Well now your profit from a new student is cut down to $833-$150 or $683. That’s a 455% return on investment.
I don’t know about you, but I like those numbers. You go find me an investment that makes 455% return over 7 months, and I’ll go quit my job right now, take out as much credit as banks will give me, and invest every penny into it.
Of course now we have to consider that this is your time that you’re spending, it’s not unlimited. This is a big reason that you should be charging more. For multiple teacher studios the LTV will be lower, which will lower the return as well, but they have the benefits of not being limited by time. What they lose per sale they make up with volume.
My point here is that you shouldn’t be afraid of spending money on advertising. You’ll make it back. That is of course as long as you’re not doing a horrible job at it.
This is where most people fail. To do an accurate test of an advertising channel you can’t throw $50 at it and hope you get a client. Well, you can. And maybe it will work. But odds are one client will cost you more than $50. Luckily you have a lot of wiggle room. Even if you spent $500 to acquire one client, you would still be making money right? What you have to realize is every dollar of advertising is not created equally. Sometimes I’ll spend $300 and get 0 clients. Then the next $300 I get 6. So if you spend $100 and get no new clients, you may have just been unlucky. $100 is not enough to say you actually tested the channel.
Now if it costs you $500 to get a new client you’ll need to consider whether or not $300 is worth it to you for teaching a student for 7 months, but my point is you can afford to spend money on a test. What if you have to put it on a credit card? Evil credit cards, evil!
Put it On My Card!
Let’s do some more math. Don’t run away yet! Let’s say your credit card interest rate is 20% (if it is, get a better card), but let’s use that number it’s nice and round. Month one you spend $150 on advertising, and you get one new client. You put it ALL on your credit card, and you can’t pay it off. You’re monthly interest rate is 20%/12 months or 1.67%. The first month you carry a balance of $150 you incur interest costs of $2.51. You then start making some money from that student in the first month, an average of $35*3.4 or $119. On your card you have $152.51 in credit card debt. You then use your first month of teaching the student to pay it off. Month two you have $33.51 balance on your card at a 1.67% interest rate you incur $0.56 of interest leaving you with a $34.07 balance. You teach the first lesson the next month and you have paid off the advertising debt, you now are making all profit for the next 6 months.
I didn’t even factor in the 30 day grace period that just about every card has. If you pay it off quickly, your interest would be even lower, maybe even 0.
An even better way to do this is to get a credit card with 0% interest intro period. Then you’ll accrue 0 interest when you’re advertising. Make sure you pay it off in full before the intro period is done, or they’ll likely add all the interest you would have paid at the end like you hadn’t had the intro rate. They really try to get you.
I have simplified the numbers a bit. Most credit cards compound interest daily. It sounds scary, but the interest charges change very little with daily compounding because your balance is low, and you’re paying it off quickly.
A lot of people will likely jump down my throat for suggesting to use credit cards for advertising. First off, don’t do it if you can get the money by any other means. Even though your interest costs will likely be low because you pay it off soon, they are still costs, and it’s silly to pay for something you don’t have to. Second, if you have a bad relationship with credit cards, this is probably not a good idea. Do you ever pay late? Accrue big balances? Don’t even attempt this. You may be tempted to spend your money from your new students on other things and keep a balance longer. One month will only be a few more dollars in interest right? Don’t do it! You’ll end up in big trouble down the line. This type of spending is only for the very diligent and conscientious investor.
Finally, this is not risk free. Remember this only works if you actually find new clients through your advertising. If your advertising fails, you get no new clients and you have $1000 on a card now, well you’re kind of stuck with it. My strong suggestion is don’t even attempt using a credit card until you have pretty steady success with an advertising channel. Then if you want to scale up, but don’t have the cash, a credit card might be an option.
Where to Spend your Money
This is going to have to be a subject for another post, as each channel I’m about to mention could be books of content. But I want to briefly mention channels where other teachers are making money, so you can investigate.
Google Adwords/Bing Ads
See those results in Google or Bing that have “Ad” next to them? People are paying for each click to their website. It can be expensive, but this is my most profitable channel.
Facebook is more interruptive, so it will take more clicks to get a student, but the clicks are cheaper. Some testing may make this a good channel. You can target people by age, income, location, and even parents specifically.
You can target visitors to your website with ads when they browse other websites. Someone didn’t fill out your form? You can continue to serve them ads until they come back and do.
You’ll hear a lot of negative things about Thumbtack. Have you tried it before with no success? You probably didn’t spend enough. I constantly hear something like this: “I sent out 35 quotes and didn’t get one response! This is a scam!”. 35 quotes would cost you $70. That is NOT a test. Maybe you had bad luck, maybe you need to adjust your message or profile, or maybe it will just cost $150 to get a new student. That is still a great return on investment. Let me tell you, teachers find a lot of students at GOOD prices on Thumbtack. I promise. I do. If it’s not working for you, it’s not Thumbtack’s fault. Just saying.
I would not suggest going the print route first. Print ads are expensive, hard to track, hard to target, and usually it’s just a money hole. Some people have success with them. If that’s you, more power to you!
If you need to fill up your studio, don’t be afraid of spending money. Yes try some free advertising first, maybe you just need to post to craigslist for a couple of months and you’re good. Great. You don’t need to spend anything. But maybe you feel you need to seriously raise your prices, and fill up your studio and you’re not getting enough students from craigslist because everyone is so cheap there. Paid advertising may be the way to go. Do you have any experience paying for advertising? Please share in the comments!