I’m sure by now (especially if you’ve been following me) you’ve heard about instructors doing$30k, $40k, even $50k or more of revenue in one month running their martial arts school. It’s extremely tempting and entirely possible. You can even do it without being a belt factory.
I know this because I’ve done it myself. I can vividly remember the first time we generated really big money like this in one month. It was May (a month where business usually drops off) and we’d been doing around $15k – $18k a month so far that year. Then we obliterated that number and ended up generating $37k which was the most I’d made in a month and a big chunk of that was mine. I wanted the rest of my life to feel like that May 30th! I immediately said to myself, “I could get used to this!”
On the surface it looks like you’ve hit the jackpot. But what you don’t see lurking underneath is the damage being done to the financial foundation of your school.
First, let’s start off with how to generate such large amounts of revenue.
It’s all centered around the “cash-out”. This is where students pre-pay for services for (usually) a 10%-25% discount, depending on the offer being made. It could be for anything from tuition to testings and seminars. There are many students who prefer to pay this way and love taking advantage of the savings. However, what you need to know about the cash-out is:
The cash-out is one of many tools you can use in your business. It is not a primary way of doing business.
Those who are generating these large numbers are pushing for cash-outs at every turn. There’s big money and lots of excitement all at once, however, it’s nothing that is sustainable and leads to business operations that more focused on money than members.
For example, at the time we hit $37k (I don’t have the exact numbers, but you’ll get the point) we had around 90 Taekwon-Do students and around 20% of them were cash-outs from when they began their training. So we had around 70 students paying us an average of $125 a month. Depending on the program their program, they were in a 24 month or 36 month program.
We set a goal that month to do 10 cash outs. We offered a 10% discount on the 24 mo. program and a 25% discount on the 36 mo program. With an average payment of $125 a month that meant checks for $2,700 ((125 x 24) – 10%) and %3,375 ((125 x 36) – 25%). Some were smaller depending on how much they’d already paid into their program, but you can see that 10 people at $2,700 is $27,000. Add your billing check, events, testings, and merchandise revenues to that and you can see that $37k isn’t out of the question.
But here’s the bad news…
When you start getting cash-out happy you start having cash flow problems. That nice, healthy billing check you’ve been getting every month and that you rely on to pay your monthly rent, utilities, insurance, inventory, etc. – it begins to dwindle. Ours dropped from about $9k to $7.7k.
After a few big money months, you have very little coming in, you’ve tapped your students dry and if there’s not 15 or 20 new ones coming in the door you are in deep caca.
Suddenly, you have a school full of students but you can’t pay your bills and you begin to sense that the end is near.
“But what about all the money you just made?” I hear you asking. Well, in most cases cash has a tendency to get spent and this is no exception. You wind up giving yourself a huge paycheck, not present to the hole you are currently digging for yourself and believe you can just keep doing this again and again.
You could make this work if you were INCREDIBLY financially disciplined, kept the excess money in some type of interest bearing account and only withdrew from it as you provided the services, but that is far from the norm, take much more work and is not as fun and exciting as giving yourself a huge paycheck.
Another problem with the allure of the cash-out is that it makes your business very susceptible to the economy at any given time. In a recession people are much less likely to hand over a check for $3,000 or $7,000 (in the case of a family) and will prefer to pay tuition on a monthly basis.
Are cash-outs bad?
Just like everything else, they are good in moderation. We have a rule that we will only allow 20% of our students to be cashed out at any given time. This allows us to have a healthy, reliable billing check that we know covers our expenses every month and the opportunity to make some big sales along the way.
Cash outs are also a really great indicator of whether or not you are charging enough for your lessons. If you too many people are cashing out, that means we’re about to break our 20% rule and it also means that people see the value in our program so much so that they are willing to pay more, and pay right away. That means it’s time to raise prices.
About the Author:
Senior Instructor – Karstadt Taekwon-Do
Mr. Karstadt is the founder of 1 TKD Consulting and owns the longest running ITF Taekwon-Do school in Arizona, Karstadt Taekwon-Do in Phoenix, AZ with his father Master David Karstadt. He has been training since 1984, earned his Black Belt at the age of 8 and is currently an internationally renown intstructor teaching the culture, discipline, leadership and business skills of Taekwon-Do in classes and seminars to Instructors around the world. He has been a member of eight U.S. Taekwon-Do Teams and has traveled to 14 different countries competing in Taekwon-Do. He has won numerous medals at the World Championships and in international competition, most notably winning the 2004 World Championships in South Korea with two gold medals and the Men’s Team All Around Trophy. Mr. Karstadt currently resides in uptown Phoenix, Arizona with his wife and three children. Mr. Karstadt can be contacted by e-mail at firstname.lastname@example.org