Discounts on tuition attract new clients and encourage existing clients to register for more classes. But while discounting has its benefits, if not thoughtfully administered, it can be a money loser. Here are three ways to structure your discounts to bring in the volume you want while keeping your business in the black.
1. Keep it simple.
To make it easier to see how much your discount is costing you, establish it as a percentage, rather than just subtracting a few dollars from monthly tuition. As a rule your discount percentage should always be considerably less than your profit margin. "The average dance studio makes a 10 percent profit," says CPA Sean Dever, whose business manages payroll for dance, gymnastics and swim schools. "Say you give a 10 percent discount for paying full tuition up front. You've already lost all your profit on that student."
2. Time it right.
Model your discount on the travel industry. For instance, travel discount programs offer bigger discounts closer to departure dates. So as the start of classes approaches, you might consider a deeper-than-usual discount to fill an empty spot—as long as it's not a prime-time class. "Once a session is locked down, and you know which classes have empty spots, send a notice to your e-mail list advising them of a 'special' discount," says Dever.
3. Save Groupon for special occasions.
Deal-of-the-day websites like Groupon don't make sense for a business that is based on building long-term relationships. "It's disruptive because you get dabblers," says Dever. "Parents typically try it to get a child in an activity, then switch to something else when the session is over." Instead, use Groupon for special events and one-off occasions, such as birthday parties or a trio of dance lessons for an upcoming wedding.