How to motivate clients to spend more—without giving away the store.
Studio owners have long offered discounts on tuition to attract new clients and encourage existing clients to register for more classes. Laura Sciortino, who has owned her Turning Pointe Dance Studio in Falmouth, Massachusetts, for 11 years, began offering discounts her second year in business—so many clients inquired, she felt compelled to do so.
But while discounting has its benefits, if not thoughtfully administered, it can be a money loser. Here, we offer seven tips on structuring your discounts to bring in the volume you want while keeping your business profitable.
1 Use discounts strategically
Though discounting is integral to the studio business, savvy owners don’t let it define them. Successful studios usually don’t compete on price. Instead, they focus on quality and community. Target your discount policy on making classes financially accessible for families with multiple children or frequent attendance. (Or as it might be framed from your point of view, getting your existing customers to spend more.) “The ultimate goal of discounting is to get kids dancing as much as possible,” says Sciortino. “The more classes they take, the stronger dancers they become. Producing better dancers gives your studio a better reputation, which then leads to more customers.”
2 Keep it simple
Discounting should be simple for customers to understand and for owners to implement, but often that isn’t the case. “If you sent a NASA scientist into the average dance school, he or she would not understand it; that’s how complex it is,” says CPA Sean Dever, whose business manages payroll for 300 dance, gymnastics and swim schools. “I’ve seen people get a discount if they come more days, if they pay in advance, if they have multiple family members—and sometimes all three are stacked on top of each other. By the time it’s done, the studio is paying for the kid to take class.”
To make it easier to see just how much money you’re giving away, Dever advises discounting on a percentage basis, rather than just subtracting a few dollars from a monthly tuition. As a rule of thumb, your discount percentage should always be considerably less than your profit margin. “The average dance studio makes a 10 percent profit,” says Dever. “Say you give a 10 percent discount for paying full tuition up front. You’ve already lost all your profit on that student.”
Always keep in mind how much money you need to clear before setting a discount. The kind of thing to consider in your calculations: As you fill a class with new students paying a discounted rate, you may have to hire another instructor—and you might inadvertently eliminate slots for full-paying students. How will that affect your overall profit?
3 But not too simple
Dever recommends working with odd numbers, because it makes your discount structure less obvious. Don’t make the total fee easily divisible by the number of classes, for instance. “Instead of 10-class sessions, offer nine,” says Dever. “In lieu of a 50-week calendar year, make it 49. This makes it more difficult for clients to figure out how much they’re saving or to compare your discount to other schools.”
4 Time it right
Travel discount programs offer bigger discounts closer to departure dates. As the start of classes approaches, a studio might consider a deeper-than-usual discount if that puts a student into 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.
5 Learn from the experts
Family discounts are a mainstay of many discount strategies. Typically, as a family adds more hours or students, the price per class goes down. Take your cue from theme parks, which discount for groups. “At Disney World,” says Dever, “everyone pays full price for the first day. Then, as the number of days for your visit increases, so does the discount.”
Dever recommends discounting in tiers, to give clients an incentive to register for more classes. “For the first one to three hours,” he says, “charge full price. Then, for the next three to seven, you might offer a seven percent discount.” Make the hours cumulative for a family, he advises. With this approach, two children taking two hours would qualify for the three- to seven-hour-range discount.
Sciortino’s studio has found success with this model (as the number of hours goes up, the fee per hour falls). “By discounting their tuition,” she says, “it’s easier to encourage those important extra ballet classes.”
6 Only use Groupon for special occasions
Deal-of-the-day websites like Groupon make it possible for restaurants, nail salons and even vacation packagers to entice customers with discounts. But does this type of discounting make sense for a business based on building a long-term relationship? No. “In the class environment, 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. These offers won’t cannibalize your regular business, but they will allow dabblers to experience how great your studio is and be inspired to sign up for a real session.
7 Think twice before offering cash-in-advance discounts
Many studio owners, like Sciortino, offer a discount to clients who pay in full up front. “This discount lessens the time I spend on invoicing throughout the year,” says Sciortino. “And as studio owners, our time is money.”
But beware of discount doubling-up.Families who already take advantage of the cumulative class discount could exceed your profit margin percentage if they get a discount for paying in full, too. Consider using an automatic payment system to simplify your billing, and save this discount for students registering for the first time. DT
Charlotte Barnard is a New York City writer who frequently covers retail and design.