Wednesday, 6 June 2018

Pricing Classes

There are lots of things related to preparing to give instruction whether for a few hours or days.  This is only about the easier element – calculating the costs.

Costs – these are both variable and fixed costs.  These are important in calculating costs per student.

Variable costs. These are the expenses you have no matter how many may attend. E.g.:
Tools – how many people do you intend to cater for?  What kind of tools do you need? Does everyone each need the tool? Can some doubling up occur?

Advertising, promotion – The costs in printing and time to distribute leaflets and other promotional efforts.  Costs of advertising online or in print.

Course Preparation and delivery time – Every course requires time to plan the course and organise the materials, take bookings, set up at venue.  The amount of time you spend delivering the course/class needs to be claimed.

Travel expenses and time to get to the venue.  Mileage expenses only cover the transport costs, it does not include your time.

Venue costs – If you have been invited, check the venue is free to you.  In some cases, you will have to pay for the venue and this needs to be added to your variable costs.  In this case, I am assuming the host is providing the venue free.  If it is your own venue, you should add a sum to cover the overheads of your premises at the very least.

Fixed costs. These are the costs for each person on the class/course.

Materials and consumables. The materials the students will use varies directly with the number of people.  Any provision of food, refreshments will depend on the number.  Any handouts or demonstration materials are also related to the number of people.

Price.  The price of the course/class will depend on the costs and the profit you wish to have as well as what the market will stand.

Working out the Costs
I will go through the main areas of costs and give examples to demonstrate.  Not all these areas will apply.  When they don’t the cost is zero.

You can estimate the number of classes over which the tools and any other equipment will last. 

Say, you plan on 6 students and the cost of the tools for that many will cost 440.00 and you expect the tools to last for 10 courses. (you will have to top up on tools due to loss during that period, so you may want to add an additional sum to your calculations.)  Ten classes of 6 gives you 60 people to spread the cost across.  This gives you an individual cost of 7.34 on this basis.
Cost sub total:  7.34/student

Promotion and administration
The promotional effort includes time to prepare, costs to produce and time to distribute.  You can prepare the advertising before the pricing begins, so that amount of time can be known before you start.  The costs of printing or publishing can be determined by getting estimates.  The amount of time you spend in distributing leaflets, and in using the internet to advertise needs to be included in the promotional time. 

I am going to assume your administration of the applications and payments for the course are taken by the venue.  If you do them, you need to add a notional amount of time to cover that aspect of delivering a course.

Say, you have determined the printing and advertising is going to be limited to 50.00.  In addition, you are going to spend 5 hours distributing the printed leaflets and 10 hours of social media time promoting the classes.

As you can see, your time is going to be a large part of this promotional work, so this is the occasion you must decide how much you are going to pay yourself.  There are ways to do this.  Here is one.

Say you have decided that you need to pay yourself 20.00 per hour.  This is the figure that needs to be applied to all the time-based costs you incur in preparing and delivering the class.

The promotional costs for the course are going to be 50.00 plus the 15 hours (distributing leaflets and 10 hours social media) at 20.00 (=300.00) totalling 350.00.  Will this promotion be useful for subsequent classes? Probably not.  This means that you can’t spread the cost over more than one course unless you redesign the materials in some way.  It may be that subsequent classes will require less effort to promote them, but don’t count on it.

Assume your promotion cannot be spread over more than one course, which is the most likely.  This means the cost for each of the six people is 58.34
Cumulative cost sub total:  65.68/student

You need to prepare a course syllabus or outline at least.  This will guide you in the presentation of the class and will help you determine the equipment and materials your students will need.  Any additional materials and equipment needed for the course will need to be added to your initial equipment calculations.  You need to keep track of the amount of time you spend on designing the course.

You may have spent 10 hours researching and writing your course.  You can decide that little alteration of the course will be required over the life of the equipment.  This then becomes 200.00 divided by 60 students or 3.34 per student.  You may also have course handouts.  These will be fixed costs as they relate to each student.

Cumulative cost sub total:  69.02/student

Some of these promotional and preparation costs will have to be guesses until experience is gained. How long will the advertising last? One class or more? Will you need additional preparation time each time the class is held?  The answers you give will affect the calculations by the number of students or classes the cost is distributed.

Travel and accommodation
Of course, The travel expenses and time, and the class delivery time will remain relatively constant; varied only by the distance and the facilities at the venue.

The venue is 25 miles away. The travel time is 45 minutes each way. The set-up time is 30 minutes.  The course is for 4 hours and clean-up is 30 minutes.  This means that at 0.50 per mile the expense is 25.00; the travel time is 1.5 hours (1.5*20.00) gives an expense of 30.00 to get to and from the venue.  Set-up and clean-up is 20.00. Class delivery time of 4 hours equals 80.00.  All these on the day costs are 155.00.  For six students, this will be a cost of 25.83 each.
Cumulative variable cost sub total:  94.85/student

Of course, your accommodation expenses for a multiple day course will need to be added, although not the time between class sessions.

Fixed costs are the ones directly related to each student.  These will vary according to venue, style, length etc.

Materials/consumables. The materials the students will use varies directly with the number of people.  The costs of this relate to the materials the students will consume during the class/course.
The glass used by each student will cost 20.00
Additional consumables will be 10.00
Firings for each student will be 5.00
fixed cost sub total:  35.00/student

Hospitality - provision of food, refreshments - will depend on the number. 
Refreshments at the beginning and middle of the course 5.00 each
fixed cost sub total:  40.00/student

Any handouts or demonstration materials are also related to the number of people.
Handouts and examples for students – 10.00
fixed cost sub total:  50.00/student

Student accommodation – this is relevant for those who need to stay overnight either because of their travel or the length of the course.  Normally, this is the responsibility of the student.  It may be that you wish to include the cost of this in the course fee, although that usually makes the course appear to be very expensive.  In this case, I will assume accommodation is the responsibility of the student.

Cumulative variable cost sub total:  94.85/student
Cumulative fixed cost sub total:  50.00/student
Total cost for a one-day, six-person class:  144.85/per student

You do need to make a profit on this class, or you can’t continue.  You can’t continue with an “at cost” basis, because this is time away from making where you can generate an income.  A small profit margin of 20% is the minimum. It does give you some recompense for your knowledge and provides a small margin for contingencies.

A margin of 20% on the above example would add 28.97 per student.
Cumulative cost total:  173.82/student

If you feel this does not represent good value for your experience and knowledge, increase the price.  This exercise only provides the base cost level for setting the price.  Also remember that it is easier to reduce prices than it is to increase them.

On the other hand, you may decide that your hourly charges are sufficient profit for the course.  This is not advisable, but is a choice you can make.  You should always be aiming for doing your work on a cost, plus profit basis.  Not simply covering material costs and expenses. Remember your time is also a cost factor.

If you were to feel this is too expensive, there are some ways to reduce expenditure.  The only ones that you cannot reduce are your hourly rate and the profit margin.

Possible reductions include:
Tools and equipment – get the venue to share costs or underwrite costs.
Promotion – reduce your expenditure, or get the venue to take all or most of the promotion costs.
Venue – get them to set-up and clean-up, or better, get the students to do these things.  Get travel expenses from the venue.  Move the venue closer.
Accommodation – get the venue to provide at their cost.
Student numbers – get more students which will reduce the variable cost per student.

But – to repeat – do not reduce your hourly rate, ever.

This is a general introduction to costing, profit, and pricing.  There are a lot of more sophisticated ways of calculating these things, but until a lot of experience is gained, most of the work will be from estimates and guesses.  So, investing in highly detailed methods will not make the pricing more accurate, as all the calculations are based on estimates.

No comments:

Post a Comment