Before we jump in, I want to address the point that how much you need to charge and how much you should charge are two different things. You need to charge enough to cover your living expenses. You should charge the amount that makes it worth it to you to teach. (That’s a topic for another post.)
Simple Tuition Rate Calculation
Simply put, the amount you need to charge is the total amount you need to live off of for one month divided by the number of students you can reasonable expect to teach.
If you need $4500 to cover all your expenses and savings goals for a month, and you have enough teaching time available to teach up to 50 students, you need to charge at least $90/month for lessons.
That was easy…but it’s not quite accurate. Let’s take a deeper look.
The Hotel Pricing Model
That $90/mo figure assumes you have 50 students on your roster ALL THE TIME. In reality, you’ll have students move away or quit and it might take a few months to fill their slots. Or a big contingent of your studio may take several months off during the summers. Or you just never seem to be able to fill that 5:30pm Friday time slot.
Imagine a hotel with 50 rooms. Occasionally a large sporting event or conference might mean every room is booked, but usually people are coming and going and some rooms are empty. The percentage of rooms sitting empty is the vacancy rate. Some sources estimate this rate to be around 33% for hotels. It’s an unavoidable part of doing business, but hotels operators are aware of this and set their prices according to the expected occupancy rates.
Most businesses face this vacancy challenge in some way (whether through empty hotel rooms or open lesson slots), and it’s important to be aware of the fluctuations so you can set your rates to accommodate the lean times. Just like the hotel, your studio needs to generate enough income to support you without it being at full capacity.
Studio Vacancy Rate
Let’s assume about a 15% vacancy rate for this hypothetical studio. Some years it will be higher, some years it will be lower, but it averages around 15%.
If that seems high, consider this scenario:
- Five (out of 50) available lesson slots never get filled – 10% vacancy
- Four (out of 45) students take 3 months off in the summer – 2% vacancy
- A family of three students moves away and it takes 6 months to fill their slots – 3% vacancy
You can see how easily a few innocuous events can quickly derail your financial plans.
If you track the vacancy rate in your own studio, you might be able to adopt measures to decrease it. As you become more established as a teacher, your vacancy rate will likely go down, but even an experienced teacher might have a high level of turnover if they serve a transient community (in the D.C. area we have a large population of military families and government workers who tend to move every few years).
Adjusted Tuition Rate Calculation
So if we assume 15% of our lesson slots will be empty at any given time, that means we need to base our rates on 85% (or 43) of our possible 50 students.
We still need to earn $4500/month, but if we can only count on income from 43 students, we need to charge about $105/month to cover our living expenses and keep a sustainable business. It’s not tremendously more for each student, but it will make a tremendous difference in your financial peace of mind.
Tuition Rate Calculator
Here’s a handy calculator to figure out your own tuition rate.
Two final caveats to this tuition rate:
- It doesn’t take into account refunds or credits for cancellations. If you want dependable income, it’s important to base tuition on a monthly (or semester) rate, as opposed to a “per lesson” rate. This is not difficult to achieve with a strong studio policy.
- It doesn’t take into account multi-student family discounts and scholarships. As the boss of your own studio, you get to decide if and when these discounts are appropriate. When making that call, your personal financial situation should be a top consideration. All the generosity in the world doesn’t do students any good if you bankrupt your studio and have to quit teaching!
What does this mean for you?
How are your rates right now? Is it possible to support yourself on the income you generate from teaching? Have you under priced your services? Feel free to ask questions in the comments or schedule a one-on-one call to talk about your situation.