Q: Is giving 50% of your profit to an instructor unusual? Or do most people pay an hourly rate?
A: Instructor compensation is a very frequent topic among lifelong learning programmers. Basically, like everything else in a financially sound operation, instructor compensation should be budget driven. In other words, you should determine what you can pay, based on the financial performance of each class, and set your compensation rates accordingly. If you are spending too much on teacher compensation, and many programs are, you put yourself at great risk if there is a downturn in your enrollments and income.
It is not necessary to pay each instructor in the same way. Some might be paid a percentage, some might be paid a flat rate, etc., depending upon the course and the income it generates. Let's look at percentages, for a moment. If a course generates $500 in income, you are paying the instructor $250. Assuming that this course requires a specific amount of time for preparation and teaching, this may be reasonable. However, if the same course (or one requiring the same amount of preparation and teaching time generates $5000, then you are paying the instructor $2500). While, of course, you want to be fair to your instructors, you also need to look at the impact this policy has on your program's financial stability.
In terms of the overall financial model, LERN recommends that you use a financial format that includes 10% to 15% of income for promotion, 35-40% of income for production, which includes teacher pay, cost of space rental, materials you provide, or any other items you provide for the class. This leaves you 45-50% for your general and administrative costs and whatever surplus you might want to generate--usually about 5% or so. Thus, if you are paying your instructors 50%, you are already operating on a model that would not allow you to be financially self-sufficient. If you spend 15% on promotion and 50% on teacher pay, assuming you have no other production costs, you have a maximum operating margin of 35%. Thus, 50% is the maximum you would want to pay. For classes that pay on a percentage, you should build in a minimum and maximum that the instructor can earn.These are the numbers you want to consider when making decisions about how to pay instructors.
Pay Instructors What They’re Worth and What Your Program Can Support
Instructor reimbursement represents a major portion of most programs’ budgets. Except for those programs that have strictly volunteer teachers, instructor fees or reimbursements might represent anywhere from 30-60 percent of the program’s budget. Keeping this expense under control and in line with your budget is an important way to ensure your program’s success.