Q: We are integrating many of LERN's financial and pricing methodologies, but we have a very specific question about pricing: How to determine tuition vs fees when pricing? Traditionally, we have determined tuition based on instructor costs and fees were priced based primarily on course materials. With the inclusion of other production and promotional costs, we're wondering how and where to include these costs?
A: There are several considerations to keep in mind when pricing courses: 1. Promotion costs. This is the amount you spend on promoting a specific class or event. If you have a brochure with multiple courses, you can calculate the cost of promotion for the course by determining the cost to print one brochure. So, it you print 50,000 brochures and the cost to you is $5000, then the cost to print one brochure is ten cents. If you get ten courses to a page, then the cost to promote one class in one brochure is one cent. Multiply 50,000 x .01 and the promotion cost for the class is $500. 2. Production costs. Now, let's say you are paying your instructor $1000. Materials you pay for are $500. Thus your production costs are $1500. Promotion costs are $500. The sum of promotion costs plus production costs is $2000. This is your break-even point. Your goal, however, is not to break even, but to generate a surplus. What should your income goal for this course be. Well, we know you need to cover your direct costs (promotion plus production) and that is $2000. You also need to generate income to cover general and administrative costs, which should be around 35-40% and to cover any surplus you want to generate. Your promotion and production costs should be about 50% of your income, so in your case, you would set an income goal of $4000. This would give you an operating margin of $2000. If 40% of your income or $1600 goes to cover your general and administrative expenses, you have a net or surplus of $400 or 10%. Here is another way to look at this. Let's say your course costs $250 to promote. You need to know how much to pay the instructor. To figure this out, you need to look at your program's performance. Let's say your average number of participants per class is 25 and your average course fee is $100. This means you can expect to generate $2500 from this course. Your promotion costs are $250 or 10%. Your production costs should be no more than 40% of your income or $1000. So you could afford to pay your instructor $1000 under this scenario. Basically, you need to project the number of enrollments, based on past history in your program, and multiply times the course fee. This gives you projected income from the course. Then, you apply the LERN formula for promotion and production to determine how much you can pay your instructors. If the instructor fee is set, then you need to look at the promotion and production costs and determine how much income you need to generate in order to have a course that is financially self-sufficient, and set your tuition based on this. LERN has developed software tools for members that are free to you as a benefit of membership. One of these tools, the Program Planner Tool is available to you in the LERN Club. You can use this tool to help you determine how to price your courses. The LERN formulas are build into the software, making it much easier for you to calculate your percentages.