Q: I would like more information on LERN's pricing model. Thank you.

A: LERN's model for finances and pricing is based on ratios that are standard in the industry. A summary follow. In addition, I have attached two files that provide more detailed information. One of these files allows you to calculate, using excel, whether your course is generating the operating margin you need.

 

Keep in mind that some courses will "underperform" but if they are important or represent areas of potential growth, your courses that generate higher than average operating margins will give your overall program appropriate balance.

 

Income = 100%

marketing and promotion costs = 15% to 20% of income

production costs = 40% (this includes mostly instructor compensation, but we do not recommend that instructors be paid 40% of your course income. The ideal range is closer to 30%)

Operating margin = 40% (this covers general and administrative expenses including a surplus that we recommend be at least 5%).

By using this approach, you can be more successful in meeting budget expectations and less likely to lose money on courses that underperform. It is also helpful in budgeting and predicting what you might generate as income for your program.

Pricing to meet budget

1. Realisticaly estimate projected participation, based on past history of your course.

2. Determine the cost of promotion for this course (brochures, mailings, TV and radio ads, etc).

3. Determine production costs: teacher compensation, facilities costs, materials you provide.

4. With this information you can project how much you will need to charge for the course to maintain an operating margin of 40% to 50% which you need to cover all your general and administrative expenses.

If the amount you have to charge is reasonable, then you can move forward. If it is more than the market will support, then you will need to make adjustments. The first place to look is whether your production costs are in line. Then, you need to analyze your marketing costs to make sure your are spending your marketing dollars most effectively. We DO NOT recommend that you cut marketing. This is the only way you have to get participants to sign up. When you reduce marketing, then you are also potentially reducing responses. Often instructor pay is much higher than it should be if you are to operate a financially self-sufficient program, and this is often an area where adjustments need to be made first.

Attached is the model LERN recommends. Your promotion costs should be between 10% and 15% of your income. Your production costs (teacher compensation, primarily), should be no more than 35-40%.

Production and promotion costs combined should not exceed 60% of income and should ideally be closer to 50%. Each course can be priced so that its operating margin meets these guidelines. In some cases, courses will perform better than this. This allows you to offer some courses that do not perform as well while maintaining an overall program operating margin in the 40% to 50% range.

I have attached a file that shows the percentages, as well as an excel file which will allow you to enter your course costs and income and determine whether a specific course is "on track."

http://media.lern.org/webinars/Operating-Margin-Calculator.xlsx