(From my Facebook page, this Morning) Lessons in Business for Martial Arts School Owners Interested in Lessons and Open to Ideas About How to Improve:
My brother Bill Callos and I started a new business in Sacramento just a little over a year ago, The Safe and Vault Outlet (www.thesafeandvaultoutlet.com). Now my brother is an astute and hard working business man who has been in the security business in Reno for 35 years. I started in the business with him, when I was in my late teens —and then went on to teach MA full time, and Bill took the business and ran with it, turning it into one of the most successful of its kind in the nation.
We decided to open a store in Sacramento due to the fact that we knew I’d be here at least 4 years, with my daughter going thru High School, all the numbers looked good, and it’s been a time when people are locking up their things.
This isn’t a business I opened out of pure passion for something, like my martial arts schools, this was strictly a business / commerce decision —and one I risked due mostly to my brothers comprehensive knowledge of the business —and the company’s uber-successful financial portfolio / history.
One of the many things I’ve learned and/or been reminded of since I started this project, that’s perfectly relevant to the operation of a martial arts school, is that IN RETAIL, you can’t sell the product for less than you pay for it —and make a profit.
In this, the first strictly retail business I’ve ever owned, it’s very straight forward: If the product costs you $1000, you’re going to have to know that, mark it up appropriately, and sell it —-or you’re going to kill the business. No money, no profit = no business.
In a martial arts school (and you know I’m a consultant, as in owner of a consulting firm / brain trust: www.the100.us), most owners are not acutely —or even haphazardly —aware of what their product is costing them —and so they, more often than not, are selling lessons at a loss.
There’s even a school of thought in the industry that if you sell your lessons and get enough cash up front, you can make up for what you lose by selling another membership, up front, thus procuring more operating capital. No, that’s bad —-that’s a bad idea if the product you’re selling is being sold at a price that is below what it costs to get and maintain it.
If I have 100 jewelry safes to sell, which cost me $200,000 to buy, I can’t sell them for $180,000 cash, paid-in-full today and make money. Yes, I’ll have $180,000 hot little dollars in my pocket; I’ll FEEL rich and solvent for a time; I’ll buy a nice car, I’ll eat well for a time, and I’ll brag a bit ———but at some point the reality of selling for less that cost is going to slap me in the face.
Should I sell some more paid in full’s for less than cost? Can I keep the wheel turning if I bring in enough cash —and then more cash —and then more?
This is what many are doing in their school businesses —and it’s a method of operation some “consultants” (very short sighted ones) advocate. They brag about school owners “WHO DOUBLED THEIR GROSS!” Who almost overnight went from $8000 a month to $50,000 a month. Yeah, well, they’re selling tomorrow’s lessons, for money today. They’re flush. They feel rich.
But my friends, it’s bad news in the school business. If you don’t know your cost and you just keep cashing out for cash’s sake, at some point you’re going to hit the wall.
In retail, you can’t sell the product for less than you spent on it. In the school business, you can’t do that either. The first consulting session you and I will have, if/when you get to a place where you want real help with your work, is going to be about numbers. You have to figure your expenses before you price your lessons, before you sell your courses ——or you may find yourself suffering and struggling.
There are other things too, of course, but step # 1 is to establish the true cost of operation, everything, so you don’t think you’re making a profit, when you’re not.
Tom Callos Yes, well —I should have noted too, yes, that when you’ve got that “180k” in your pocket and go buy the new house, the new car, and start living like you’ve got 180k in the bank, all those things affect your overhead, thus reducing actual profitability all the more. That’s what so many people I’ve worked with do ——they cash out, cash out, cash out, and increase their spending in tune with the new cash flow —-and then BOOM, at some point in the future reality comes a’knocking. But there’s something even WORSE that the reality of thinking you’re making real money when you’re not:Tom Callos What’s worse is what paid in fulls does to the culture and climate of your school. Like it or not, intended it or not, you and your minions / employees / and mindset become primarily (all) about SALES. GET MORE LEADS (My f’n God, more leads, more leads, more leads, get more leads, get a ton of leads, generate leads, get leads, get a flood of new leads, funnel those leads, get leads, make a lead generating machine, leads, leads, leads). You put SERVICE on the back burner —as service doesn’t make the cash flow that a new sale (or the quick transition to the all powerful cashed out UPGRADE) does. Read: Self-detruct, read “grind,” read: Unsustainable.