Knowing your return in investment is not only a game changer for martial arts clubs but also for any small business. When I started to understand the importance of return on investment, my whole game plan changed.
What Is Return On Investment?
Your return on investment is the income you can earn from customers you have referred through paid advertising. Let’s say your martial arts school has a ‘front end’ training course or beginners course. You charge $40 for it. After that you have a members monthly fee of $50 per month.
If a student stays in your club for 3 years then you make $50 a month for 3 years from that student, plus your initial $40. That’s $1840 in total. This of course assumes you can keep a student for 3 years. It will be different for everyone. If you add on to that any school camps, seminars and merchandise you can potentially sell to your ‘average’ student, you will have made a lot more.
So let’s say for arguments sake you can earn $2500 for an average student who stays at your club for an average of 3 years. Some will stay longer and some won’t stay as long as that. But on average let’s say your student will last for 3 years and you make $2500 from each student.
So if your advertising campaign can help you enlist 20 students who all last for 3 years your return on investment over 3 years will be 20 x $2500 or $50,000 or $16,667 a year.
Overheads & Advertising
If you have decided to run a martial arts school and set up your school already, your overheads should stay about the same. Ideally you would start small and keep them as low as possible. If you have a small school and you want to grow it you are probably a little tentative about advertising, especially if you don’t know how.
Looking at your return on investment should help you decide to spend more on advertising than you otherwise would. When I started advertising my school I was very tentative with it. I couldn’t afford to lose money. However, it was this limiting attitude which kept my school small.
It wasn’t until I learned about return on investment that I saw the bigger picture. Once you have learned what the value of a customer is, you can know how much to pay to effectively ‘buy a customer’. If an advertising campaign costs $50 and you acquire 5 new ‘customers’ from that, you can see this is a winning model. Over 3 years 5 new students will bring in $12,500, given the model above. If you have committed to running a school already, you should definitely start advertising to build your student numbers.
Why Your Mindset Works Against You
Knowing your return on investment lets you focus more on the long term. Instead of dipping in your toe with an advertising campaign, and then backing off if you don’t get the results you want, you can test and measure until you are regularly getting positive results.
This model is often counter-intuitive to what many people think. Ideally over the long term, given a positive result, you would be spending more and more on advertising. If you have a belief about cutting back and spending less and less over the long term, this will stunt your business growth. Think of it this way: if you spend $10 and make $20, wouldn’t it be a good idea to spend more and keep doubling your money?
For some, even given a positive relationship like this to their advertising campaign, they still have the inbuilt scarcity mindset which contradicts all the evidence to the contrary. They still want to stop spending, even when spending means long term growth and financial stability.
Gearing Your Business
Of course this isn’t all a given. You will need to learn how to advertise and how to gear your business in such a way to bring in a profit. This will depend on your class retention strategies, payment setup and recruitment strategies. If you only sell one product, you don’t have a business model which takes into account the lifetime value of a ‘customer’, or student. Ideally your business model will enable you to make consistent income from your students/customer over the long term. When you have a business model like this you can afford to start paying for advertising.
Testing and Measuring
Knowing your return on investment empowers you to start putting your money where you mouth is! You first need to test and measure your advertising campaign and make sure it is a profitable one. This can take some time but fortunately I have created an e-book to make things easier for you. Sign up for 10 free pages on the side of my website. Most people will give up too easily when it comes to advertising online. Don’t expect miracles the first time around. However one tip you can use is location targeting. By targeting people within a 10 mile radius of your martial arts club, you can limit wasted budget. There are also a few other was to lower your expenditure and save money on advertising. These are mentioned in my e-book Martial Arts Marketing 101.