Today, I've been embroiled in a WhatsApp debate about how to price dance classes.
Well, what’s weirder is that it appears that non-business and creative people find it damnably difficult to establish something as simple as pricing paired with risk reduction. Who knew?
I am deeply biased (of course) but there is real value in both financial and business literacy. So often people shy away from both. Yet it is the combination of these two very things that can make the difference between a peaceful and a stressful life for so many people.
It's a debate that rages in the trades, too, so I was reliably informed yesterday.
In a conversation over coffee with a (much older) friend, one who is a tradie and whose carpentry business employs a whole lot of people, I learned that it’s this exact problem that makes young tradies fail.
What happens is that they finish their 4 year apprenticeship. They realise that they’re earning $35/hour (which, honestly, is great money), but see their bosses earning $80/hour. They think: Well I should be getting that much too! without realising that of that intervening $45, almost all of it goes to cover business expenses. In other words, it’s not profit. If the tradie tallied up his sick leave, annual leave, workcover insurance, tax benefits, and superannuation, his hourly rate would look a lot more superb.
The lack of literacy in the apparently “job ready” happens because training - in either trade school or university - is specialised. It’s designed to turn out technicians.
It’s why law schools train students in black letter law only.
It’s why medical schools train students only in the specifics of medicine and its specialties.
It’s why arts students come out with a range of skills, not one of which is in running a business.
So, what happens when technicians independent or entrepreneurial colours go out on their own, they fail.
If they’re tradies, usually their marriages and relationships fail, too: Partners take on the paperwork, nobody has a clue, and down the gurgler it all goes.
Dismal, isn’t it?
I’m not immune to this: Poor financial literacy was the key reason for my first business’s failure. That lesson is why my current business is still kicking, at almost seven years in.
One of my past clients, an accountant who works with startups, knows from long experience that it is financial literacy that causes such extreme failure.
And after my conversation today, in which I had people saying to me things like, “but we don’t know who will turn up”, I started to despair for this country.
Take the dance class situation. It’s obvious to me that you determine your costs (teacher + studio), work out a minimum number of participants required to make up a reasonable fee to break even on costs, and then add some payment deadline requirements so you know whether or not class can go forwards. That way everything you make over and above the minimum number is profit, participants can plan and budget for the fee, all your costs are covered, and you minimise your risk.
Simple, isn’t it?
In thinking about my own business in the past week, I’ve been locked on like a laser into the one thing that I haven’t nutted out in the past 7 years. And that is a reliable way to make outbound sales.
It’s perhaps a blessing that I’m going on leave from next Friday (yes! Already!) for six months, which will give me some time to think and trial a bunch of approaches.
It’s the same day that my company turns Seven Years Old. From one auspicious beginning to another.
Of course, I won’t be working on maternity leave.
But equally, I won’t be letting these thoughts of sales and finance lie fallow until I return. Outbound sales is almost the perfect project to use for testing, paired with the perfect circumstances: Seriously limited time in which to make it happen.
Over the next few weeks I’ll be planning out what this experiment looks like, and no doubt you will hear about how it goes.
Now, before I love you and leave you, a quick note:
Once bubs comes along, there will be a hiatus in my letters to you. But hang around, because they’ll kick back in once I know which way is up. :)