Have you ever felt bad about raising your fees? If you did, we are in the same boat.

For years, the reluctance to raise my fees had been my stumbling block in business. I want the money but I cannot not bring myself to ask for it while I envied my friends who charged a higher fee and still have tonnes of business.

On of the reason of my reluctance was I kept thinking that my time can’t be worth that much. If it doesn’t cost me anything to sit in front of someone to teach, why do I charge so much, right? I know something has to change in my thinking if I want to grow as an entrepreneur.

What I learnt:

I talked to business coaches such as Jason Lim (thejasonlim.com) and my business partner Dave. This is what I learnt about the cost of my service as a tutor, according to business principles and not as a self-employed.

The cost of my service involves at least these components:

Manpower cost:

This is the cost of hiring someone to teach. I used to think that I can pay myself very little to keep this part of the cost down, because I am sacrificing to build up the business. Isn’t this what all founders do? I thought to myself. Yes, true enough, many startup founders don’t get paid a single cent for years. But if we think long term and as a business person, then we must factor the cost of hiring someone and remunerating him or her reasonably to do the job. If we price a product so low that we can only pay peanuts to the person who delivers it, we are probably going to only attract monkeys to do the job. Or we have to keep doing the job ourselves – while getting peanuts.

Rental cost:

If we rent a place to teach, there is a rent to pay for every lesson and it need to be counted as part of the cost. This rental cost should include utilities costs too.

If we use public places to teach, for example, I used quieter cafe to teach 1-on-1 students before. In this case the rent is just the cost of the food and drinks we consume there. To find a suitable cafe which is conducive, is a matter of luck though.

If we use our own home to conduct tuition, we don’t incur any rent, which is why some centres started that way, as a tuition group at someone’s home. This model does have its own set of limitation, though. But that is for another separate discussion.

If we travel to students’ homes, there is no rental cost. But in its place we should factor in transportation fees and time. For example, I used to charge a student who stayed in Thomson $90 per 1.5 hours lesson. I thought my rate is $90/1.5 = $60. Yet if I count the to-and-fro commuting time, I actually spent 2.5 hours every time I visit him. That lowered my rate to $90/2.5 = $36. Big drop from $60 to $36 per hour!

If we run online lessons, there is no rental but there is a one-time equipment cost and subscription fee for online portal. I invested on a MacBook Pro (about $2000) + Wacom Intuos Manga tablet (about $110). The subscription for ClassDo.com, the virtual collaboration room of my choice is less than $10 per month for each student. By far this is the most cost effective way.

Curriculum cost:

If we use assessment books purchased off the shelf as our curriculum, then the material costs must include the costs of the books. We should be aware that we invest time too in selecting the right books and planning for each student’s needs. The time invested is a cost.

If we spend time curating and designing the material, the hours invested in this job need to be accounted for. One of my partners spend a few hours every night – for years – to come up with his curriculum. Let’s just say that he used 2 hours per night, and writes for 5 nights a week for two whole years. Let’s assume his per hour rate is $50. That will make the manpower investment to be 10 hours per week x 52 weeks x 2 years = $52,000.

When I made this calculation I was quite stunned. He invested $52000 into making the curriculum over two years. Should it be given for free?

Perhaps next time, when you charge material fees and some of your customers protests, you can show them this calculation.

Curriculum creation cost is also recurring. I used to think that curriculum creation is a one-time cost. I mean, I only need to make the curriculum once and use it forever, right? I have learnt that I was wrong. Good curriculum needs to be constantly reviewed and updated. There will be changes in MOE directives, exam setting trends and syllabus. We might be able to get away with one or two years of outdated curriculum but sooner or later we will have to do it. Intuitively, I would that we need to spend about 10% of the time to update curriculum per year. Taking my partner as an example, his effort to update the curriculum should cost about $5,000 per year.

Marketing cost:

When we live in kampung (Malay for “village”), if we teach a few students well, the words will spread around real fast and we will get students waiting at our doorsteps. A dream come true for tutors. Marketing cost involved is zero.

But we are in Singapore, a land of many tutors and a matured tutoring market. We cannot continue to think that way.

To scale our business, we need a more predictable and reliable marketing strategy.

Distribution cost:

Do you know that for a can of coke to reach your hands, it goes through a few levels of distribution? It got made by the manufacturer, then bought in big bulk by the distributor, then bought in smaller quantities by the retailers and finally to you. The cost of making a can of coke is less than $0.10, but when it reaches you, it can cost anywhere between $0.80 to $5.

Why don’t we buy directly from Coca-Cola at $0.10 per can? One of the key reasons is that we don’t have contact with them, and our needs are too fragmented and too small. That is why the intermediary are needed. To run the intermediary business, they need to mark up the prices to have profit. That is why you get your can of coke at $0.60 and not $0.10.

Applying this to the tutoring business. Who has the contacts we need? Maybe it is tuition agency, parenting groups, non-competing tuition centres. They may have thousands of members who have already trusted them – at least more than they trust us.

We don’t have to reinvent the wheels to advertise on newspaper and social media to get the attention of these people again. That will take a lot of effort, time and money. Instead, consider working with these tuition agencies, parenting groups and non-competing tuition centres as our distributors.

We must work out a package or an affiliate marketing arrangement with them so that they can be PAID to distribute our products and services to their existing networking of parents and students. Without a proper financial compensation, I fear that it will eventually be based on goodwill only. Such goodwill are sometimes too elusive and unreliable as a strategy.