Musikschule mit falscher Preisstruktur neu aufstellen

0:00Unternehmer/Gast I have a music lessons and recording studio in Atlanta, Georgia. Um And your your content, you and Leila, what you what you've done is profoundly changed my life because you've uh put me out of my comfort zone in how I think. And so I sell music lessons to neurodivergent kids between 8 and 18. We have a half million dollars of revenue. I think we could be at two million dollars of revenue. Yeah. And what's stopping me is I've realized that the model is completely broken. I'm underpriced, I'm overcompensating the staff, we're underutilizing capacity in terms of Square footage. uh time and and physical space and time. And so my question is like how would you apply first principles thinking to what I should do now, next, and later Sure. to run the business that I've got as we make the transition to one that becomes an asset. Yeah. So, um basically the core So, there there's there's two a chunked down version and chunked up version of the core economic engine that makes a business successful.

1:11So, LTV to CAC is the the most the smallest version of that engine. You put some money in, you get more money out. That's the the the gross profit you run the entire business off of. At a higher level, it's return on invested capital. Right? So, it's like, okay, that's what the core machine is, but then there's also equipment, there's leases, there's build outs, there's all that stuff that goes into it that's not typically included in LTV to CAC. And then how much does it cost us to build this machine again and again? So, that's kind of how I think about it. Like, micro level, it's LTV to CAC. Return on invested capital is what it is at the macro level. When you're like opening more and more locations and saying, it cost me 500,000 open a location, location makes me 500,000 in the first 6 months. Okay, cool. I've got a two to one, you know, return on on capital within a year, which is awesome, right?

1:52So, let's tackle for you. So, the nice thing about the music business is that it's actually identical to the gym business, so I know a lot about it. >> [laughter] >> Um and so, the the the models that I have seen works unbelievably well have been um semi-private models, um number one, uh or uh the 30-minute multiple times a week, much higher ticket, um people, you know, people stay three, four, five years with music lessons with their their their person.

2:20Um I prefer semi-private because I think you get more loyalty to the brand and it's less about the music teacher who can then leave and then take all of those, you know, students to a private. Um and so, I like semi-private in general. Also, I'm sure you could sell around the idea that they get a little bit more socialized and it's probably good for them and all that jazz. Um And in terms of pricing, I want my gross margins to be at least 80%, ideally 90.

2:47And so, um now you can do that when you're one on six, harder one on one. And so, if let's say you have uh six kids, right, in a class or four, I mean, you can you can you can you know, level into it. But let's say it's one on four, keep the math simple. Um and you charge $200, um Sorry, $50 per session times four kids is 200 You make $200 per session. Right?

3:15Well, for you to pay for an hour of music teacher's time, what does that cost? Right now, that would be 40 to $50 per class session. >> right there. So, 240, so 80% gross margins right there. Now, if you charge 60 bucks a session, you'd be at 240, so then you'd be like 84, whatever, in terms of gross margins, so you're above that. But that's my line That's my rule of thumb for uh brick and mortar service businesses is I want it to be over 80.

3:43Alex Ideally over 90, but I will not do a business if it has lower than 80% gross margins. Some people do, I just don't like to. Cuz you don't have enough cash to do anything. Right. And so, then the question is, okay, how do we how do we create the sales process and the positioning so that Now, you already are working with with a special class of customers. And so, I would imagine that you would be able to probably even more easily than a traditional music academy sell at a premium price.

4:11Alex Because if I'm a parent who had a neurodivergent kid, I would be willing to pay for a specialist. And so, a specialist prices are premium. So, I think that would work. And in terms of the model, um you can I mean, it just head count divided by uh teachers, basically. But you have to get the the core gross profit right in the business and then everything else kind of flows from there. I'm kind of in the same position that this guy over here was and I don't have an operator and so, I'm just kind of in that swamp, too, and um trying to navigate

4:48Alex >> to get more margin. You have to get more cash flow. Cash flow allows everybody to breathe better. So, okay, I guess that makes sense. We raise prices and get that a different sort of client um funding. Sell one on four and say and just sell around the fact that it's a better experience for them. >> [clears throat] >> Because you don't want them to be married to a teacher. You want them to married to Like, this is how I would sell it.

5:16Alex I would say, "Listen, Mrs. Whatever, like if your child becomes really attached to a single teacher, then if that teacher leaves, then all of a sudden this skill that they spent all this time on, they'll associate with the teacher and then all of a sudden they stop playing violin after 5 years. You don't want that, I don't want that. What we want is to create a a positive relationship with the skill so they just continue for life, right? Right. And so, we facilitate that by having other people in the sessions and so that the teachers sometimes do change so that no one really gets too attached to anybody, but they really grow attached to the craft.

5:49Alex That's how I would sell it. Whether that's true or not, no idea. But that's I don't Yeah. But like that's how I would sell it. Right. Uh does that make sense? It does. Yeah. So, that would be my positioning and I think if you if you just switch the ratio uh to to one on four. And so, okay, everybody. So, if you are capacity constrained, so some of you guys are in that position. Like, you you're you can't you can barely handle the customers that you have right now. Um you have three solutions. The easiest solution is you just raise prices.

6:17Because if you have supply constrained, then that means that you have more demand than you have supply, prices go up. Right? And most people just don't do that and just suffer. So, just raise the prices, make more money. That's solution number one. The second solution is change client deliver ratio, which we just covered. So, instead of going one on one, you go one on four. So, you get more out of what you already have. This gives you leverage and it gives you cash flow. It brings your gross margins. The third way is to bring other people in who can do what you do, uh which is then delegating, you know, the responsibility, right, to somebody else so that's the ultimate leverage so you don't have to do any of it. Does that make sense? So, those are kind of like the three steps that I think about when I have somebody who's um supply constrained and they don't have any time. They can't grow the business and they can't sell more customers, but they need to sell more customers to grow the business. It's the rock and hard place.

7:01And the nice thing is we start with price cuz it's the fastest and easiest one to do. You don't have to do anything. You don't have to change anything. You just say a different word and then you make more money. So, our our primary thing when we opened was it was 100% private lessons. Yeah. Uh and so, that's what That's basically the only difference in the the hypothetical gym in gym launch, which I read the whole thing on the plane over here. You know, how I didn't know that book didn't exist until we >> It's a good book. It's awesome. Yeah.

7:28Alex >> [laughter] >> But like so, what would the what would the You can still have one on one. You can sell one on one. Just I would predominantly sell semi-private. And if someone's like, "Well, I want the special snowflake treatment." Then you're like, "Awesome. I'll give you the special snowflake price." Right. What How would you design the that uh the the initial offer for that type of model? The six-week beginner challenge? So, I would have So, you would know this you would know the outcome better than I do, but it would be something whatever whatever the fast outcome that you can deliver to a kid who's neurodivergent who picks up a violin or whatever the instruments that you teach are.

8:04Alex Right? It's like, they'll be able to play this like a song in this period of time. Right? Now, it might not be good, but like they'll be able to You don't You'll recognize it kind of, right? Uh but like I would want some sort of discrete outcome. Um and that would be like an outcome. You could also do some sort of uh subjective thing, which is that like they rate X or they Like, you could have a survey at the beginning, survey at the end. That would be kind of more of an internal thing. Got it.

8:30But yeah, typically you'll serve you'll you'll sell some sort of package up front. I I'm going to guess that the price point for what you're looking at is going to be between 600 and 2,000 um is what the upfront package would be and then you'd upsell or at least let people go into continuity on the back end. And it probably be somewhere in the neighborhood of like 6 weeks to 6 months. You would know that range better in terms of how long to sell for. Okay. Yeah, and the best thing that we're drowning in content. We're a recording studio. So, these kids are making songs all the time. Yeah. And they should be feeding the marketing, but it's just so much Then there's that whole problem, but

9:03>> Yeah. You just need time, man. Like, I think what's interesting is that like the more stressed you are, the lower This is not me. This is not a slight, just to be clear. I'm saying in general. The more stressed anyone is, the lower your IQ is. And so, I'm saying this to say that Again, this isn't a use case. I'm saying that the problems that you struggle with when you are stressed, when you have a good night's sleep and a little bit of time, you solve it like 5 minutes.

9:28And so, if you want to increase your capacity, it's like let's solve for capacity and then a lot of these things that are keeping you up at night, you're like, "Oh, we'll just run a six-week thing or run a 12-week thing. We'll solve for this. I can see how the margins work out." And like we already have more demand than we can handle, so it's okay if people say no at our higher prices cuz we'll make it up in profit anyways. All the people who do say yes. Does that make sense? That wasn't a slight, to be clear. I'm saying for anybody. That's fine. Yeah, no, it's it's it's true. So. Cool. I I that.

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