PIF's and Cash Outs

[7starmantis]

Recently there has been a big discussion going on in the MA business world about Cash Outs or PIF's (Paid In Full's). Articles have appeared in Martial Arts Professional Magazine as well as some newsletters such as The Dojo Insider. I'm curious to hear the opinions here about aggressivly seeking paid in advance tuition for multi-year martial arts courses. Do you agree with the process? Do you think it allows for a higher gross income? Do you disagree with the process? Many believe it has ehtical disadvantages and have problems selling multi-year paid in advance courses to students of all ages.

One point for Paid-In-Fulls are that the student is less likely to quit. They say PIF's increase retention in schools. Is that actually true though?

I'm curious to hear the discussion from school owners and students here.

7sm

 

[Kenpo Yahoo]

There was a guy in my area several years back who was offering 12 months for the price of 6, but the catch was that you had to pay up front and it was one of those limited time only things. Well, a month later he closed the school and took off with everyones money. No contracts just the promise of continued training. I don't think anyone was able to persue legal action. Be careful out there.

 

[terryl965]

Well at my school we do not or will not offer these kinds of programs, first off you can never say how long it will take,second you cannot forsee the future of the student health or your own as well, finally the thought of asking for a contract and giving a gaurantee on services is a joke we only do month to month and no contracts. We have had student for a little as three months and as long as 10 years. If people are going to quit with or without a contract and a good lawyer can get anybody out of a contract. No buddy can predict how long it will take to get to a certain belt level all people learn at adifference pace then others. take control of your life and God Bless America

 

[lvwhitebir]

Well at my school we do not or will not offer these kinds of programs, first off you can never say how long it will take,second you cannot forsee the future of the student health or your own as well, finally the thought of asking for a contract and giving a gaurantee on services is a joke

With the schools I'm familiar with, the contract (whether PIF or not) is only for a period of time; it has nothing to do with obtaining a particular belt level. The only "guarantee" is generally a locked-in price for the duration of the contract and a set training regimen.

For the school owner contracts or PIFs have the benefit of retention (especially for kids during the summer months), which provides a more known profit margin. Usually schools with pure month-to-month tuition see serious swings in attendance, which can make for some difficult months during the down season (the owner is still required to make the same lease payment for the building).

For the consumer, it can provide an incentive to keep going since they're paying (or have paid) for the classes already. Many students have slumps and decide to quit in the middle belt levels. This is another way to help the student learn perseverance, by helping them stick to a plan. And as I said, it locks in the price of the lessons, where others can raise their rate daily if they wanted to. Most service contracts have clauses that let you out of the contract if you move away or have some other sort of financial hardship. Most instructors have contracts (building lease) themselves so having one for the student makes sense.

A contract also instills in the consumer that the martial arts is not a seasonal hobby. It's something that will take a long time to master and requires some dedication. You proclaim that dedication when you have a contract.

Most consumers are used to the concept of a contract, we have leases for rentals, for cars, etc. And most health clubs have contracts. So almost everyone has one. Paying up front for a service is a little harder sell since most people are not familiar with that. At the moment I can't think of anything else that does this.

PIFs can be bad for the school if the money is spent before its time. Once it's spent, you're not getting any more money from that student. It takes a lot more financial management on the part of the owner.

PIFs are bad for the consumer simply because things come up: injuries, layoffs, moves. Make sure you have it documented under what conditions you can receive a refund.

I personally dislike contracts and especially PIFs, although that's how I trained. I'm a business softee and have a hard time charging someone for classes they are not taking. But I can see the benefits too. I've had several students give me a sob story and not pay only to leave with a hefty bill afterwards.

WhiteBirch

 

[terryl965]

I do agree with you whiteburch,but as you know your lease and such are always paid by your month to month people not by the contracts. Your so called seasonal people are what makes you the most money in the long run, as I stated earlier if you have a great program they stay if not they are gone. Simply put you must preform or your are as good as gone in this business. Thanks for your input and God Bless America and your family.....

 

[7starmantis]

I'm not refering to guarunteed belts or anything, just simply PIF contracts. I don't believe they help increase retention because if that were true, schools with these programs in place should boast the highest retention rates in the industry and that simply doesn't happen. If you "cash out" all of your students, you end up with a school completely full of non paying students. Thats not smart business anyway you look at it. Think if you paid your employees 3 years in advance. In 6 months you think they would be as effecient and motivated knowing they will not get any more money from you?


7sm

 

[7starmantis]

Anyone got any information opposite this? We've been discussing it alot lately at my school. I'm just curious to what others have experienced with them.

7sm

 

[terryl965]

I still believe that cash out hurt this business to the point that most people i know will not even go to a dojaang if they offer this type of program. I recieve atleast 2 to 3 new students a month becouse parents do not want to be lock in a contract. I know you say it locks in the price but you control your on pricing and you only charge higher if you wish to do that, I manage to keep my bills paid and be able to invest a certain percentage back into the school every month for new equipment and still take home a nice piece of change. God Bless America and you and your family and friends.

Thanks
Terry L. Stoker

 

[lvwhitebir]

The only good thing I can think of particular to PIFs is the quick generation of cash. This can be good if you're a startup school or need equipment to get the programs running. If you spend the money though you need to ensure you have other students to fill in because these students are no longer paying.

I use PIFs only for short term (3-months or less) programs. I personally think too many schools get in trouble with anything longer. Some management companies say that you should keep your PIFs at less than 10% of your student count.

On the flip side of PIFs, contracts can be used to maintain consistent student levels and monthly EFT (or outside billing companies) can be used to ensure payment.

WhiteBirch

 

[clapping_tiger]

You need a combination of PIF and monthly payments to make your school work. If you have too many PIF, you have a large lump sum of money and then you may go a few months before you generate any other sizable income. It's the monthly or weekly payments that will keep a school afloat. The PIF's are good for buying needed equipment, and such things. But a school that requires a lot of students to pay in full, both won't have a lot of students, and runs the risk of going under and leaving these people out in the cold who have paid for one year of training, and now the school is gone(can you smell a lawsuit?). Also if you have money back policy, you may end up paying these PIF students back some money if they quit. I think a good percentage is 25% PIF and 75% monthly. IF your school generates any higher percentage than that in PIF, than you are not charging enough. I agree with the comments that a prospective student has to fully understand that if he Pays in full, he is buying a chunk of time, or a block of classes (that is what our school does) he/she is not buying a belt rank, or guaranteed to reach a certian level by the time their contract is up. We did have one family that came in and paid in full and demanded their money back when they did not reach Black Belt by the time their contract was up.