David Maister - Professional Business, Professional Life
David’s ResourcesAbout David
NEW! Browse my materials by topic of interest:StrategyManagingClient RelationsCareersGeneral

Passion, People and Principles

Pricing and Promoting a PreSchool Business

post # 305 — February 8, 2007 — a Client Relations, Strategy post

Here’s today’s question from a participant on this blog:

We are moving to a new area, and my wife wants to start a preschool out of our home (which we have yet to purchase). Our question is how to price and promote such a business.Most preschools in the area are more like “day-cares” (more like a baby-sitter than a private school education). The businesses may or may not be licensed (from what we hear), and the teachers are not certified. The highest end “institutional” preschools in our area charge as much as $100/month. My wife knows of someone who has run a high-end “home-based” preschool for years and charges $240+ per month, has 40 students per month and has a waiting list. Like my wife, this teacher is state certified.

My wife would like to have 20 students, all signed and committed by August 1. As we will purchase a larger home than we would normally need (to accommodate the preschool), the earlier we can receive cash flows the better. It would help if we could commit families to “terms” of about 4 to 5 months, but we feel like we probably would have to charge them monthly rather than up front (like a traditional school).

Extreme versions of your principles (“Earn a relationship by giving something free first”) would tell us to give everyone a month for free and then charge a steep premium after they fall in love with my wife’s teaching of their kids. Yet we feel we might get a bunch of free-loaders that way.

In addition, if we did start out at a discount to “earn and deserve the relationship” how would we then raise the price if people are willing to pay for a premium? Should we wait until we have a waiting list? We could also try the variation mentioned in one of your books of charging a minimum payment of (say) 80% of target fees, subject to parents agreeing to paying us a satisfaction payment at the end of term.

How should we think of marketing and pricing this business in an area that will be new to us?

It sounds to me to be very ambitious to aim for a “full-house” within 6 months in a new business in a new area where you are not known. And I don’t think you can solve it with creative pricing schemes.

I suspect that your big challenge is not pricing but establishing a marketing presence; i.e., being accepted as a credible supplier — particularly if people have to trust their kids to you. Is there any way of doing a deal with one or more of the current high-end teachers who have a waiting list? Paying them a commission or going into partnership with them? Since you’re new and they’re established, teaming with them for the first few years might make the most sense.

Since prices are set by supply and demand, I have lots of questions about both. Why aren’t there more high-end certified preschool teachers? Is the fact that the one you know about has a waiting list evidence that there is a shortage of supply? Or is it just one anecdote? Are people unhappy with “institutional” preschool, thereby creating a pent-up demand? And what are the rule in your state — can parents qualify for programs that get the state to pay (some of) the fees? State bodies might also be a good “partner” to get you launched in the new area. They certainly would be a good source of ‘market intelligence.’

If it is a shortage of good teachers is the issue, where are the kids that you hope to attract going now? Will you be “stealing them” from the institutional preschools ($100 per month), from other high-end teachers, or from situations where the parents keep the kids at home? Which is the most likely source?

As to pricing structure, I don’t know if “freebies” would work here — they may be viewed with suspicion and a sign of low quality. Instead, I suspect you want and need to create an image of being “special”, so a high fee with a money back guarantee might work better than agreeing to a discount up front.

Anybody else got some initial views about how to launch and price a business like this?

11 Comments

Liz Zitzow said:

Firstly, parents don’t want to pay more unless they get more. You should survey parents for what they think “more” is.

For me, the “more” would be greasing the wheels later in life. If students who attend your preschool have a high acceptance rate to exclusive schools, that alone may bring the high fees you’re looking for.

Many parents want their children exposed to high-achieving students of all backgrounds, not just those that can afford your fees. You may want to leave a few slots open for ideal candidates from low-income backgrounds.

There should be some sort of application procedure that tests the child’s abilities. Parents love thinking their child is better than other children, and passing all the tests to get into your school will increase the exclusivity and the desirability of your school.

You’ll also want to decline a certain percentage of well-healed applicants, even if you don’t have a full classroom yet, in order to keep up the appearance of exclusivity. The harder it is to get a place in your school, the more applicants you’ll get – and the higher your fees can be.

You’ll want to do follow-ups to see what’s become of your students as they progress through life. These statistics can help to further impress parents.

posted on February 8, 2007

David Kirk said:

The question was posed about both pricing and promoting, but then it seems that the rest of the comments all related to price. The 4Ps recipe is an old one, but is still a worthwhile place to start for an initial structure

Product, Price, Place and Promotion

1 Product

A good product is important, but it isn’t going to sell itself. The analysis presents some information on pricing and supply / demand levels for various “products”, but it is unclear to me whether this analysis is systematic and representative or not. As tough as it is, this is something you need to look at through dispassionate eyes at times. Do other parents want qualified teachers? Or do they prefer a less formal approach. Maybe (and without children myself I am purely putting this out as a possible point of view for discussion) parents feel that they are not handing their children over to an institution if the teachers are less qualified and the setup less formal.

2 Price

Price has been given more airtime than the other components so far. Coming from outside the States, I have no feel for absolute levels of pricing. However, maybe this is an area to brainstorm a large array of pricing possibilities (and get David’s readers to suggest many more!). Maybe you offer reduced rates for the first 5 kids to sign-up, or a discount for upfront payment for a 3 or 6 month period. This could help finance the cashflows early on, encourage some interest and early adoption, but also make it a seamless process to go from discounted prices to a premium-priced service. I do agree with David’s point that it sounds like a tough ask to get a full house in a short space of time, but I suppose a preschool with 2 children isn’t much of a fun place for the children to play and learn.

3 Place

Is the place to which you’re moving right for a preschool? How much has the desire to start a preschool affected the choice of area? Are there other areas that meet all the other criteria (the writer’s own workplace, nearby schools, other amenities and “feel”) but are better suited to start a preschool? What sort of catchment area do you envisage? If the children’s homes are spread around, maybe some form of transport service could transform “place” into something more workable. This again needs a firm understanding of real demands of prospective customers (both the children and their parents).

4 Promotion

How you go about promoting the preschool will be crucial. Flyers placed on cars may be successful (I’m not convinced) but face to face visits to families in the area might add a personal touch, a relationship and trust-building touch that will go a long way to settling anxious parents’ minds and showing that you are serious about a quality, professional product based on whatever mix you are after. If your wife believes in a mostly play-based preschool, then that is what you must show. If it is going to be desks and chalk boards and 18 hours per day of advanced math lessons, then that is what you convey. Personal selling will allow time for the parents to ask questions and get to know the people who will be looking after their children. If the service fits, I expect the price will be less of a sticking point.

If you use a personal promotion strategy, it also gives you the opportunity to receive instant feedback early on, which you can use to adjust your promotion, pricing and even product strategy. Started early enough, it will advise you whether the “place” you have chosen is going to work to. This goes back to my allusion earlier on that you may need some more hard data and careful analysis before you set everything in motion. The odd discussion with friends over at a dinner party (I don’t mean to suggest you haven’t done more serious research than that, but hopefully you understand my point) does not replace carefully considered homework to make the launch a success.

Because the number of successul promotional visits is quite low (20 or so I gather) it is more sensible than if you needed to fill 5,000 seats for a convention!

A 5th “P”?

There is an occassionally added 5th “p” – Packaging. Unless you’re planning to wrap the kids in bubble-wrap to keep them safe, I think we can safely skip this one!

posted on February 8, 2007

PreSchool Hopeful said:

I know this isn’t the most exciting topic, but we could really use everyone’s help. Can more of you please write in? Even if you don’t have much to say?

Here are answers to the questions asked so far:

Question #1—Is there any way of doing a deal with one or more of the current high-end teachers who have a waiting list? Paying them a commission or going into partnership with them?

Answer #1—We’ll definitely look into this. The currently high end preschools will be significantly far enough from ours that it would be hard to “buy” their business. We can look for others in our area. They are hard to find, as they are advertised solely by word of mouth.

Q2—Why aren’t there more high-end certified preschool teachers? Is the fact that the one you know about has a waiting list evidence that there is a shortage of supply? Or is it just one anecdote? Are people unhappy with “institutional” preschool, thereby creating a pent-up demand?

A2—I think there is shortage of supply of excellence in preschools in the area. We have tried to pick a home in an area with high demand (large families), ability to pay (above average incomes), certain values (wanting to invest in their children), etc. Also, the area we are moving to is very similar to the area that the most successful home-based preschool teacher we have met lives.

Q3—And what are the rule in your state — can parents qualify for programs that get the state to pay (some of) the fees? State bodies might also be a good “partner” to get you launched in the new area. They certainly would be a good source of ‘market intelligence.’

A3—This is a fantastic idea. We will look into it.

Q4—If it is a shortage of good teachers is the issue, where are the kids that you hope to attract going now? Will you be “stealing them” from the institutional preschools ($100 per month), from other high-end teachers, or from situations where the parents keep the kids at home? Which is the most likely source?

A4—Parents that keep their kids at home and/or those willing to pay more than the institutional rate for quality.

Q5—Do other parents want qualified teachers? Or do they prefer a less formal approach.

A5—Certified seems to be a major plus (and many are not). Home based also seems to have a better appeal—less like day care, better environment, more as a hobby (labor of love) rather than a wage.

Q6—Is the place to which you’re moving right for a preschool? How much has the desire to start a preschool affected the choice of area? Are there other areas that meet all the other criteria (the writer’s own workplace, nearby schools, other amenities and “feel”) but are better suited to start a preschool? What sort of catchment area do you envisage? If the children’s homes are spread around, maybe some form of transport service could transform “place” into something more workable. This again needs a firm understanding of real demands of prospective customers (both the children and their parents).

A6—Yes, see A2.

posted on February 8, 2007

Carl Isenburg said:

Like David, I don’t think the freebies will work. Daycare isn’t something that people are going to change, change-back, etc. There is some opportunity for promotion, though – I’ll get to that in a second.

Also in agreement with David, your most significant barrier to entry is credibility. You need to build this, urgently. A good idea is to form partnerships with the existing providers (and get their waiting lists?). Another good idea may be a small party at a local park – you could demonstrate things that parents will look for in a preschool and day care provider:

  • Organization
  • Cleanliness
  • Relationships with the children
  • Ability to control the environment and lead the children
  • Knowledge and general intelligence

All of that will come after you choose a home and neighborhood, though. You’ve got a chicken-and-egg with your desire to generate cashflow before you choose your location. You’ll have to choose the location first.

posted on February 8, 2007

Steve Shu said:

Other areas to differentiate on based on past competitive analyses I have done for preschools (in terms of marketing, operations, and finance):

  • earlier start times, later end times
  • healthier lunches served
  • niche age rooms (e.g., including room where kids not toilet trained)
  • lower teacher to child ratios

But as David mentioned in the post, trust is the first thing that you have to develop. Really have to comb through every small detail here. The preschool is for the kids, but the purchasers are the parents, who may have other drivers listed above.

posted on February 9, 2007

peter vajda said:

FWIW, for the past five years, I’ve been volunteering as a tutor for high school students in a private, family-owned tutoring center that tutors kids from grade one on. They’ve been in business for 15 years and have an excellent reputation.

Two years ago, they decided they wanted to open up a pre-K and grades 1-3 school. Did all the paperwork etc. They polled every parent who used their tutoring center over the past five years. Very positive feedback: “great idea!” “yes, we’d be interested for our x-year old,” etc. When the time came for announcing the opening, seeking applicants, basically…. no appreciable response. Seems folks were set in their comfort zones, kids were engaged in schools that were “known quantities” as schools, the message being, “you’re great at tutoring, but as a “school”?, hmmm, dunno…”, one surmise is they have no history, track record, etc. and with parents so enmeshed with thinking (even now when their kids are 3-4-5-6) about getting their kids into prime schools and into select colleges, they may be gun shy when it comes to enrolling into an unknown quantity. Just a thought.

I’ll ask where they are now with this and if there’s more to add here, will do so. Good luck with your venture.

posted on February 9, 2007

PreSchool Hopeful said:

Peter, we would love to hear what you find out.

posted on February 9, 2007

Pamela Koons said:

Dear PreSchool Hopeful,

I commend you for your efforts and applaud your determination. There is hope! There are many anwers to your questions- good ones. I have done what you are setting out to do many times over, and love to share my expertise. Here is my volunteer site for just your questions.

Please contact me there for more in-depth answers! :)

Much Success,

Pam

posted on May 10, 2007

PreSchool Hopeful said:

Well the doors for My First School, LLC open Monday with 18 students enrolled. This is well short of capacity, but definitely above breakeven for all that has been invested.

Most of the marketing has been done over about a 2 month period. We are hopeful to continue to bring in students throughout the year.

Just wanted to report the good news. Thanks!

posted on August 2, 2007

Joni said:

Please enter your comment Looking at taking a postion as a Director of a VERY new center. She needs help in enrollment and marketing. Need a few tips or place to go online to get some suggestions. I used to have my own and I am presently teaching so I know alot of tricks. Looking for some from those that have been around long time. Please email me. thanks

posted on March 9, 2008

Pam Koons said:

Hi Joni,

I have 30 years in the PS owner biz if you have questions…

Pam Koons

posted on March 9, 2008