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?