Pricing Your Educational Product/Service for Long Term Profitability

1. Pricing Your Educational Product/Service for Long Term Profitability EDVentures July 18, 2014

2. Session Overview • Introduction • Summary of session • Learning objectives • Existing knowledge and skills? • Pricing methodology • Cost categories • Unit costing • Forecasting/projection methodology • Forecasting assumptions • 5-year projections • Using the methodology in your day-to-day business decisions • Case study - Utilizing the pricing spreadsheet • Meaghan Donahue – Total Education Solutions

3. Introduction

4. Session Summary • This session will help participants understand a basic methodology for pricing their company’s products/ services and the impact of product pricing on a company’s long-term strategy and profitability. • The session will be oriented toward new/emerging entrepreneurs in the early stages of their company’s development and will introduce a set of basic pricing principles that are fundamental to a company’s business strategy. • Participants will receive a spreadsheet template that they can use in their own company to analyze alternative pricing structures and their impact on the longer term profitability of their company.

5. Learning Objectives • By the end of this session, learners will be able to: • Understand a set of basic principles that affect the pricing of an educational product/service including: unit costing, direct costs and allocable costs, gross margin percentage, customer acquisition costs, etc. • Discuss and reflect on the how these basic principles operate within their specific company in real, practical terms. • Identify how the pricing strategies of various companies can differ based on the nature of their business strategies, the economics of their products and their expectations of future revenue growth. • Utilize a provided spreadsheet to analyze the impact of various pricing strategies on their company’s long term strategy and profitability.

6. Existing Knowledge/Skills???Do you know/understand… Definition of Key Terms Analytic Skills Spreadsheet development Cost estimating Revenue forecasting Financial projections Scenario planning • Unit costing • Unit pricing • Direct costs • Direct allocable costs • Cost of goods sold (COGS) • Customer acquisition costs • Gross margin • Contribution to overhead • Corporate/overhead costs

7. Pricing methodology

8. Unit Pricing Methodology • It is critical for your company to have a clear methodology for determining the price of the products/services it offers to the marketplace. • While there are multiple approaches to pricing, the methodology is ultimately based on the unit costs incurred in delivering the product/service on a per customer basis.

9. Direct CostsCOGS • Direct costs are expenses that are generated and incurred by delivering a product/service to an additional customer. • The incremental costs of providing a product/service to an incremental customer. • Costs of goods sold (COGS). • There are two broad categories of direct costs to consider: • Direct program costs – Expenses generated by the direct provision of a product/service to a customer. • Direct allocable costs – Expenses that are shared by multiple customers and/or sites, but are costs that increase in direct response to an increase in the number of customers.

10. Per-Pupil Unit Cost AnalysisEXAMPLES: Whole School Program and Individual Courses

11. Group Exercise • Identify the following items for your business and describe your thinking to your neighbors: • What are the primary direct program costs of your business? • What are the primary direct allocable costs of your business? • What costs are you unsure how to categorize?

12. Customer Acquisition CostsSales/Marketing • Customer acquisition costs are expenses that are generated and incurred by selling a product/service to an additional customer . • The incremental sales/marketing costs of a product/service to an incremental customer. • There are two broad categories of direct costs to consider: • Direct sales costs – Expenses generated by the direct sale of a product/service to a customer. • Examples: Sales commissions and direct response advertising. • Allocable sales costs – Expenses that are shared across multiple customers and/or sites, but are marketing costs that a portion of the company’s overall marketing program. • Examples: Conference attendance and advertising.

13. Group Exercise • Identify the following items for your business and describe your thinking to your neighbors: • What are the primary direct sales costs of your business? • What are the primary allocable sales costs of your business? • What costs are you unsure how to categorize?

14. Margin Percentage • Once you have determined the “per unit costs” of providing a product/service to a customer, it is critical for your company to determine a margin percentage it will apply to the sale price of the product service. • The margin percentage can vary substantially based on: • Company strategy. • Corporate overhead costs. • Expected sales volume. • Investor return expectations.

15. Group Exercise • Identify the following items for your business and describe your thinking to your neighbors: • What is the primary rationale for a high margin business? A low margin business? • What is an appropriate margin percentage for your company’s primary product/service? • How do you determine an appropriate margin percentage for your company? • How can market research and competitor analysis affect this process?

16. Forecasting/Projection methodology

17. Financial Model AssumptionsFive Years – FY15-19

18. Pro Forma Financial ModelFive Years – FY15-19 (in thousands)

19. Utilizing the pricing spreadsheet

20. Case study

21. Case Study • Total Education Solutions • Need bullets from Meaghan