When I Raise My Rates, I Measure In Lattes

Thursday, August 18, 2016 by Libby Wiebel | the biz

(Originally published at www.libbywiebel.com)


When I started teaching piano, it was 1993, and I charged $5 per half hour lesson. Why? That's what my first teacher charged. It seemed a reasonable rate. When 1997 rolled around, I decided that I deserved a raise. I raised my rate to $8 per half hour. I still remember it vividly. My stomach was in knots over this. I was sure that all of my students would quit! I was sure that their parents would be mad at me! I questioned whether or not I deserved that raise or whether it was too much! People around me said, "Go for it!" And so hesitantly, I did.


You can all finish the story for me. You all know already that no one quit. In fact, one of my studio parents actually said, "Well, it's about time!" 


So when I saw a post in one of my online groups today from a teacher questioning a rate increase, I wanted to get out my pompons and cheer for her, "You can do it! You can do it!" 


There is a huge tendency that many of us have as private music teachers to undervalue ourselves. Perhaps this exists in other fields, too, but I definitely see it with lots of other musicians. Heck, I see it in myself. A few years back, I found out I was charging significantly under the going rate for my area. It's no wonder I was struggling with finances at the time. But despite it all, it took a lot of convincing for me to raise my rates. Just like it had been back in 1997, my stomach was in knots. I was convinced that all of my students would quit. I was convinced that everyone would be mad at me. I questioned whether I deserved a raise or not! But the truth was, in order to survive financially and to be competitive with the rest of the region, I needed to bring my rates up by about 50%. Yes. 50%. That's how much I was under-charging. I was terrified. This seemed like an impossible predicament. Raise my rate and risk losing all my students. Keep my rate and risk losing myself in debt and insanity. It took some convincing, but eventually I did raise the rate, and I felt good about it.


Thinking Like An Apartment Complex


A friend pointed out to me that when apartment complexes raise their rents annually, they do it expecting to lose tenants. They actually expect people to leave. And they raise the rents anyway. I kind of freaked out at this until my friend made me sit down and do the math with him. 


Let's pretend we own an apartment complex that has 100 identical units. Let's pretend that those units rent for $500 each and that all 100 are filled. So in one year's time, we would earn:

100 apartments x $500 rent x 12 months = $600,000


So now, let's raise the rent. Let's raise the rent by 25% to $625. But let's say that 20 families get mad about the rate increase and decide to leave and rent elsewhere. How much do we earn in a year now?

80 apartments (since 20 people left) x $625 (our new rate) x 12 months = $600,000


Yep. We could lose 20% of our tenants and still earn the same amount at the end of the year because of our 25% rent increase. Let's just say that instead, we raised our rent by 100% -- we doubled it. Then we could actually lose HALF of our tenants and still come out at $600,000 for the year. Check the math yourself if you want.


Now, this thinking works because it's impersonal. I've lived in several apartment complexes over the years, and in none of them did I even know the names of the folks who worked in the office. I understood that I was just a rent check to them. I knew that if I left, they would clean out the place and someone new would be in in no time. Music lessons aren't like that. We actually do care if we lose students! They are not just nameless, faceless tuition checks. They are real people and real families, and we are not heartless. We care, and we would be sad to see them go. Still... the numbers to tell us that we could afford to lose students and still survive at the level we were at. 


Thinking In Lattes


And so rather than thinking in terms of vacant apartments, I started thinking in terms of something I knew a little bit more about -- lattes. What was my monthly rate going to be after the tuition hike? Another teacher online was questioning raising her rates by $5 per lesson and asking would this be too much seeing as it would come out as approximately a $20/month increase. This is where latte thinking comes into play. 


Imagine that a brand new coffee place opens up next door to your studio. How many parents can you see going over and sitting and relaxing with their newspapers, iPads, and a latte during their child's piano lesson? If your families are anything like mine, I can see plenty of my families wanting to do this. How many of your families would think nothing of, four times a month, going out to coffee with a friend? Again, I think that the majority of people who are affording private music lessons aren't going to think much about it. It might also be useful to ask yourself if you think your studio families would be willing to give up those 4 lattes a month in order to keep their student in lessons. Bottom line is that yes, the initial $20/month increase might seem like a lot. But if you present it in terms of a $5 per lesson increase if that will make them feel better. And in the end, if you think that 4 lattes/month are going to be a problem, then maybe raise the rates by 2 lattes instead. You know your families. You even know yourself how much a latte is worth to you.


Priorities, Priorities...


And the truth is, people might still quit. It might not be worth a latte to them. That latte might be the line where priorities are drawn. And for you, it might be that an increased rate may be the difference between someone having a lackluster year of lessons because, "It didn't cost too much..." versus that same student quitting lessons but having a fantastic year in ballet because the money could be put elsewhere in the family budget -- like an extra hour of dance class per week. If music lessons are a priority for the family and your rates aren't too outrageous for your community, then there is a good chance they will stay. After all, we develop relationships with these families. And if music lessons aren't as much a priority for the family, then there's not much you can do about it. We don't get to determine other people's priorities. We can agree or disagree as much as we'd like, but in the end, we don't get to decide. And if ballet is where a family decides to put their money, then we may just have to swallow our disappointment and wish them well.


The question is, are enough people going to quit to put us in trouble given the empty-apartment situation? Or are lessons a big enough priority to enough studio families to keep us at least at the same income level? Because here's what's going to happen. Let's say that 3 out of 20 families decide that with a rate increase, they are going to leave the studio. You are going to keep 17 motivated students who are going to tell family and friends and neighbors and classmates about what a great teacher you are. And when you accept that the 3 families who've left have different priorities, you may also find that despite not being in lessons, they still tell their families and friends and neighbors and classmates, too, about the teacher who cared enough to let them go gracefully. You are going to fill those 3 slots in no time with people who really want to be there -- never questioning your new rate.


I'm going to interject for a moment and say that you may very well run into families who legitimately can't afford lessons and who are "choosing" to put their money toward food and housing rather than a different kind of extra-curricular activity. It's in these cases that you may want to consider giving a family a tuition break or some kind of scholarship. And if you choose to do so, you may want to look into the MusicLink Foundation to help you do this. It's a different issue entirely than much of what I'm talking about here. Some families can't afford even one latte a month but may still have a child who really needs to have music in their lives. Hopefully these families will feel comfortable approaching you and explain what's going on so that you can do what you can. But remember that you need to take care of yourself, too -- put your own oxygen mask on first. If you can't afford to sacrifice part of a tuition payment, then this might not be the right time for you to offer a scholarship. Do what you can, but not to the detriment of your own self, family, and business.


No Apologies


When you finally do decide to raise your rates, I personally find that it's best to do it without apology. Just announce the new rate. If someone wants an explanation, you can break it down for him/her -- understand that s/he may not be challenging you but simply wanting to understand how things are calculated. If someone wants to know why the rates have gone up, you can choose how much information to offer. Perhaps you finished a new certification and feel you should be compensated for it. Perhaps the studio is going to be offering a new perk next year and you need to raise rates to afford it. Maybe your studio rent has gone up. Maybe you're simply keeping up (or catching up) with the cost of living. All of these are OK. It's your business, so you get to decide. 


So How Did I Do It?


Back to my problem a few years back... really needing to raise my rates by 50%. I calculated that I could lose a third of my studio if my rates went up by 50%, and I'd still make the exact same amount as if I hadn't raised my rates at all. At that point, my studio was around 21 students. So I could theoretically lose 7 of those students. Did I really think that I would lose 7? I looked down my roster, and I while I came up with a few question marks, my gut told me that at least 14 of the families would likely stay. Of course I didn't want to lose 7 families. But the numbers told me that I could. And that amped my courage. 


I was also in the process of expanding my studio, so I decided that any new students who came in would absolutely be at a rate that was 50% more than I had been charging. And then I bumped the tuition for my existing families up over the course of two years. And in two years time, they were paying that extra 50%. Each bump was for a reasonable number of lattes -- it just felt like too much to ask to do it all in one year, and so I used "latte theory" to figure out what I thought was reasonable.


The real question: Did I lose anyone? Well, in fact I did. I lost one family with two children. And they told me that it was, indeed because of the tuition hike. But it wasn't because all of a sudden they couldn't afford it. They could have arranged their priorities differently. The tuition hike just brought the inevitable to the surface -- they were more invested in dance and tennis than they were in piano. And while I was sad to see them go, I understood. 


The hardest thing was, though, convincing myself that I deserved this. And I did. I deserved to be making enough money to live off of. I deserved to be making money commensurate with the quality of lessons I was giving! But it was a hard thing for me to accept -- that it was OK for me to ask for more money. 


Now and then, people (namely other teachers) tell me that they think I'm a good businesswoman. And that always makes me laugh. I kind of fell into being a businesswoman and I still hardly feel like I'm good at it. I'm learning. I always will be. Like so many of us private music teachers, we never anticipated this business thing! But it really is a business we're running. And once I admitted to myself that I was actually pretty bad at running my business, things finally started to get better! I honestly couldn't have done it without the support I got from classes and mentoring at the Community Business Partnership in Fairfax County, VA. I had to ask for help, attend the classes, do my homework, listen to my mentor... but I did, and things got better... better than I could have imagined. And I still have a long way to go. But the CBP folks believed in me and allowed me to believe in myself. And now I feel like this business of mine really is going to succeed so long as I keep on doing the work. There are centers like this all over and classes offered at very reasonable rates through adult ed programs through school districts and counties. If, like me, you're feeling like this business thing is too big to do on your own, there really are people out there willing and able to help -- people who are passionate about it, even. You've just gotta do the footwork and keep asking until you find the right people and places for you to get the help you need.