When launching and running an online school, you need either to be a master in your academy subject or being great at designing education paths and engaging amazing trainers around them.
This is for sure the way for your academy to have legs. But you, the course creator or entrepreneur, may also master a bit of finance to assure those legs will run for a long time.
So, designing a financially sustainable academy is a crucial point to pay the bills and having something for you to enjoy some beers and a warm shower back home.
To do it, the first thing to consider is the Trainee Lifetime Value.
What is the Trainee Lifetime Value (TLV)?
The Trainee Lifetime Value (TLV) is the economic value a trainee brings to you from the first enrolment up to the last.
Being clear from the beginning, it’s not what he pays during his journey at your academy.
The economic value is what he pays to enroll less the costs you bear for having such enrolments happen. We’ll get to a concrete example soon, hold on.
Here we need to draw a perimeter before proceeding.
We focus our attention on the future of our academy, whether you are already running it or you are about to launch it.
Let’s go deep through a concrete example, then.
The sales margin
To compute the TLV, you need first to determine the margin of each sale. To do it, you need a few data as inputs.
The first data is the average enrolment ticket. Based on the prices of your courses you should define how much, on average, a trainee spends per enrolment.
If you are running your academy since years, you may download the sales report and figure it out.
If you’re about to launch the school, you should assume a reasonable value based on the course catalog you’re planning to implement.
Then, the other data you need concern the costs you bear when each course has been sold.
The easier to understand is the cost for the payment to be processed using your Stripe or Paypal account.
And, comparing Stripe vs. Paypal financial performance, is something you should consider before making a choice.
Other costs? Let’s say you may have royalties for teachers because you’re not creating the courses yourself.
You have now all the data you need to compute the sales margin.
Going into numbers, imagine you have:
As a payment processor, we use Stripe because its fees are easier to compute since they always amount to 1,4% + €0,25 in Europe. It turns you pay Stripe €2,9.
The margin of the sale is €121,7.
When doing such calculations, remember to use the VAT-net figures.
Hopefully, you’re not running your academy to sell just one course per trainee. You want the trainee to get back and enroll in another course after having loved the first, and so on.
This trainee behavior is called repeat enrolments and is the key for your academy success.
The bad news is that you should somehow estimate this behavior to understand your academy sustainability in the long run. And it’s not easy.
You can employ complex statistical models for determining the average repeat enrolments, especially if your academy has a sales track.
The easiest way to estimate it, especially if you’re about to start or just started, is to use two values:
Combined, they represent how many trainees will remain loyal in the 24 months after the first enrolment and how many enrolments, on average, they do.
In our case, assuming 3 repeat enrolments and a 30% loyal trainee rate leads to a Trainee Lifetime Value of €194,7.
The practical meaning of the TLV
After giving you so many information, we should try to sum up and give practical meaning to the TLV.
We can say that from every new trainee you convert to join the academy, you get €194,7 in the next 24 months.
With this value in mind, you can plan your activities and all the other costs. For example, the costs for:
Is TLV enough for designing the academy financial strategy?
The TLV is a good starting point for understanding our business financials, but unfortunately is just a part of a wider picture.
For example, determining the Trainee Acquisition Cost and Trainee Marketing (up-selling) Cost is another key point when analyzing unit profits.