Friday, November 20, 2015

Free lance tutoring as a business - Part 2

Revenue is not the main thing we should be looking at. Afterall, not all the revenue you earned is going all into your pockets because there is cost involved. Revenue, after all the costs had been deducted, becomes the profit. And that's what we're looking at in this post.


I like to see myself as a company. What I earned for a living is my revenue, while all that I spend are the cost of earning that revenue. So what's left after all the costs are subtracted will be my profits. Some people operate like a heavy capex company, with huge capital expenditures that keeps increasing so as to generate more revenue and high profits. Imagine someone who earns 10k a month and spends 8k a month in order to continue earning 10k a month. This is an example of a high capex individual. Quite tough, I'll say, because you have to keep on running on the treadmill just to stay at the same place. There are others who are like the service industry, light on costs and generally have much higher profit margins. I think I'm more of this type of company.


When we look at profits, we have to look at the cost. Here's a few things worth mentioning with regards to free lance tutoring:


1. Cost of rental + utilities
2. Cost of transport
3, Cost of raw materials


I've analysed quite a few companies listed in sgx. The three main cost are typically rental of premise, wages of labour, and cost of raw materials. For a free lancer tutor, the cost consists of rental + utilities, cost of transportation and cost of raw materials. There are different models of doing this and it depends on who is moving - the student or the tutor. In the student-moving model, the tutor stays put and the student travels over to a place where the tutor rented. The rental premise can also be at the residential property of the tutor, though some of my tutor friends die die refuse to do that. Invasion of privacy they say. The other tutor-moving model means that the student stays put in their own home, while the tutor moves around. I used to operate under this model for nearly 6 to 7 years until I have my own property. Now, I'm mainly adopting the student-moving model, although I still have to travel to some students place for work. 


That's my actual classroom, by the way


Now if you're the tutor who is moving around, then you'll incur transportation cost. If you don't take cabs all the time, the cost will be about $100 to $120 per month if you work 7 days a week. This will of course increase substantially if you take cabs every now and then. This model will have transportation cost incurred but there's no rental or utilities cost. But trust me, if you have to take 3 students a day, you'll end up about 2 hours on the road waiting and travelling. It's low cost but it comes at a heavy price of taxing your time and energy. Hence, I'll typically charge a higher rate to off set this cost, but it's still not fully recoverable. Some tutors might also buy a non-weekend car for the purpose of work too. I'll say it's a great investment, especially if you buy 2nd hand ones with about 3-5 yrs left. Some of the hardest places to go are also the ones that pays the greatest in tuition fees, but you have to work out the sum yourself.


On the other hand, adopting the student-moving model, you'll incur rental cost plus the cost of air-conditioning etc. Those who are using a room in their property will have to put in some renovation costs, and have to add in some teaching aids and a printer, but that's just one off. I always switch on the aircon in my classroom, though I can't be sure if that's a common practice for other tutors. I've been to student's place drenched in sweat from the walking and with no fan for 2 hours. It's not a nice feeling and it affects your concentration level as it's not conducive enough for learning. The good advantage is that you don't have to move about, and can typically save tremendous amount of time that can be better spent on other things, including adding one more extra class per day, if you're so inclined. 


Cost of raw materials is near minimal. There's printing cost of in-house worksheets and past year papers, but that's not usually a lot. Sometimes there's cost incurred in buying books for self reference or for the student, but again, this are far and few. Perhaps with the exception of the first few years when you are still learning your craft, the cost of raw materials for teaching is not especially high.


These 3 are the cost of doing the business but we should look at the non accounting cost of the business too. As an individual, we have to spend on food, entertainment, material goods etc. I count this as the cost of doing business too, though I'm fully aware the standard accounting practice do not count that. Generally, if you're in a high stress job, you will need to spend more to de-stress. A low stress job will require less retail therapy. Some bankers, typically a high stress job with quotas to meet, have to spend tremendous amount of their 'revenue' (i.e. salary) in order to continue working to earn that salary. The end result is that the profit of such people might not necessary be higher than someone earning an average pay in a low-stress job with little or no retail therapy needed. 


If I may be so bold to change the lyrics of that popular song, it's all about the profit, 'bout the profit, not revenue, it's all about the profit, 'bout the profit, not revenue...


Hence, profit is actually the savings you have at the end of your month. Profit margins of a company is your savings rate. If you save 30% of your salary, you're like a company with 30% profit margins. The truly great people-company are the ones with 70 to 90% profit margin, spending only 10 to 30 cts to every dollar they earned. They will have so much cash flow that the happy problem is what to do with it. Pay an interim dividend to themselves or their shareholders? Invest in another stream of revenue? Acquire and merge with another company? Spin off another subsidiary or two with the merger company? LOL


Going to talk about cash flow in the next part. Stay tuned.





14 comments :

My 15HWW said...

Hi LP,

So far, a very interesting take on the freelance tuition biz.

Question: Are the profits distributed out as dividends? :p

I have only started advertising for myself recently and the response has been better than expected. However, I find it both tiring and difficult to have 3 sessions on a typical weekday.

Most parents and students prefer timings like 330 onwards or 7pm onwards. Very difficult to squeeze another session in between, especially when I am utilising more of the "tutor-move" model.

Twenty-two°C said...

Hi LP,
Tutoring is a service-oriented business, naturally it's operating cost tends to be lower. So it can indeed be quite lucrative (good profit). Instead of upgrading of equipment (maybe a small part?), upgrading mostly comes in the form of upgrading of teaching techniques and tutor's knowledge. Many intangibles here.
So how could one continue to expand a free-lance tutoring business? since time and types of service are finite for an individual.

la papillion said...

Hi 15hww,

Haha, when I say that the profits are distributed as interim dividends, it's up to your imagination to think about what that actually means if you treat yourself as a company. It could be used to buy yourself something that is non-productive to earning revenues but still brings you happiness :)

Glad to see your ads work :) It's a matter of season and timing too. I'm about 60 to 70% filled, some are from my waiting list and a few are from referrals. This is the right time to source out for new students, give trial classes (if necessary) and to give a soft start before school starts next year.

3 students a day is very hard indeed. Try taking a combi of lower sec students. They end sch earlier at around 130 to 2pm, so that will be the first one at 2 to 4pm. 430 to 630pm shouldn't be that hard to fill up. The last timing 730 to 930pm shouldn't be that bad to fill up too. The hardest is the earliest time slot, so work on getting that filled. if you can start every weekday at 2pm, that's easily another 5 more lessons for you. A combination of luck and timing :)

la papillion said...

Hi 22°C,

Hmm, you didn't get the essence of my post :) I'm talking treating a person as a company, so cost is everything that you spend on your salary. It doesn't matter what industry you are in, it depends more on how much you save. Hence, even a free lance tutor can be capital intensive if he or she spends a lot. That's what I mean :)

You didn't read my first part 1 right? haha! In there, I mentioned that the only way to grow revenue will be to increase no of students (capped up no of hours per day), increase fees per student, or to increase the no. of students taught in a given time period (i.e. group tuition). There is also one more way, which is to engage tutors to teach students, but that would be out of scope of this discussion, since we're limiting ourselves to free lance tutoring as a business. And we haven't gone into publishing of materials, video, consultative, homework marking etc.

Sillyinvestor said...

LP,

My season of "low key" is coming soon ... Just 2 more weeks!

At the peak of my piss off.

My company is a odd job service ...

1) morning relief teaching until 2-3 pm.

2) über driver before 1 slot of tuition.

Lol.

Now. I just want to think of my holiday, and the bloody scary d-day on Wednesday

风萧萧兮易水寒

my first batch of pupils in my new school ... Very worried!!

la papillion said...

Hi SI,

Haha, if there's nothing moving you forward, think of your holidays then :) No matter how bad the day is going to be, I always tell myself that it will also pass. If this day can't pass, then I can't enjoy my holidays after lol

All the best to your pupils!

Twenty-two°C said...

Hi LP,
Opps.. I am like the bad student who got whacked for not reading chapter 1. *guilty face*

I was thinking 'what an excellent post on free-lance tutoring business analysis' but you have brought me new enlightenment. In a nutshell, if a person is like a business - to increase personal profit in monetary sense one must increase revenue (income stream), reduce operating expenses (be frugal), reduce risks exposure (don't be conned or go gambling) and bad debts, then build useful skills or USP. Did I get it right? :)

la papillion said...

Hi 22°C,

YES! :)

Nah, don't be guility, we do speed read articles all the time, no shame in that :) My post has two interpretations. One is literal and the other metaphorical.

Give you a test: In my second last paragraph, I mentioned that a person with so much cash flow that he/she will have a happy problem thinking what to do with it. I mentioned acquiring and merging with another company and also spinning off another subsidiary. What do I mean by that?

See if you really get it HAHAHA

Twenty-two°C said...

Hi LP, so simple to answer... Get married = merger. Spin off a subsidiary or 2 = have children.
Sound simple but not so simple actually. Haha.

la papillion said...

Hi 22°C,

You're right haha! Thanks for being such a good sport!

JW said...

Key thing that strikes my mind is... when treating freelance tutoring as a business.

Whenever an unfortunate events strikes, the cashflow reduces to zero IMMEDIATELY.
Unfortunate events could also include a female student accusing a male tutor for indecent acts in a one to one tuition model.

1 to 1 freelance tutors also has a big risks in the concentration of income sources. Much like REITs relying on a few anchor tenants only.

Guess that is part of your part 3 ")

la papillion said...

Hi JW,

Can explain a bit more about unfortunate events? Aiyo, why is everyone so afraid of accusation by female students? You're not the first one to tell me this and certainly won't be the last. Almost everyone who wants to be a tutor asked me if I faced this issue lol

Regarding the concentration risk, I already wrote it in part 1 here (http://bullythebear.blogspot.sg/2015/11/free-lance-tutoring-as-business-part-1.html#.VlZ6WHYrKUk), haha

Nah, my last part is regarding cashflow management. Haven't gotten down to writing it yet haha!

JW said...

Recently I got to know another tutor who was doing bodybuilding. In his version of unfortunate events, his muscles ligaments tore when he was doing weights, and had to be hospitalised for 5 days.

Things like this made tutors unable to teach. For this tutor, he was lucky because
1) it was his lull period as he specialises in primary school
2) he bought a rider plan that paid him while he is unable to work

So everything was well taken care of.

Not just that, 1 to 1 runs the risks of getting dengue, other diseases, or other things that might somehow limit our ability to travel around much, touch wood.



Accusations by female students has happened before, and has been in the news. It won't be the last of it definitely, especially when it's 1 to 1 in a private home, and it's your words vs the student's words. Touch wood again.

la papillion said...

Hi JW,

I guess I'll have to touch plenty of wood, and also do some preparation too. I couldn't help if students accuse me, I'll have to rely on the good character I present to other students to verify this. That I can do. As for the risk of 1-1, I'll have to work and make hay while it's sunny, make as much money and create a passive income. I think this applies to anyone who trades time for money as well, not just for pte tutors. Then lastly, it's the part about insurance coverage.