Job Discussion Forums

[madison01]

I have recently left the world of EFL teaching into something better paid. I was a DoS of a small school and regularly had to deal with requests for higher pay, better resources etc. Now, whilst I understood that good teachers don't get the money their education, training and workload would suggest they should, I also knew how the school's owner and costed the courses and that the teachers were never going to get what they wanted. I also knew that a lot of other schools did it pretty much the same way and that their teachers were paid a similarly low rate.

As I'm now moving away from this field I thought it might be useful to let you know what I do. Maybe you already do, if so I apologise for sounding patronising.

The basic model is simple:

Let's say the average price for a course is �100 (I know it's more but 100 is much easier to deal with) a percentage of that will go to the agent. usually between 15% and 25%

So the school will get a maximum of �85.00

The basic economic model to work out profit margins is:

50% Variable costs
25% Fixed costs
25% Profit (15% to the director 10% to be reinvested)

so �85 = �42.50 - Variable costs + �21.25 - Fixed costs = �63.75. Leaving �21.25 for the Director/Owner of which �12.75 goes to Director/Owner, the rest goes back into the school.

So if a student is paying �300 a week, the Director/Owner is aiming for �38.25 to come to them.

The fixed costs can't be changed (usually) Permanent staff, office rent, rates, heating and light, cleaning, phones etc.. So the main area to find profit is the Variable costs, unfortunately for teachers, they are variable costs. The number of students determines the number of teachers. The amount paid to the teachers also affects the variable costs; Other variables can be resources, leisure for the students, room hire, anything that's affected by how many students come through the door.

The big thing about this is that the Owner/director will have spoken to an accountant who will tell them the final profit they should be making from a student. And that's where the owner will start from.

So if an owner knows that they should be making �25 from ever student, and it costs them �25 in fixed costs for every student, then it looks a bit like this:

�25 - Profit
�25 - Fixed costs
�50 - Variable
�17.64 - to the agent
Total �117.64

All well and good, however, if this was too much to compete with other schools in the area there's no way the schools ever going to get enough students. The owner can't lower the fixed costs, and lower the profit would mean there's no point in opening the school, the agent has to get their 15% so the variables get squeezed.

�25 profit
�25 fixed costs
�15 to the agent (15%)
�35 Variable costs (15% less)

So teachers and resources etc. get squeezed because it's the only way to operate at the desired profit margin. With the hundreds of teachers going through CELTAs and TESOLs every year owners look at teachers with lots of experience and education with a need for a bigger salary vs. a newbie 21 year-old who'll work til they get fed up and move on. The simple truth is this, A teacher who earns �10 an hour will work hard until they realise they've been ripped off to be replced by the same vs. a teacher who will teach effectively that costs 50% more.

If you wnat to know why you don't get paid as much as you should the simple answer is this. To owners you are a variable cost, and variable costs neeed to be kept as low as possible.

I am talking about private language schools here, I know there are better paid jobs in EFL outside these institutions, however, the majority of teachers teach in these places and I felt it might give a better insight into why you're are never going to earn as much as you deserve here.

[Glenski]

All very straightforward and easy to understand economics, I agree. Let me just point out that you said "usually" those overhead costs and student fees are fixed. Well, you can't change the cost of heat and electricity, but if your program is good enough to attract more students or students who stay longer, then you can afford to raise prices. You will have to when the price of heat and electricity goes up (or the minimum wage for your PT staff).

More students, students who stay longer...

You might need more teachers, or you just might want to reward the teachers you have now, expecially if you simply give them more or bigger classes.

We are a commodity, yes, but thoughtful business owners will appreciate what it takes to keep the clients coming and keep the teachers happy.

[Justin Trullinger]

The economics are straightforward- agreed.

But most "fixed" costs are based on decisions. A high rent or low rent building? Buy it, or rent/lease it? And there are many places where EFL is taught that an agent doesn't get %15. (What do these agents do, anyway? We have no agents.)

Non-teaching staff our necessary- it is also necessary to make sure that your staffing levels reasonably reflect the volume of your business. This is one way to keep variable costs as low as possible. By having effective, efficient staff, in appropriate numbers and at appropriate salaries.

But underpaying people (teachers, or anybody else) is NOT the answer to reducing variable costs. Because this keeps turnover high, and staff satisfaction low- but of which negatively affect customer satisfaction. If you have happy staff, who stick around, it really makes a difference in terms of helping you to have happy students. (Meaning return customers.)

I run the English education program for a midsized non-profit organisation. I try to run it as lean (no waste) as I can. But for every $10 that comes in, on average, between 6 and 7 leave in the pocket of a teacher. A teacher, by the way, without a lot of benefits (sorry, but economics are real), but with health insurance, a legal visa, and good staff support, adequate materials, and training opportunities.

We've got a great staff. And pardon me, but we deserve it.

Our happy, professional teachers make such a great impression on students that our volume is up- REALLY up. A good 250% up in the nearly 30 months I've been in this job.

THere are various ways to do this.

One is what I call the plantation owner mentality. On a plantation, income, tied to the land, is theoretically fixed, and cannot increase- therefore, literally every penny paid to a serf come out of the owner's pocket. And therefore, the owner's income is literally maximized by paying the little people as little as possible. (Maintaining variable costs low, also called protecting the margin.)

But try this- what if you intentionally reduce the margin, by trying to keep staff wages as high as the market will allow, and by pressing to keep end costs/client costs as low as possible? What might happen? When you're offering the best services (by paying for happy staff and good resources) and charging less than other schools who actually pay less to their staff than you do?

I'm in the process of trying this experiment. the most immediate result appears to be that your volume pretty much explodes. And big volume increases beat tiny cost shavings (keeping variable costs down) any day.

Now I only wish I knew how to apply one part of your model, Madison. The director (me) who is not the owner, does NOT get the percentages of the total that you're referring to. And I would be happy to...


all the best,

Justin

[Stephen Jones]

The key to financial success in language schools is class size. You need to work out your break even point in number of students; after that every extra student in a class is pure profit.

[sidjameson]

But Justin, you say that you work for a no profit org. So from that $10, 6 goes to the teacher and the rest in re-investment and fixed costs.

So, if profit were an issue and 99% of businesses of course need this where would it come from? 20% isnt too much to ask. So then your teachers salary would have to be cut from 6 to 4 dollars. A 33% cut in salaries. How happy would those teachers be then?

Oh and NGO's dont pay tax do they? better make that a 50% cut in salary.

[tedkarma]

Don't forget the ongoing costs of keeping a school licensed, the cost of visas and work permits for employees (some employers DO pay them!), the cost of contributory social services taxes, health insurance - and other costs we may not be aware of. In Thailand, for example, there is even a sign tax - for the sign out in front of your business. Have you considered thoses costs?

And - in most developing countries the the cost of uh . . . "tea money" for the officials who process (or don't process!) your paperwork to make your school legal.

What about the costs of advertising, flyers, commissions to people who refer students to you?

I think it is quite easy to quess many costs - but there are many we don't know about.

And . . . what about the owner recouping losses from the early years when the business was bleeding money and s/he was losing their shirt?

What about the need to build a fund for the future when economic downturns mean that people cut back on language school classes for their children? When the school has to really tough it out to survive? (I have friends in this very situation right now - 20 years of a successful school - and struggling on credit card borrowing at the moment - might or might not survive).

I've worked in several countries where teachers banded together formed a company with great ideas - but none survived - they didn't really know how tough the business world really is.

[Justin Trullinger]

[madison01]

[coffeedrinker]

It's an interesting discussion - and while I must admit I'm not following the econ arguments in detail, I think there are many reasonable explanations for wages remaining low (and the OP's points are probably some of them).

In my experience (as well as just according to common sense) it fits that there is kind of a natural time limit to how long language learners, esp in a class, will stick around. They generally aren't long term customers the way bank or, say, coffee customers are. But I'd disagree with this:

[John Hall]

I just want to thank madison01 for having posted this information about how language institutes operate financially. Too many teachers are altogether ignorant of these things usually.

[davechile]

[ls650]

[shuize]

[shuize]

(deleted in place of edit above)

[waxwing]

I'd tend to think that the real problem with this business model (if indeed you see a problem) is in the kind of service it provides. The "product" offered is extremely nebulous and success is difficult to define (I'm thinking of language mills like EF which provide their own "certificates"; schools aiming for international standards might be a bit different). Since the product is so difficult for the customer to discern, they will tend to fall back on cruder measures of quality - in Asia this can be as crude as a white face, blond hair and a "fun experience". That's why to me it makes perfect sense to go with low qualified and low paid teaching staff. It makes no sense to go for high quality teaching staff who will require serious rates of pay.

I realize this is a partial viewpoint but just thought I'd throw it in there