Which payment model is best for activity businesses?

When operating a business providing classes and activities for children or adults, owners have to consider how to get paid. It’s obvious - no payment, no business; but too many people rush into choosing a payment model without considering the pros and cons. When you’re setting up a new swim school, dance school, football school or fitness class business, it’s essential to get it right.

In our experience, business owners typically choose one of three models:

• Customers pay for multiple months upfront (terms/semesters).
• Customers pay for each weekly session or hours taught individually.
• Customers pay monthly for regular, weekly sessions.

We’ll discuss the pluses and minuses of each so that you can get a better understanding of how your choice of payment model can contribute to your business success.

Customers pay for multiple months upfront (terms).

Owners often choose this model because they feel that parents want children’s activities to align with school closures, so they organise their timetable to mirror local school semesters or terms. As we’ll discuss, this assumption is a bit flawed and limits the business overall, but it does have some benefits.

1. Payment is often up front and in bulk, meaning your business has the money needed to run its courses for the whole length from the start.
2. Participants have some clarity about what happens when they want to go on holiday as this would be concurrent with school closures.
3. It’s simple to understand as there will be a set amount to pay at the start and a set number of sessions in the term.

These benefits aside, there are many real drawbacks too, including:

1. Participants often don’t want to pay such a large amount for an extended period, especially if they’re unfamiliar with your business.
2. Participants are looking for activities outside of school hours and periods. Not everyone “goes on holiday” - so you’ll miss valuable business. Some participants may even change providers if extended breaks occur (like summer holidays).
3. If participants join in the middle of a term, they may be discouraged because they’ve missed “the start” and wait until the next starting date.
4. If a participant joins after starting, you will typically need to adjust their fee and undertake administrative procedures.
5. It makes less sense for a business which serves adults instead of, or in addition to children.

So we think in terms of business growth, deciding to run your business in large blocks like terms is actually quite limiting. Term bookings seem likely to discourage customers who either do not want to commit to a large block, are looking for activities outside of school hours, or are joining mid-term/semester and feel they’ve missed out.

Customers pay for each session individually or per hour

Owners from a personal training background often assume that customers will want to pay for their activity classes hourly or per session basis. It is true. People often seek maximum flexibility and don’t want to be tied into any period, even a monthly or fortnightly one - if they are given the choice of paying per session or per hour, they will take it. There’s little commitment. The fact that customers often want this model is its main strength, as it can encourage people to trial services and makes them feel unrestricted and able to decide on their time.

Needless to say, it has some drawbacks which will negatively impact your growing activity business, including:

1. Unpredictable revenue streams - even on a daily or weekly basis.
2. Large amounts of customer communication - arranging times and confirming times, essentially on a day to day basis.
3. Difficulty maximising room and venue usage as participants change times regularly or cancel at whim.
4. Creating the regular risk, or temptation, of over-booking if some available times (like weekends and evenings) are more desirable than others.

If your business is very personal (say, you teach 1 to 1 dance classes or yoga sessions), the per-hour or per-session model can help you succeed with customers without experiencing administrative chaos or worrying too much about unpredictable revenue. Likely your pricing model will need to account for the personal touch. Otherwise, we wouldn’t recommend this model because it creates chaos with room or venue usage, encourages unreliable revenue and increases your admin time.

Customers pay monthly for regular weekly sessions.

This model is like terms in that it provides forward predictability of business revenue and can provide an “up front” payment to meet business costs like rent. Unlike terms, it structures the amount over a calendar month, typically asking for less commitment. It’s an easy method for customers to understand and, importantly, it is clear to them because you can say things like “we hold classes Monday at 4pm.” People looking for regular activities for themselves and their children can easily plan. You can continue classes all year or pause them as required and not make assumptions about customer volumes based on timetables.

Significantly, collection can be automated as a subscription that keeps people in your classes until they cancel and avoids you having to chase payment each month. It’s our favourite model at Signaclass primarily for its revenue retention ability, but most compellingly, we know successful businesses use it.

When we developed Signaclass alongside activity businesses, we realised the model still had some drawbacks:

1. Customers joining mid-month still missed some lessons, which would generate some administration time.
2. Customers need to feel free to decide how to manage their subscription and control their right to cancel.
3. Businesses needed an easy way to transfer customers between classes rather than cause a reconsideration.

These drawbacks encouraged us to develop automated covering payments, a clear customer dashboard and tools to manage transfers between classes without re-establishing payment.

Conclusion

Although you might be tempted to depend on term or per session billing models, we recommend regular weekly classes with a monthly payment for most businesses like dance schools, swim schools, soccer/football classes and other activity businesses. In termly or per session models, businesses either introduce too tremendous or too small commitment for customers and can introduce various forms of planning problems.

If you decide regular weekly classes aren’t for you, Signaclass supports block bookings with as many dates and times as you choose. These can even be used alongside the monthly model to support taster or trial sessions, special classes and events. We don’t make you choose; all plans get both.