Q: Should I change my company's individualized education program to more group programs for more profits?

AJ, Owner,
Suprex Private Tutoring

A: The challenge for Suprex Tutoring is common to many businesses. The first step is to consider how other successful companies/competitors handle this issue of finding the right mix of revenue streams, while minimizing the cost structure of the business to realize that revenue mix.

That last sentence is definitely a mouthful, so I'll make it simpler. The questions for every business owner are: (1) How do I create revenue, and (2) What will that cost me? At one end of the spectrum, Suprex could offer only custom one-on-one tutoring to a small-but-motivated audience. This can be a profitable model, but difficult to grow. At the other end is pure group tutoring. This is probably cheaper for the customer, but more cost-effective on tutor labor and potentially easier to grow. It may also be more capital-intensive (office space, administrative staff, etc.). Then there is a mix of the two.

The advantages of mixing the model are numerous: development of multiple revenue streams, reaching a broader audience and providing more flexibility to your customers. There are some disadvantages, too. Some tutors may not fit well with both models, creating some tutor quality and cost issues. The two may require different marketing activities. One-on-one supplies less contribution to overhead, putting more financial burden on the group tutoring.

Just as important in the model is how much tutoring a customer purchases. There are advantages to incentivizing customers to buy a package of hours/weeks/months, possibly on a sliding scale of cost.

Without knowing the pricing structure for Suprex, it may be prudent to simply raise prices on the individualized tutoring. Many entrepreneurs will often shy from pricing their products and services commensurate with value, hoping that lower prices will draw in more customers. This habit, while easy to appreciate, can be counterproductive.

It would make sense to find some advisers who can help Suprex think through its current financial and market position and make the best choice.

Alec Johnson is an associate professor of entrepreneurship at the University of St. Thomas Opus College of Business.