Trilogy Blog

How to Start a Tutoring Company: Investments and Budgeting

Author: Trilogy

Published: August 23, 2020

Understanding the financial aspects of starting a business is a crucial part of your entrepreneurial journey. It’s important to start by determining your total investments and expected revenues in order to begin developing a business plan. Your ability to do this exercise accurately will significantly help you price your service offerings to students and ultimately help maintain and grow your business. 

Initial Investment

To get your online tutoring business started there are a few basic preliminary costs to consider. Although these may be obvious for some, it is helpful to take the time to write down all of the expected fixed costs (costs that don’t change) and variable costs (costs subject to change based on business activities) as individual line items of your budget.

  • Computer (fixed)– Whether you require a laptop or desktop computer, having a reliable technology allows you to connect with your students virtually and take advantage of activities like advertising, networking, and developing a digital presence. This will likely be the most expensive piece of hardware you will need, but it is also the most important. Check out Wirecutter or other consumer product review sites for recommended options. 
  • Internet Connection (fixed) – Strong internet connection is imperative to effectively communicating with your students. Typically while in session your internet usage will spike because of the audio/video connection. Depending on your provider, the average internet connection costs $50 per month. 
  • Webcam & Microphone (fixed) – Often these pieces of hardware come built-in to your computer, but it is important to have a high-quality camera and microphone to best connect with students and reduce potential frustrations. If you’re using an older computer with outdated features, you may want to check your local office supply store for a low-cost add on. 
  • Platform (fixed) – Providing online tutoring sessions will require a virtual classroom and some business management tools for tasks like scheduling, messaging, and file sharing. Trilogy Mentors offers an all-in-one platform for as low as $39.99 per month with access to our 1 to1 classroom, scheduling system, automated email notifications, in-platform messaging, file storage, reporting, session recording, and payment processing.
  • Curriculum / Lesson Materials (variable) – While there are many free resources online, you will likely have to invest in curriculum materials (physical or virtual) for your tutoring business. This spend will vary based on your offerings, the number of students you have, and the ever-changing needs of those students.

Pricing

Finding the right price to charge for your sessions requires finding a balance between students & parent satisfaction, as well as, compensation for your time. For tutoring companies, your price depends on multiple different factors, and here’s how to navigate this often complex process:

  1. Begin by deciding how many sessions per week you are willing and able to teach. This is the independent variable that will help you determine a budget. 
  2. Reach out to peers in the tutoring community or conduct your own research to find the average price for the subjects you teach. Tutoring prices typically increase as the age and depth of subject matter increases. Generally speaking, the older the student and the more advanced the subject, the more willing the student is to pay for your services. It is key to not undervalue your services simply to attract new students in the beginning. This can result in lost income and prevent future growth. Often, parents are willing to pay a higher-than-average-price if they are confident in the quality of your services.
  3. Based on the number of sessions per week and the average price for your offerings, determine whether or not that price will suffice when compared to your initial business setup costs. At a minimum, your sessions per week multiplied by session price should cover your total costs of starting and running your business each week. 

Example:

You are available to tutor 10 sessions per week and believe that you can charge $50 per hour based on research and the value you provide. Your weekly revenue would be $500. If this revenue can cover the cost of keeping your business running (coming from new/existing internet or computer payments, platform fees, teaching materials, etc.) you are in the clear. However, if you find that you cannot cover your basic costs as a tutor, you will need to increase your price accordingly until you break-even and can achieve a desired amount of profit. 

Developing a Budget

Budgeting is a fundamental exercise that allows you to keep your business organized and efficient. From a high level, a budget is just a compilation of the work done in determining your pricing and setup costs. It involves the most important figures extracted from your weekly operations:

  1. Revenue – Start by identifying how much money your business brings in every month. Although it will not be exactly the same every month, you can start with your expected total session count for the month and multiply it by the price you charge per session. 
  2. Costs – Identify your fixed costs (costs like internet or rent that remain the same every month, regardless of how many sessions you hold) as well as variable costs (educational content/games, hiring additional instructors, additional service offerings like grading exams).
  3. Calculate the difference – Subtract your costs from revenue and the residual amount = profit. You will take a portion as your paycheck and, ideally, a portion would go towards investments that will improve and grow your business, like new teaching materials or advertisements to recruit more students.  

Budgeting can seem daunting, but once you get the hang of it you will see the financial benefits it yields your business rather than the effort it requires to create and maintain. 

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