(Originally posted to Teachable)
I hadn’t seriously considered creating a course until I sat down and sketched out what the course could be and what it would take to do it right.
I’ve taught entrepreneurs how to build financial models for nearly a decade, but it wasn’t until earlier this year that I seriously considered creating an online video course called Learn Financial Modeling for Startups.
What course to create wasn’t a question for me. From my experience in working with founders on model templates through my site Foresight, I knew that the opportunity was to teach using templates and sample models appropriately.
The templates can show how to build a model, but can’t teach someone how to think about building their own from the ground up. I knew there was a market, but I needed to figure out what it took to create, market, support and continue to improve a course.
If you’re getting into creating your own online course, thinking through your goals can help you know how to get there.
Naturally, I created a quick financial model.
Creating this basic model helped me think through:
- How to price my course.
- How many sales I need to make up for any costs for the course.
- How much I wanted to invest in my course before creating it.
- You can download the model to see how I forecasted how the course could impact my earnings below. This also includes a sheet for you to create a forecast for your own products.
Choosing a price for the course
Let’s go through how I thought about each of these decisions, and how you can do the same!
I’ve been selling financial model templates on the web through Foresight and other sites since 2008, and I’ve learned there are few easy answers to figuring out the right price to charge for educational and informational products on the web.
When I started selling financial models, I started with a pay-what-you-want scheme, with a suggested price of $10. Over the years, I’ve worked to develop increasingly better products and increase my price points to match the value that I deliver for my users.
Outside of value-based pricing, I used forecasting to think through how many sales will I need to reach a meaningful level of income from these products.
##Doing a breakeven analysis for pricing
The right price point for your class depends on many factors, but here’s one way to think about it: if you want to make $1,000 from your class, do you stand a better chance by selling 100 people a $10 class or 10 people a $100 class?
A breakeven analysis is a simple analysis to help you figure how many sales you will need to, well, earn more in selling your class than you spent in making and providing it.
Let’s consider a simple example:
- Class sold for $100 (a one-time transaction)
- Total costs to create the class are $700
- The breakeven number of sales are $700 / $100 = 7
Less than 7 sales, and you lose money, greater than 7, and you make money. Obviously there are more factors at play, but this simple analysis is an easy way to help you think about the viability of your course.
##Assessing costs upfront based on breakeven analysis
Now that you have a sense of how much value you’re creating for someone, and how much you need to sell, now you can start to look more closely at your costs.
There’s two components of costs: upfront and ongoing.
Upfront costs are your investments into creating the course, and can include the cost to create a website, create promotional materials, filming and the value of your time.
Ongoing costs are your costs on a monthly basis to keep the course running. These can range from course platform costs (transaction fees to process purchases, like the ones outlined in Teachable’s pricing), promotion or marketing costs, and the value of your time in customer support and answering questions for people.
I could have built a website for the course on my existing platform, but knew that using an off-the-shelf platform meant for hosting courses would allow me to get-to-market faster.
There are many different avenues to creating a course - Paul Jarvis’s lessons from creating a successful course are one. The key, is to decide on the best way to allocate your time and resources.
For me, the best way to create the course was to use Teachable. It allowed me to focus on creating a great course. I did the design work myself, eliminating the need to pay someone to create the website or change the Teachable template.
- Monthly Teachable Professional Plan Cost = $99
- Per Transaction Cost = 5% of sales
- Design Costs and Setup Costs = 0
Why did I select the $99 plan option? For one, I wanted some of the features in that plan. But I also thought about the decision in terms of breakeven sales.
The next cheapest plan was $29 a month and 8% transaction fees. At a price point of $197, spending an extra $70 a month on the monthly fee would save me $9.85 per student on fees, which meant I only needed more than 7 students a month to sign up to breakeven on moving up a pricing tier. That seemed doable to me.
I also decided to work with a partner to create the course. We worked out an agreement for how we could work together, and with his experience in developing courses, he was able to smoothly structure the content of the course to maximize its impact.
He storyboarding the content, designed, filmed, edited, and uploaded the videos, while I focused on developing the content itself and on finding the best way to communicate the the concepts in the most simple way.
- Cost to create and film the content: revenue sharing agreement of 40%
Not my exact %. If you choose to do it with a partner, the right % will depend on a lot of factors and will be specific to your situation.
I knew that to communicate my goals for the course and share my story behind why I created it, I would have to create a highlight video. I worked with my partner who helped find a videographer, storyboard, script, and manage the execution of the video so that we were able to get it done quickly and efficiently.
- Costs to create a promotional video: $410
Each of those decisions meant I incurred additional expenses in creating the course. How did I know it could be worth it? I used my forecasts of costs and revenues to figure out how many additional sales it would take to make up the additional costs.
Once it was apparent that it was only a couple sales a month, incurring the extra costs upfront was an easy decision.
For example, my course is sold for $197: investing in making a video meant that it only had to lead to a couple extra sales (410 / 197 = 2.1 sales, or 3, rounding up) for it to be worth it, and I felt it was a reasonable expectation that investing in the video made sense for me.
In the model, I built a section for subscription courses, not just one-time purchase courses. I chose to not create a monthly-subscription course, but left the option in the model in case you do.
How could I reach my breakeven sales projections? From the very beginning, I factored in monthly promotion costs as a cost of running the course. My costs are tied to what channels work well in my market, and work well for me, my style, and my community.
##Advanced Option: Thinking through the long-term value of my students
In the model, I evaluated the real return I’d get based on the lifetime value (LTV) of a student.
LTV is an estimate of how much revenue a customer is worth over the period of time they are a customer. It’s an estimate of how much gross margin (your revenue minus your costs for each new customer) they contribute over the period of time they are a customer.
Let’s consider LTV as revenue to make the analysis simple.
- If you’re selling a product for a one-time transaction of $100 and they will never come back and purchase anything else, their LTV is $100.
- If they will come back and buy $45 of other products later, their LTV is $145.
- If you’re selling a product at a subscription price of $30 a month and they will be a subscriber for 6 months, then their LTV is 30 * 6 = $180.
In my case, my LTV is equal to the sales price minus the per-transaction fees and the revenue sharing: LTV = 197 * (1 - 5% ) * (1 - 40%) = $112
I also considered how the course would impact my sale of other products. Would I expect a new course to cannibalize my other products or would it lead to increased sales? I created calculations in the model to help me estimate how many students would later purchase my other products, and included those in an additional LTV calculation.
My estimate was that 5% of people will purchase other products, which have an average margin of $140. See the model for details.
- LTV (including other products) = 112 + 5% * 140 = 119
So what was my break even?
Factoring for just my upfront costs, I would need:
- 410 / 119 = 3.4 students.
That seemed doable.
Let’s think about other cost items. Should you invest into marketing? Yes. But that doesn’t necessarily mean paid advertisements.
The key is to be realistic with the costs of each channel and the expected click-throughs and conversions, and bring it back to breakeven analysis. For example, can $197 (or $119, or $112, depending on your viewpoint) in Facebook ads or Google search ads drive one sale? Maybe, but you have to be smart in which channels you use and how you use them.
For me, I had the benefit of starting with a list that I’ve built up over the years by writing engaging content about technology, finance, and other topics, as well as my free email course that has already helped thousands of people. Email made sense for me as a channel to lead with because it’s something I’ve used and built up over a number of years.
I’ve considered paid marketing and advertising, but haven’t invested in it yet. I created a section in the model to allow me to think about how much I could spend in marketing, and how many students I would have to expect to sign up because of advertising, to help me understand if it is worth it or not. I do expect to spend on marketing and promotion and made a simple assumption in my model of how much I expected to spend over the lifetime of the course.
- Marketing expenses (forecasted) = $600
- Expected lifetime of course = 24 months
- Marketing expenses per month = 600 / 24 = $25 per month
For a different course that’s more visual or creative, other social channels and platforms could make sense. For a course that’s teaching someone how to use AdWords or Facebook Ads, advertising probably makes sense as a channel because you’re likely familiar with using ads effectively. Affiliates can also work if you find the right partners and you’re able to align incentives. Just make sure to price in the cost of sharing revenue and the increased sales you’ll have to make to make having an affiliate program worthwhile.
I also estimated how long I expected to support the course for, and much revenue and expenses I would expect on a monthly basis based on a certain number of new students each month.
Assuming 30 new students a month, or 1 a day, would lead to:
- Monthly Net Revenue = 30 * 112 = $3,594
- Monthly Expenses = 99 + 25 = $124
Note, instead of gross revenues, which would be the price of the course multiplied by the number of students, I cite “net revenues”, which is the revenues net the per-transaction fees, revenue-sharing, and expected returns and chargebacks.
I also included in this the contribution from the other products, which is technically gross margin and not revenues, but I used this as a quick way for me to combine the net impact of the course and the other products.
Returning to the breakevens, I did two more breakeven assessments.
Factoring in my upfront and ongoing support costs, I would need:
- 410 upfront + 24 months * 99 a month + 600 marketing = 3,386 / 119 = 28.38 students, or 29.
Again, that seemed possible over my assumed lifetime of the course of 24 months.
Factoring in the cost of my time to create and support the course, I would need:
- 3,386 + 24 hours * $250 per hour = 9,386 / 112 = 78.68 students, or 79.
That’s a much higher bar for success, but that’s a challenge worth aiming for.
##Creating a forecast focused my long-term efforts
The act of creating a forecast focused me on thinking beyond the launch and on the long-term future of the course.
It allowed me to think about where to invest in my upfront costs and set my long-term focus and expectations straight. I knew from the beginning that educational courses was a long-term strategy, so my upfront planning helped me focus on what mattered.
The biggest thing that my forecast helped me do was define my commitment to testing and improving. Tracking sales and the performance of each of my marketing channels, and listening to feedback and improving the product, focuses me on finding new ways to have a bigger impact and earn more revenues.
Updated: I now longer offer this course, but visit Foresight to see other tools for financial modeling.