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What are the fixed costs in a language academy?

[:en]I was answering to some teachers’ posts a few days ago, and realised how little do teachers know about the costs academies have to pay.

Why should I care?” You could ask. “It is their problem“.

Well, for starters I’m a firm beleiver that most of the tension that exists at the moment between academies and teachers, can be reduced by understanding each part’s point of view. And a great way to reach that goal is information. The more we know about each party, the more we can understand them and work towards a common understanding. And reduce the levels of suspicion.

But it is not exactly only “their problem”. A teacher should know why an academy is paying certain rates , and what percentage of profit they obtain for classes. And that most of these expenses imply a benefit to teachers working for the academy (versus them working on their own).I will write about the advantages and disadvantages of working for an academy another day.

So “why do academies pay less than what I charge for private classes? What are their real costs and what are their benefits“.

PD: I’ve been writing a series of posts defending teachers. It’s about time I wrote one pro academies, as I own one in Madrid hehehe.

What are the fixed costs for an academy.

Lets do a quick summary of the fixed costs. Some are obvious, some will probably be a surprise to you. I also want to relate the expense to the benefits for teachers. And provide an estimate of the quantity for each expense (although this varies a lot from one academy to another). Obviously this is all if we do things “by the book”.

A the end of the text, please re-think if an academy is really such a profitable business as many teachers think.  I bet many will be surprised.

  • Rent. An obvious cost, but most academies need a premise to teach. And not just any site will do. Yo need one with a license suitable for academies (this might imply an extra cost). The smallest academy pays around 1200€ in rent.
  • Water, electricity and gas supplies. Around 150€ per month.
  • Phone and internet. Around 100€
  • Fixed salaries. There are some fixed salaries no academy can avoid. I’m not talking about the teachers but of those you have to pay even when there are no classes.
    You need a secretary, and either a head teacher or coordinator. Plus a cleaning lady every now and then (students like clean classrooms).
    The owner/director should get a salary too because we work from dawn to dusk every day of the week.
    At the least, this amounts to around 3200€
  • Taxes. Academies don’t have to pay VAT , but we do have to pay Social Security (around 2200€) and IRPF (around 2600€).  It all adds up to about 4800€ every three months for a small academy. So lets say 1600€ per month. But that is during the months when there are classes…so lets half consider, for a month without classes, something around 1000€ (very near the mark).
  • Insurances/regulations. The Spanish law obliges us to have certain insurances. Most people are not aware of this (and most enterpreneurs find out about it too late). I won’t consider the case of academies who teach kids, which implies even more costs. All these below are compulsory for every academy.
    • Medical insurance.
    • Occupational hazards.
    • Data protection.
    • A commercial property insurance.
    • Civil liability insurance.
    • Accident insurance.
      They add up to more than 50€ per month.
  • Legal and financial advisors. We need accountants to do all the payrolls and payslips and to pay taxes, and legal advisors (they are normally one and the same). They charge around 375€ per month for a small academy.
  • I won’t add supplies such as computers, printers, printer supplies, markers, paper etc.

So we can consider an academy, without classes, has a number of fixed costs which amount to around 6000€ per month. This is the minimum they have to obtain to cover expenses.
These costs are the same regardless if the teacher is teaching at the academy or at the client’s premises.

And remember that, just as it happens to teachers in Madrid, July, August and half of September are months with no activity. These 2-3 months produce 100% losses for most academies (and businesses in general in Madrid).

These expenses are the reason why academies cannot pay the same rates as if you were working directly for a client.

Academies need to cover these costs so their margin is very low. Remember that:

  • A base salary of 15€ for a teacher means a cost of around 22€ for the academy. This is the lowest I would pay a teacher.
  • You can charge a client something around 20-30€ an hour at the most (companies a bit more). Not much of a margin isn’t it? Obviously group classes are where academies get the profit. But again small academies can’t (or won’t) accept a lot of students. And you need bigger classrooms for group classes which rises the costs too.

So, it’s not such a profitable business as people think if you go “by the book”. This is why many academies pay in hand, do not declare most of their classes and work with black money. Although it is a huge mistake in the long run.

These expenses also mean academies should provide coverage and extra services to teachers working for them.

Again, this is for another article. But I am a firm beleiver academies should (most don’t) provide extra services and facilities for teachers. If not, why do they exist?
Some of these insurances imply benefits for teachers. For example, did you know you have a private medical insurance if you get injured during your working hours? Most teachers don’t.

We will talk about this in future articles, I hope I have put into perspective the benefits and costs for a teaching business in Spain.

 

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