LERN

When to Cancel a Class

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How do you know whether to cancel the class and disappoint the people who signed up, or offer the class and lose money?  Here’s what you need to know to make a decision.

First, you should know that “Break Even” is not the same as “Go No-Go.”
With break-even, you are covering your direct costs (marketing costs, instructor costs, etc.) but not staff or overhead (your salary, for instance).

With Go No-Go, you are covering only your production costs (instructor), not your promotion costs, and of course not overhead.

How to Calculate your Go/No-Go point
The Go/No-Go point is the point at which you run the course, even if you are losing money. Here is the how to decide, on a financial basis, whether to run or cancel a class.

Calculate the income from the class and subtract the production costs. This is generally the teacher compensation, but it includes all costs required to actually provide the class. If the figure is positive, the course should be run. If it is a negative number, then cancellation is appropriate.

Example
$500 Course Income
-$400 Instructor Pay
Balance: $100

In this example, you run the class. You are losing less money by offering the class. If you cancel the class, you lose $500.  The class covers the production costs, leaving you with $100. If you cancel the class, you are losing that $500. If you offer the course, you are losing only $400 over your sunk costs because you get to keep $100.

How many registrations do you need

There are three different financial analysis points for an individual course or class:

  • Make Budget. What you want to achieve financially.
  • Break Even. Covering your Direct Costs only.
  • Go No-Go. This is the point at which you offer the course, even if you are losing money.

To illustrate, we take Class A and determine how many participants we need for each. We use the fee of $100 (which you should hardly ever use as a course fee) because it divides more simply into $1,000. Thus, to Make Budget, we need ____ participants. To Break Even, we need ____ participants. And to offer the class, the Go No-Go point, we need ____ participants

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  • To Make Budget, we need 10 participants (Income divided by Fee).
  • To Break Even, we need 5 participants (Direct Costs divided by Fee).
  • And to offer the class, we need 3 participants (Production costs divided by Fee).

With Go No-Go, you are covering only your production costs (instructor), not your promotion costs, and of course not overhead.

The reason financially you should run a class or event at the Go No-Go point is that you’ve already spent (and lost) promotion costs. So if you can recoup your instructor costs, then you can run the class. Now, you obviously are still losing money, and maybe you don’t run the class the Next time, but at the Go No-Go point you would run the class.

When you run a class at the Go No-Go point, you are “saving” a registration (and more importantly customer) and you stand a better chance of getting that customer back for a more profitable class. Whenever you cancel and turn people away, you run a greater risk of them not coming back.

So you want to cancel as few activities and classes as possible.  Non-financially speaking, or aside from financial considerations, some programs do run classes and activities even if losing money, even if not at break even, even if not at Go No-Go, simply to keep more customers, to avoid having people tell others a class was cancelled, for image both with customers, and with the community.  One program ran a class with just 3 people, at a loss, for that reason. A couple of years later one of the 3 people donated a zillion dollars to the organization.

Recommended, and Not Recommended
There are some things that are acceptable and recommended.  Check out our article in the LERN Club on what to do, and not do.  Forgot your password?  Email info@lern.org