The Potential Dangers of Martial Arts Contracts

The other day, my neighbor was asking about my Martial Arts School, and during that conversation came up the subject of contracts. Turns out, she used to sell gym contracts, and said she never liked to sell them. “I would say how much money it would save them, but I kind of knew it wasn’t in their best interest. I never liked that, but that’s how we were told to sell them.” I told her how Martial Arts Schools sell contracts in a similar way – and why we don’t use contracts in our school. Here, I’ll give you those reasons why if you’re someone looking for a martial arts school, that maybe signing a contract isn’t the best interest. And if you offer contracts at your Martial Arts School, why you maybe should take a good hard look at how you’re running your business.

“I would say how much money it would save them, but I kind of knew it wasn’t in their best interest. I never liked that, but that’s how we were told to sell them.”

While I offer a cautionary explanation of contracts in Martial Arts schools, it’s worth saying that for a perspective student this isn’t necessarily a red flag; many reputable and successful martial arts schools use contracts, and have a prosperous business and a happy body of students. However, there are also schools that use contracts in an unwise matter – often to the detriment of their students and of the overall health of the business. It’s important to note that I’m not talking about Liability Waivers – those are always essential, but rather contracts that sell memberships for a long period of time.

I come from a business background; I am a CEO of a manufacturing business that sells home goods (specifically pool cleaning products). This has given me a different perspective on owning a Martial Arts School; although a very different business, there is plenty of overlap between what makes a successful manufacturing business, and a successful martial arts school.

Why Contracts?

Many martial arts schools use contracts to sell their services – it is a common practice in the martial arts industry. But why use contracts?

Martial Arts contracts are largely adapted from the Gym industry, where a member signs a contract to pay on a monthly basis for a contractually obligated period. The Gym industry uses this method because they realize that most people have trouble making a habit of going to the Gym. In fact, if everyone who ever signed up for the gym actually went – there would be little room to use the equipment.

Gyms push contracts to take advantage of the fact that when you come into the gym, you’re the most enthusiastic about going to the gym, and are primed to make a commitment. Sometimes the act of signing a contract will further motivate you to go – since you want to use what you’re paying for. Often though, the person realizes that it takes more commitment than they thought, and ends up stuck with a membership they can’t use.

Why Martial Arts Schools Use Contracts

Simply because martial arts is often hard, and people quit. Most people take martial arts because it’s challenging, rewarding, and engaging. However, as time goes on, students often leave. This can because they get bored if the training isn’t enough to keep their interest, or their interests change. Also, only a certain percentage of the population is really interested in martial arts – making it tough sometimes to make a living from a Martial Arts school.

Contracts are used to help combat this; they add an extra motivation to keep students training, and allow the school to have a more stable income. I have in fact seen this work in action; a student asked how they could quit, and told they couldn’t – and thus kept training past their black belt. If the contract wasn’t in place, odds are they would have given up and not accomplished what they have.

Contracts for martial arts schools can be a positive for students and the school itself. Yet it can also turn into serious trouble.

When martial arts contracts go wrong

Martial Arts schools will often take the students’ contracts and sell them to a third party. The third party exchanges upfront cash in order to buy the constant stream of revenue. The school exchanges this revenue for up front money they can use for their business. Some schools will cut out the middleman and offer to students to “buy-out” their contract for savings in the long run.

Now if managed properly, this can be a lucrative source of capital for a budding business. Often though, this spells disaster for the school: it turns the school into a shark. If that money gets used up, the school is forced to find more students to keep up with the continued costs of operating (rent, electricity, salaries, etc.). What seems like a great revenue source in the beginning quickly turns into pressure to get more students, sell more contracts, and cash-out more students to keep up with expenses. Eventually you are left with a school that is full of students that pay nothing, but continue to cost money to service – spelling the death of the martial arts school.

Often, a school will try to combat this by trying to reach a larger demographic – watering down the art to make it more palatable to a wider audience, increased pressure on it’s current clients to provide referrals, and adding fees for just about everything. The martial arts school quickly turns into a marketing machine – a shark hunting for new students while paying less attention to the current clientele.

For example, the other day I was driving, and saw a Tae Kwon Do school. They had a big sign in the window that listed the following for their school:

Why would you list your primary service or focus – martial arts – last in a list? What does that say about the importance of the Martial Art you teach? And with other banners saying self defense, discipline, etc., how good can all those things be if it’s the fourth most important on the list?

  1. Better Grades (or something to that effect)
  2. Dance
  3. Art
  4. Tae Kwon Do

That is not a Martial Arts School; it’s an after-school service themed as a Martial Arts School. Why would you list your primary service or focus – martial arts – last in a list? What does that say about the importance of the Martial Art you teach? And with other banners saying self defense, discipline, etc., how good can all those things be if it’s the fourth most important on the list?

The answer is that they are trying to appeal to a different demographic. This isn’t a bad thing in and of itself, but it becomes a bit misleading – even confusing. Martial Arts are great for kids confidence, discipline and indeed can help grades. But are they accomplishing this through their martial art? Or through dance? Or through Art class? What about the students who take Tae Kwon Do – are they only 25% of the attention? Do they truly believe in the martial art they teach?

This is a school that is focused on attracting new students – trying to be everything to everyone. Instead of focusing on their primary service, clarifying it’s benefits, identifying their target demographic, and adding value to their service (i.e kids who take Tae Kwon Do get better grades because we focus on discipline) they muddy their own water by trying to get everyone they can – probably to feed the shark.

Granted, I didn’t go into the school, but my suspicion would be that they use contracts.

The Discipline of No Contracts

When you offer no contracts, it forces the martial arts school to be disciplined in a different way; it’s not about simply finding new students, but about growing a following. It turns the focus to retaining and growing your students by offering the best experience possible. This in turns creates greater satisfaction, which leads to more referrals.

It also disciplines the school to identify and reach the right kind of student – someone who will value the training and continue for a long period of time. Rather than watering things down to the point that it becomes so easy that anyone will take it for a short period, it’s more about identifying the niche that the martial art best resonates with, and cultivating that identity.

For the Martial Arts School Business itself, the goal becomes to build a steady stream revenue to meet costs. Instead of cashing out contracts that trade the future for now, it takes the long perspective. It terms of building revenue it is a slower road; you won’t find increased revenue over night. But as you focus on better services, your students become happier, and as new students trickle in your long-term revenue grows. The beauty is it forces the martial arts school to continuously add more value to their services, and takes pressure off of the martial arts school as time goes on.

By not trying to trap students through contracts, the martial arts school must make sure that the service they offer – their training – keeps them coming back.

The Reality of Martial Arts Contracts

Contracts do not guarantee students will not quit. Most students quit because they move – which most contracts state will nullify the agreement. Also, to enforce contracts through legal means is expensive (lawyers, court fees, etc.) and leaves a one-time student with a bad taste in their mouth about your business. All a contract does for a student who feels they need to quit is to guarantee that the student will have something bad to say about your business.

What if you lose your job? What if you have some horrible event in your life that takes precedence over your Martial Arts training? When does the contract stop becoming a gentle nudge to keep training and becomes a detriment to the student, and the goodwill of the business? The reality is if someone wants to quit badly enough, they will find a way to quit. All a martial arts school is doing by offering a contract is turning a relatively simple decision (“Do I want to train here”) into a complex one (“Do I want to sign up for the next 1 to 3 years and risk the unknown?”). And if they decide to quit, that contract turns into a source of negative feeling they will share with their friends.

This is why we don’t use contracts in our martial arts school. Students continue training because of the training offered, and if for some reason the student can no longer train, we want them to have the best experience possible as they address other things in their life. Growing a school in this manner is indeed more difficult and slower, but in the long run it leads to a more stable and healthier school. It focuses us on getting students that are the best fit for what we do, instead of trying to be everything to everyone. It leads our school to a better quality of martial arts education, a happier more engaged student body, and a martial arts school that can last.

So next time you’re faced with signing that contract – or better yet, offering one to a student – take a minute and decide if it’s in both the best interest of the student and the school.

 

Shidoshi Hamilton

<p>Scott Hamilton is an 8th degree black belt in the Bujinkan, and travels regularly to Japan to train. In addition to being the owner and head instructor of Todai Dojo, Scott is also the CEO of a national manufacturing company. He has also received training in other martial arts, and in-depth modern weapons training.</p>

One thought on “Martial Arts Contracts

  1. Michael says:

    Thank you for sharing this article. I am also a martial arts instructor and appreciate the integrity in your words and intentions. I came here to research and sadly confirm what I suspected regarding a friend’s issue with a local school that is part of a larger network. They push very long contracts for what I was guessing was the sale of a revenue stream for immediate cash. As a long time practitioner, your suggestions about how such contracts can go wrong are so very true. At the schools where I taught there were a variety of options and never longer than 1 year, which were usually reserved for limited, special situations and discounts for student instructors. In most instances the contracts were merely a short term agreement to set expectations, usually 1-3 months and occasionally 6 when warranted. This is more understandable in expensive cities where real estate is expensive and the need to reserve spaces is the practical way to manage such businesses. With these types of shorter commitments we experienced the same as you describe. Most of our students stayed because they wanted to be there and enjoyed the environment and the result was reasonably stable.

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