Startup cost
$2k–$25k
TRUiC Business Ideas
How to Start a Test Prep Business
Decision Snapshot
Test Prep
Idea Score
54
Profit margin
6%
Break-even
4 mo–12 mo
Time to launch
2 wk–8 wk
Demand trend
Stable
5-yr failure rate
—
Capital intensity
Medium
Time commitment
Flexible
Part 1 - How to start a Test Prep business - Background
A test prep business often helps prepare customers for tests such as the SAT, ACT, GRE, MCAT, and LSAT. The business may also help customers prepare for other tests. You may instruct clients by themselves or as part of a group. Your business may be located in a separate office, or you may visit clients; alternately, you may conduct lessons entirely online via services such as Skype.
You may also be interested in additional online business ideas.
Our guide is in 3 parts:
- Part 1 - How to start a Test Prep business - Background
- Part 2 - Our planner tool to see if this idea is the right fit for you
- Part 3 - Action plan to get started
What are the costs involved in opening a test prep business?
The costs involved in opening a test prep business are potentially very low. If you are willing to work from home and conduct lessons either at your home or the homes of clients, then you have very little overhead. You could open such a business with less than $2,000, with $500 going towards a professional website, $750 going towards building your own library of test prep books, and the remaining $750 going towards advertising your business.
What are the ongoing expenses for a test prep business?
If you are meeting clients in your own home or theirs, then your only real ongoing expenses will be fuel for driving around and the cost for hosting your professional website (typically less than $100 a year). You may also choose to print new fliers each month (typically less than $50 a month).
Who is the target market?
While it can vary by area, your best clients are typically high school juniors and seniors preparing to take the ACT and/or SAT. This is because there is typically a surplus of these students compared to people preparing for higher tests such as GREs and LSATs. These younger students are also used to a high school environment, so they will typically take instruction well.
How does a test prep business make money?
A test prep business makes money by charging clients for test prep lessons. This is typically an hourly fee, with the fee being larger if you are conducting a one-on-one lesson and lower if you are conducting a group lesson.
How much can you charge customers?
How much you charge is largely dependent on the format for your courses as well as the competition in your area. Some well-known test-prep businesses charge a relatively low hourly fee (such as $21 for Kaplan Test Prep), but customers must agree to a longer-term of courses (such as 34 hours), so the prep business knows they will get a decent amount per customer. And those lower costs are for group lessons: for one-on-one sessions, it is appropriate to charge between $40 to $75 an hour, with some tutors charging $100.
How much profit can a test prep business make?
Potentially, you can make a lot of profit: as of 2015, test prep was a $4.5 billion business. Your own business would not initially be major competition for the national test prep businesses, but your job has no real overhead, so any money you make is contributing to your bottom line. For example, if you have sixty students in a year and meet with each one thirty hours and charge them $50 per hour, you can make $90,000 in a year/
How can you make your business more profitable?
Don’t be afraid to raise your prices as you establish your reputation and get a feel for your competition. Considering selling packages with added value, such as access to free online lessons, videos, etc. You may also consider helping clients complete college applications. Finally, be sure to follow-up with students and secure their permission to use their quotes and success stories to advertise the effectiveness of your business.
Day-to-Day and Growth
What happens during a typical day at a test prep business?
A part of your days will be spent communicating with existing clients about upcoming sessions as well as reaching out to prospective clients. You will review the specific lesson(s) you will offer that day, typically by reviewing a specialized test prep book. Depending on your business model, you may spend part of the day driving around the area to meet clients for sessions. Finally, you will spend time conducting the actual lessons.
What are some skills and experiences that will help you build a successful test prep business?
You should be very familiar with all of the typical standardized tests; be sure to buy and thoroughly read test prep books for each one, and make sure they include practice tests. You should also be familiar with typical “tricks” and techniques used to improve scores on these tests. To do this, you should speak with some veteran test prep instructors. You should also develop a solid relationship with local high schools and junior colleges so that you can advertise on their campuses and receive referrals for clients.
What is the growth potential for a test prep business?
The growth potential for this business is moderate. While overall college enrollment has decreased 1.5 percent from 2016 to 2017, many colleges are becoming increasingly competitive, which provides incentive for students to get assistance preparing for tests. In your area, you may also consider advertising and networking more heavily with local academies and magnet schools that are likelier to have a higher number of students wanting test prep services to get into their college of choice.
What are some insider tips for jump starting a test prep business?
Be sure that your prices are competitive with whatever is offered in your area. Develop a rapport with local guidance counselors so that you are the first person they think of when someone needs help preparing for a standardized test. Finally, don’t rule out the potential of technology such as Skype for expanding your business far beyond your local area.
How and when to build a team
The decision to build a team is tricky, as the ability to conduct all of the lessons yourself is a major part of what keeps the overhead low. However, if you have more clients than time, you can start with a partner or two in order to help more of your community.
Part 2 - Is a Test Prep business the right fit for you?
Business Evaluation & Strategy Tool
We'll walk you through the four pillars every business needs: Points of Leverage, Marketing Strategy, Financial Model, and Personal Compatibility. At the end you'll see a personalized report and your action plan below will be tailored to your answers.
Step 1 of 4 — Points of Leverage
Every viable business has natural advantages. Below are common leverage points across four categories. Pick the ones that apply to your Test Prep business. We've pre-suggested a few based on your idea — review and adjust.
Step 2 of 4 — Marketing Strategy
Without a way to connect with customers, even great businesses fail. Pick the channels you plan to use to reach your customers.
Step 3 of 4 — Financial Model
Enter your monthly baseline costs — the minimum overhead to keep the business running. Then we'll calculate how many sales per month you need to break even.
Step 4 of 4 — Personal Compatibility
A business that doesn't fit your life will fail no matter how good the numbers look. Tell us how this business fits you.
Your Test Prep Evaluation Report
Complete the four pillars and your personalized summary will appear here.
Points of Leverage
Marketing Strategy
Financial Model
Personal Compatibility
Part 3 - Action plan to launch your Test Prep business in 90 days
Nine concrete steps to take you from idea to open business, grouped into 30-day phases. Complete the planner above and we'll highlight what's most important for your situation.
First 30 days — Foundation
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Form your legal entity
An LLC keeps your personal assets separate from business debts and lawsuits — the most common reason small business owners choose this structure. Sole proprietorships and partnerships do not provide this protection.
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Get an EIN and register for taxes
Apply for your free Employer Identification Number through the IRS, then register for any state or local taxes that apply to your business (sales tax, franchise tax).
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Open a business bank account and credit card
A dedicated business account is required to maintain personal asset protection. Mixing personal and business finances ('piercing the corporate veil') can void your LLC's liability shield.
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Set up business accounting
Recording expenses and income from day one makes tax filing easier and lets you see when the business is actually profitable. Use software (QuickBooks, Wave) or a part-time bookkeeper.
Days 30–60 — Compliance & Risk
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Get permits and licenses
State and local requirements vary widely. Brick-and-mortar businesses typically need a Certificate of Occupancy; service businesses may need specific professional licensing; food businesses need health permits.
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Get business insurance
General Liability Insurance is the most common starting point. If you'll have employees, most states require Workers' Compensation. Specific industries need additional coverage (product liability, professional liability, etc.).
Days 60–90 — Launch
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Define your brand
Your brand is how customers perceive and remember you. A clear name, logo, and visual identity make every later marketing decision easier and protect you legally as you grow.
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Create your business website
Every legitimate business needs a website. Social media pages are not a substitute — you don't own the platform. Modern website builders mean you can launch a clean site in a weekend without a developer.
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Set up your business phone system
A dedicated business number keeps your personal life private, makes the business look legitimate, and lets you route calls professionally. Cloud phone services start under $20/month.