Sally, dance me go pretty Friday smell good you are girl I have car dance you go me? Not exactly on top of your game. Hopefully you didn’t puke on her.
[ Side note my brother, a state champion wrestler, used to puke before every match. Perfectly natural fight or flight mechanism, but scary if you don’t expect it. ]
However as you got used to it (stress inoculation) you got better at it (able to get by with your level of training in a body and brain juiced with stress chemicals). My point being is training has to occasionally artificially induce combat stress so you can get used to it. Now this will never be the same as the real thing but you will perform better during the real thing if you know what to expect and are not scared / caught off guard by the changes in your body and brain. That is one of the reasons I like formal kyu / dan testing. Far too often grading has become a cash cow (testing fees = $$$$). But for legitimate reasons forcing students to perform under pressure with consequences is one small example of stress inoculation. If a student chokes and can’t perform in front of Sensei or a crowd, how are they going to perform when someone is trying to hurt / rape / kill them?
So have tests that mean something. Prepare your students for these tests. If they fail they fail better to fail in the Dojo then in combat. Do not pass them if they fail!!! You are not doing them any favors. Work on stress inoculation so they can pass next time and actually learn something of value besides physical techniques. If they quit because they did not pass they won’t respond to quality training anyway and would be more comfortable at a school where you can buy rank. That will give you more time to spend on your students that want to learn. If you are afraid of students quitting because that lowers your income you should re-evaluate why and what you teach