Archives for category: Managing Tuition Revenue

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In a day of reduced student demand, a number of colleges have turned to their athletic programs to help fill a portion of excess capacity.  The idea is that an additional student paying anything is better than no student at all.

At the outset, let me say that this strategy can be helpful within the context of an overall enrollment enhancement plan (EEP).  If ten or twelve percent of a student body is involved in intercollegiate athletics, it seems reasonable to move that number up two or three percentage points in the quest to fill empty classroom seats.  Athletics can be an important part of the college experience and many have gained leadership and lifelong fitness benefits from their participation. My thesis is that moderation is important.

Consider the following two issues as a plan is put in place.

  1. Marginal Revenue Analysis

First is a needed conversation about marginal revenue as it is practiced by many smaller, private institutions.  The idea here is that the new students provide added revenues and therefore benefit the institution that has excess capacity.

Let’s start with the non-Division III (D3) colleges that attract athletes through scholarships.  I recommend identifying the net tuition revenue (NTR) from scholarship recipients (excluding walk-ons) for each sport.  We’ll assume table tennis has an average institutional scholarship (discount) of 75% off tuition and fees of $28,000.  Each player thus contributes $7,000 on average. The math: ($28,000 X .25) = $7,000 NTR per person.  Ten players generate ten times that amount or $70,000.  The identification of NTR generated by individual sports is step 1.

For D3 schools, the entire roster can be used in terms of net tuition generated.  Some carve out the impact players and only use their revenues but that can be somewhat subjective.

For step 2, the budgeted costs of the sport are identified, including coach salaries.  That amount is then subtracted from the NTR sub-total.  In this case, the spending and salary budget for table tennis is $46,000, including salaries, benefits, travel, lodging, meals, uniforms, equipment, game day costs, etc.  Subtracting that amount from the $70,000 of NTR leaves a step 2 subtotal of $24,000.

Step 3 allocates athletic administration costs to each sport.  I typically use headcount for this exercise, ensuring that smaller programs are not abnormally hit.  Presuming $120,000 of athletic administration costs and 120 scholarship athletes, another $10,000 of cost is assessed against table tennis for its ten players (10 X $1,000.)

In the end, the ten players from table tennis generate $14,000 in NTR or $1,400 per person toward the cost of academic programs.

The final step aggregates all sports by net contribution to arrive at a total amount for the 120 scholarship athletes.  For some analyses, this has resulted in a negligible, even a negative number.  The question to be answered is whether enough is generated from these students to justify putting athletes in the classroom?

2.  Atmosphere

Second is a conversation about the qualitative aspects of athletic recruitment.  Put simply, too many institutions have accomplished increased athletic recruitment numbers in the face of an overall enrollment decline.  Why is this so often the case?

There are likely a number of answers to this question and I recommend drilling down to find what is affecting your institution.  Examples include scholarships being shifted toward athletes, leaving materially less for other students when an overall discount rate is targeted.  Aggressive roster requirements can also detract the attention of the admission team to assisting coaches in their recruitment work.  Other possibilities for non-athletic declines include deficient facilities or not offering the up and coming programs.  Institutional bad news or severe competition in the regional area could be factors in drying up the non-athlete pool as well.

I suggest that another factor is worth investigating.  When students visit, do they perceive yours to be a “jock school?”  Walking through the student union or into the dining room, are there a lot of students dressed for athletic practices?  Are athletes sticking together as they eat or walk around on campus?  If you offer a chapel program, are athletes together during that experience?  Do they sit together in classes?  Do they exceed 20% of your student body? The reality is that many great students who would be wonderful additions to your campus are not athletically inclined.  Oh, they may be reasonably good intramural players and enjoy being spectators for certain sports but their high school experience was primarily with non-athletes and they want something akin to that for college.

3. So what do we do?

Let’s replace our sports offerings with well-positioned chess boards and pipe-smoking, blazer clad sophomores debating each other on the sidewalks.  OK, maybe not. Let me suggest adding a few questions to the survey you give to all of your student visitors (you do survey them, don’t you?)  Ask them to rank what they thought your reputation was before arriving and their impression after visiting.  There could be five or more general descriptions of your atmosphere, including “athletic school, academically serious, socially active (party school)” etc.

In essence, find out how you are being perceived so that recruitment and messaging strategies can be adjusted accordingly.  Do this before embarking on a wholesale addition of sports in the quest for the next fifty students.  If forty students are lost who contribute more NTR, the strategy may backfire.  In too many cases, sixty or more are being lost.

Oh, and in connection with the NTR analyses I introduced (#1 above) it makes sense to work with the athletic programs to target a greater net contribution overall, to be accomplished over a period of years.  While athletic participation can be an important part of the college experience, these programs should bot consume all the resources generated.

A word about room and board.  Some argue that the contribution from auxiliary enterprises should be factored into these kinds of analyses.  My take on room and board is that it is used to support Student Life programs at the college.  This includes counseling, residential life, student activities, discipline etc.  When you match the net contribution from auxiliaries with overall costs of the student life program, there is rarely much remaining.  If anything is left over, investments in capital projects for dorms and dining are not a bad idea.  It isn’t good practice to direct those dollars toward the academic programs of the college.  That is why we charge tuition and fees.

I wish you well in this environment.  Keep trying new things but maintain perspective (and moderation.)  We want a balanced, healthy institution.  Let’s work together to ensure that.

The first week of August is upon us and whatever will betide the fall is becoming more clear. What are some of my clients doing around this time?

Well, first of all, the deadline for finalizing payment for the fall often occurs this week. I have suggested a deadline of August 5th through 9th as what some call the confirmation date. A Wednesday is a good deadline; either the first or second one of August. This allows a little cushion for those who are late in their arrangements. By the close of business on Friday, everyone who has not yet confirmed will be assessed a late fee of $100. I can tell you that it works. If you are lax about such items, be prepared to have about three times the normal staffing for the first two weeks of school.

Second, those who have put in a mechanism to track financial aid by class are getting a clearer picture of fall’s revenues. Track the net tuition for all of those who have deposited for the fall and then for those who have confirmed (agreed to the charges and the method of paying them.) If your system doesn’t allow for this kind of analysis, create a work around. Census day is somewhere around six weeks from now and may deliver an unpleasant surprise. Better to know now. You’ll need the tools to do so.

Third is related to the second and involves gleaning more information off the invoice for room and board. Look at billed R and B and the same charges for those who are confirmed. This is typically the second largest source of revenue for most institutions. You want to be on top of it and should be able to produce a projection even now.

Fourth, under the assumption that the second and third considerations are well in hand, a projection of the second semester is appropriate. Most use a general retention rate. A better approach is to track the difference in populations for each class between the semesters. This is a little different from retention in that there will be some who earn enough credit before the spring to be classified in a higher class. Others will stop out and some will transfer in. By merely comparing the raw data for fall and spring by class, it will yield a better approximation of the total year’s pro-forma than a general retention rate.

Finally, CFOs and enrollment people are looking at where non-traditional activities are heading. For most programs, students who carry over from one year to the next represent between 65% and 75% of the new year’s revenue. This is true in part because the carry-over student is paying tuition from the beginning of the fiscal year, with many paying for the entire year (52 weeks worth.) Some of my clients are using my Non-Traditional Revenue Projection Model (RPM) to provide projections. It is available, free of charge, just for asking.

When the turnstiles stop and your audit is complete, please consider adopting the COMP4cast budgeting and forecasting tool, also available free to those who ask. The ideal time to deploy this is in late September. By October 15, you will have a good sense for the current year and a preliminary look at next year’s revenues. This has been very well received by every adopter. Oh, and I tend to assist with implementations in the fall, if doing it on your own doesn’t get you there. My involvement will set you back two days and about three grand. Most see it as a great way to fast track the process and deliver a pretty impressive series of reports to the board at the fall meeting. I’d love to chat with you about this.

I’m wishing you all great success this fall as the new class arrives and students return. You are doing important work, my friends. Keep it up.

When I was in the corporate world, it was common for one of the top sales people to make the most of anyone in the organization.  Sometimes, the heavy hitters, festooned with gray hair an a rolodex full of “friends” made more than the CEO.  The reason is simple; without sales, the organization fails.  Without good margins on those sales, a slow death occurs.  Any organization needs good people to get tasks done.  Every organization needs the best sales people.

So, why is it that higher education uses recent graduates who are paid very little to recruit new students; students who will not just pay the fall semester bill but may be with you for seven additional semesters?  It seems as though the paradigm lacks something.

And, while we’re on this topic, if it has been shown that Mom is a primary influencer in the college decision, why aren’t there more mom-aged women working in direct contact with prospective students and their moms (and dads)?

I say send counselors out on the road less and hire on mom-aged professionals with solid sales experience who can seal the deal with the student and their family on the campus visit.  And pay them like they are responsible for your entire revenue stream.  Because … well … they are.

Off campus programs (OCP) may have waned a little in popularity in the past few years but spending a semester abroad remains a draw for a number of students, especially those who are stronger academically.  Unique and high-quality programs are a distinctive that may be of great benefit, particularly to an institution with softening demand.

The problem? They are expensive.  Institutions handle this cost in a variety of ways.  Some charge a normal semester’s worth of tuition, room and board, allowing the student to receive institutional aid but with the institution writing a check to the provider.  That check is often a lot more than what the institution collects from the student.   Others replace the student’s normal bill with whatever the OCP charges, passing along the program’s cost but still losing that student’s net tuition, room and board for a semester.  Some have their own programs and save a little by not using an intermediary.  Others offer limited slots so that the number of students either extracting large checks or foregoing tuition is a managed budgetary item.  There really is no one way to handle this and each of the ones I have mentioned represent budgeted commitments, subject to curtailment if finances are constrained.

Let me suggest creating your own program and funding it by bringing in students from other institutions.  This is an approach that I used some time ago to establish a program in Africa; one that is still in operation some fifteen years hence.  Other programs, established on a more expensive paradigm lost their financial footing when budgets were tightened.

Consider then this sequence of actions to establish a financially viable program.

1.  Begin with a capable champion.  Ideally, use a faculty member who has a background either in related research or has actually lived in the country of interest.  He or she must also be willing to spend a semester abroad every year or every other year and be the faculty member of record for the program.  This person will personify the program so they will need to be charismatic (see 5. “Go on the Road” below).

2.  Create a broadly beneficial curriculum.  Some programs fail to attract a reasonable number of participants because the courses offered by the OCP are too narrowly focused on specific majors.  Create a curriculum that satisfies some major requirements but will also benefit those who are minoring in a discipline or need various upper level electives for general education.  Part of the work of the champion is to find local adjuncts to provide appropriate options for students.  The more the better.

3.  Put a realistic budget together for the program.  This is an area where the champion will research the various options for lodging, transportation, instructional space, food, field trips, insurance, adjunct faculty etc.  Include the cost of the group traveling to and from the experience as well and the cost of marketing materials.  The budget is a critical piece that must be locked down with a measure of certainty.  When in doubt, estimate high.  The institution will cover the cost of one faculty member for the semester so the sponsor/champion does not need to be covered by the budget.

4.  Establish the financing / recruitment plan.  The typical ratio is to enroll 60% of student participants from your institution and 40% from other institutions.  Charge a fee on top of a normal room and board charge and call the entire cost an OCP participation fee.  I suggest about $850.  The way it is financed is that the OCP participation fee from ALL participating students is added to the tuition charge for the outside students only.

As an example, suppose that a total of twenty students are budgeted to participate in your program, under the 60/40 split of those from your campus and students from other institutions.  Presume that your normal room and board costs $2,150 per semester and a program fee of $850 is added on to create a total OCP Participation fee of $3,000 per student.  Presuming also that a semester’s tuition is $14,000, consider the following grid:

Budgeted OCP Revenue            Net Tuition   OCP Part. Fee      Total

Your institution (12 students)             $0              $36,000         $36,000

Other institutions (8 students)      $112,000         $24,000       $144,000

Total revenue available for semester-long OCP budget          $180,000

Your own students receive whatever financial aid they normally get and off campus students receive no institutional aid from your school.  Your students pay a mere $850 more than they would normally pay for a semester abroad.  The spending budget works out to be $9,000 per participating student, in this example.  It can be made lower or higher through reductions or additions to the outside students participating or by reducing or increasing the OCP participation fee.  Work your magic with Excel.

The invoices for outside participants are sent-to and paid-for by their sponsoring institution.  Ideally, those students will receive their normal financial aid from the sending college or university.  They will also receive course credit from their sending institution.  This justifies using their entire tuition for program needs.

5. Go on the road.  Obviously, this approach relies on selling the program to other institutions. Create marketing materials and travel around the country (include this in the program budget) to promote the program to other institutions.  The Champion will be touting the benefits of the program directly to whomever will listen.  Ideally, they speak to students in classes for the disciplines that benefit from this kind of an experience.  A chapel message is even better.  These should be story-based lessons, versus a description of the program. Save that for the end, after you have hooked them with your stories.

6. Establish sign-up deadlines.  In my example, you will need twelve students from your own institution and eight from others.  You need to nail down both by a certain date but, if experience is any guide, the off campus students will be the ones who are the hardest to sign up.  They bring the greatest dollars, however, and are needed to fund the cost of your own students.  If the deadline passes and the number of students from elsewhere are not in the ballpark of what is needed, the program cannot come off.  This is a critical standard because a failure to attract other students will created a budgetary burden from the program and result in its cancellation whenever a new budgetary crisis erupts.  And they do occur from time to time.

7.  Bring on a logistical expert.  This does not have to be an expensive position to hire in for.  Sometimes, enthusiastic champions cover the logistical issues for their first year and budget for that person if the program is a success.  Coordinating an off campus program is challenging, however, and students don’t always want to comply with deadlines and requirements.  The logistical person’s work is ever more critical if self-managed OCPs become a hallmark for your institution.

Closing thoughts

I have structured the financial arrangements and my dear wife the logistics of registration and travel for institutionally operated OCPs.  These initiatives can bring substantial benefits to the institution, even representing a draw for the high-achieving student.  If you create an appealing program and can sell it to other institutions, this entire process can be pulled off without a hit to your net tuition budget.

Let’s talk!

Our discount rate is only off by three percent.  That’s not too bad, is it?

Well, I hate to spoil a good theory with some facts but the math tells a different story.

Let’s presume that Solvay College had budgeted to recruit 240 first time students and charges $25,000 per year in tuition.  Tuition discounts (financial aid in the form of unfunded grants) are budgeted to average 40% for these new students, meaning that the average institutional grant takes $10,000 off the gross tuition bill.  In essence, even though $25,000 is charged for tuition, Solvay only nets $15,000.

For the budget, Solvay is planning to generate net tuition of $3.6 million ($15,000 * 240) from these new students. Bumping up the discount rate to 43% means that the average institutional grant for each new student grows by $750 ($25,000 * .03).  Multiplying the added discount by budgeted students ($750 * 240) yields a deficiency of $180,000.  This represents the net tuition lost due to the increased discount rate.  For Solvay, this isn’t a small amount.

When $15,000 in net tuition per student is budgeted and an overspend of discounts results in a reduction of $180,000 for the incoming class, at least 12 would need to be recruited just to meet the original net tuition budget.  Actually, because the higher discount nets only $14,250 per student in net tuition, another 13 students will be necessary to equal budgeted net tuition.  Put another way, if Solvay College thinks it is a good idea to increase their discount rate by three percent, they will need to increase the recruited class to 253 from the planned 240 in order to meet the tuition budget.  Will such a small change in a student’s overall cost be the deciding factor?  Seems most unlikely.

The moral of the story is to guard the discount rate carefully.  It should be crafted strategically, based on a rigorous analysis of student merit and need.  Then, though you may be tempted to give the store away, the discount strategy must be deployed with discipline so that the plan has the best chance of becoming actual.  With seemingly small changes in the discount rate resulting in major adjustments to net tuition revenue, time invested in this area is well spent.

The budget you save may be your own.