Monday, January 22, 2007

U Loses Millions of Dollars - Economics of Customer Service

Colleges and universities lose millions of dollars a year from poor customer service that pushes students to drop out of their schools. Students who feel schools do not care about them, treat students poorly, are perceived as not worth their time or money, or are not perceived as providing for their fiscal and future career needs, leave colleges and take their money elsewhere. The schools lose millions of dollars. And the number of students who drop out, step out or transfer is rising as school revenues are sinking. A correlation for disaster that too many colleges are not doing enough or anything about.

As a result, most schools find themselves without enough money for instance, to hire more full-time faculty, purchase new equipment, fix up buildings, start new programs, even provide services for students that might keep them in school. They just figure high attrition into the budget as lost revenue.

In a 1/22/07 article in the Rocky Mountain News by Berny Morson,reprinted on UB Daily Metropolitan State College of Denver President Stephen Jordan says

“Connecting students with traditional professors during their freshman and sophomore years could reduce Metro's high drop-out rate, Jordan said. Metro loses 38 percent of its students during their freshman year.”

What Dr. Jordan is referring to here is one aspect of customer service which in college certainly does include the deliver of learning services to students. But teaching quality is only one factor for students quitting a school as discussed in an earlier posting Why Students Leave and What You Can Do About It

So let’s take a look at Metropolitan as an example of the sort of money that is involved with what I would propose is a need to focus more on customer service. Using some institutional research information from Metro’s website and working out some correlations and calculations using Dr. Jordan’s 38% attrition rate, Metropolitan lost at least $7.63 million, and likely more, from dissatisfied customers we call freshmen. It would be more when sophomore-senior drops are included.

Here is how we figured this out.

Using 2002 enrollment figures since the budget available was for 2002-3, it appears the school received a total of $72,735,132 in tuition, fees and state support. There were 11,246 full-time and 8,144 part time students with a state headcount of 16,663. We then calculated that each student was worth $4,365 in tuition and state revenues. Assuming the attrition rate of 38%, that meant that 2,428 freshmen dropped out. At a revenue value of 4365 that means Metro lost $10,598,220 in potential revenue for the next year and up to $5,299,110 in the second semester since most students drop after first semester. So total two year losses could have been $15,897,330 but for our purpose, we will just look at the $10.5 figure. (We didn’t calculate lost investment in admissions, marketing, processing and other freshman year school costs which often outpace per student revenue.)

Our studies of students who transferred to another school, stopped out or dropped out indicate that poor or weak customer service accounts for 72% of the reasons why students leave a college. That means that $7,630,184 can be attributed to customer service-related reasons for leaving Metro.

If Metro and other schools concentrated more on customer service, they could have cut that $7.6 million down. Maybe only by 50% at first but that would still be an additional $3.8 million. Even assuming a total full-time faculty annual cost at $100K with benefits and costs, that could mean Metro could potentially hire 38 more full-time faculty. Okay, so even if they just reduced customer service attrition by just 25%, that could be $1.9 million it did not have before. Any president want to leave $1.9 M on the table?

Customer service is a clear fiscal issue that can have major positive impact on a school. Your school could be more or less than what we figured at Metro. But it is clear that an investment in customer service pays significant fiscal dividends from a small investment.

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