Monday, July 16, 2007

The ROI of Retention 2 - CSFactor 2

CSFactor 2

CSF2 = [(SL x CA = -E) + CSL1]

There is a universal law that it should take less energy to sit on a flagpole than to climb it. Seems logical. Climbing it numerous times to gain four different views would require burning more calories than shinnying up once and sitting up there to look around for the views.

Yet there are certainly those who seem to have not learned the lesson. Colleges that have not yet focused on the value of retention which can be increased through some simple customer service training rely on the old churn and burn approach. Keep bringing in ever increasing numbers of new students and don’t worry if they just drop out never to return. Just get some more.

These schools make admission folks in particular climb the pole over and over, burn calories, the late night compact fluorescents, and just plain burn out trying to meet ever-increasing admission goals. You’d think some universities had never heard of flag pole sitting on a pillow called retention. Or the stabilizing element of customer service that creates the toochas-saving cushioning in the pillow. Or ever concerned themselves with little issues like revenue, budgets and paying for things. Or the energy-saving and budget building value and cost-savings of retention. Because flagpole climbing not only burns calories and people, but piles of revenue.

Admissions Costs – Retention Saves CSF2

Another simple reality here. Every student a college enrolls costs it money to do so – big money too! Every student retained costs from nothing to quite little.

In fact a study we did two years ago found that the average cost of enrolling a student is $5,460. This study of 40 randomly chosen colleges, universities and career schools included ALL cost of enrolling a student. Most colleges just look at direct marketing costs per student and forget about all the associated costs. They divide marketing and advertising, maybe lead costs too, by the number of students and voila – a miscalculation.

The real costs of enrolling a student include the marketing costs yes, but also the marketing staff, advertising, publications, admission staff, clerical people, travel, orientation, printing, allocated time and effort from bursar, registrar, academics, counseling, advising, student services, financial aid, orientation, registration, and so on; mailings, emails, phone calls, website and so on and on and on. Fixed capital costs associated with most all of this add another 7-9% on the average. There are in fact very few parts of a college that are not involved at some point and time in admissions. We also found that schools were not including all students who had made inquiries to the college. Every time a student is responded to, there are costs. These all add to the time and costs. Considerable costs. $5,460 worth of costs. (For those who wish the full description, methodology and breakouts of research data, I am sorry to say we do not supply it. It is proprietary and not available.)

For some schools, the cost of recruiting a student actually outweighs the tuition received from them. The ones that survive are generally assisted by some public assistance based on an unduplicated headcount formula. But even with public assistance many schools still lose money on student acquisition when he or she who drops out. (I suppose they intend to make it up on volume?) This is especially so if the student leaves before providing tuition and fees at least equal to the acquisition costs. And every student who leaves must be replaced with at least another at another additional expenditure of $5,460. But it usually required more than one re[placement student and associated acquisition costs.

In fact, to obtain one FGE (full time graduate equivalent) at the average annualized attrition of 32%, it will take 3-4 students acquired to get one FGE at a two-year school. 6-8 will be needed at a four-year school, with an average graduation at 5 years. If average graduation is more than 5 years, add another admission needed to get the FGE.

By the way, annualized tuition is the number a school should use to figure its real attrition. Not the retention between the freshman and sophomore years which is a very popular one. That leaves out all the students who already dropped out before the end of the second term or semester. That number fudges failure. For instance, if a college began a year with 100 new freshman and 99 left in week one but the remaining student stayed the whole year and returned, the freshman to sophomore percentage would be 100%.

Annualized attrition includes all students who left. It does not look at a starting class such as the freshman class as an isolated entity. It recognizes the Sophomore Bubble, the junior jump, senior slide, super senior slump and the “I’m not sure what I am except outta here” slump. Students leave at all times and should all be counted in the attrition number to be able to not just be real but to really understands how a college and its budget are actually performing.

The cost of retention at one school was reported by a participant during a workshop I was presenting at the Snowmass Institute (a very good enrollment management conference by the way). She said her university spent an average of $35 per retained student.

The Growing Importance of Retention to Graduation

The public, employers and legislatures (local, state and federal) are starting to catch onto the fact that the number of students who start or attend a college or university at headcount day is a meaningless statistic. Granted it may improve a person to get some education and even a drop out may have added value before leaving a university. But it is the diploma that is the real indicator of the success of a student and a school. That is the certification that everyone uses to determine someone has been educated and trained enough to contribute to the economy, the culture and society. It is the diploma, indifferent to whether it really indicates the holder is truly educated or really capable, that is the sign this person can be considered for a job and add to the economy.

This is our own fault to some extent. We keep telling society and legislatures that higher education is the fuel for the engine of the economy. And they have started to believe us to the point that they want to put the emphasis on the number of graduates that schools put into the economy. This is where political accountability is starting to move. The number of grads, not just attendees. Support formulas are going to start moving to the number of graduates and work backwards to entering students.

Starting with the number of graduates will make retention and even more important issue than it is now. This is due to retention rule 4 – students who drop out from the school tend not to graduate.

CSFactor 2 Using the formula.

CSF2 = [SL x CA = -E) + CSL1]

SL - # of students lost
CA – Cost of acquisition
-E – Enrollment $ lost
CSF2 – Total revenue lost

So using the numbers from the prior CSF1 example:

[198 x $5,460 = $1,081,080 + $2,574,000) = -$3,655,080.

This school has lost $3,655,080 along with almost 200 students. If it had retained the 198 students, it would have saved the $3.6 million. Even if it did cost $35 a student to retain them, that would have cost them $6,930. Even if we wish to extend that out of four years, the $27,720 is still just a bit less than $3.6 million.

Seems again that retention saves while attrition costs. And one hell of a lot of money.

But let’s not forget the human costs of people working very hard to bring students into the school just to see them leave. We have not even worked in the costs of replacing admissions and enrollment people who simply burn out from the ever-increasing new student goals and the psychological pain of climbing the ever-growing flagpole every start when they should be able to just sit there every so often and enjoy the retention view.

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