Friday, September 14, 2007

The Power of Retention: ROI Formulas - Excerpt from White Paper

This is an excerpt from an AcademicMAPS white paper The Power of Retention.If you would like a copy of the entire white paper, please just contact us at

Calculating ROI from Retention; Three CSF Formulas

There are three primary CSFactors™,(Customer Service Factors) AcademicMAPS has formulated to help universities, colleges and career school figure out the loss or gain from retention and attrition. The CSFactors are provided as formulas schools can use to figure out how much revenue they are losing, or could and would gain if they focused on improving service to students. The formulas are quick methods to understand the financial power of retention coming out of customer service to students. Placing your college or university’s actual numbers into the formulas will quickly bring forward the real power of retention to positively affect the revenue and future or the institution.

They could also be applied to employee retention, another significant revenue and service issue but here we focus on students. The formulas were developed and tested from the research AcademicMAPS conducted during college service audits, workshops, presentations, retreats and other services provide to higher education as well as just pure research.

CSFactor 1: The Cost of Attrition CSF1 helps a college figure out how much money it is losing from its actual attrition. Factor 1 is stated as:

CSF1 = [(P X A= SL) X T]

In the formula, P represents the total school population; not just the starting fall freshman number. Most schools use the fall incoming freshmen number and that is an error. The assumption is that attrition occurs most in the first six weeks of the freshman year. That may be have some validity for the freshman year but the reality is that students are leaving colleges and universities in any one of the average six-plus years of a four-year degree and in the four-plus average years of a two-year degree. Students leave a school throughout their experience at the college. In fact, some schools are beginning to realize this and worry about the sophomore bubble. But they really need to worry about the super soph sluff, the rising junior jilt, the junior jump, super junior split, the fourth year flee and so on. Every year, every semester, in fact every day is a chance for a student to dropout. Colleges need to be concerned with every student every day of their attendance for it could be his or her last. So we look at the total population.

Annualized tuition is the number a school should use to figure its real attrition. Not the retention between the first and second semester or the freshman and sophomore years which are very popular ones. 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 for a sophomore year, the freshman to sophomore percentage would be 100%.

In CSF1, A equals attrition. Again not just from freshman but an annualized attrition rate. And this rate is to include ALL students who leave for any reason. It does not matter if the student says he or she will be back. They are not in the population and bringing in revenue until they actually do return. If they pay a “place holding fee”, that does not count them as a student until they are actually back in classes.

Fudge with the numbers if you have a need for delusion, or are insecure, unethical, or want to keep the Board feeling better but when you use the formulas, be fully honest. It will help you understand why the budget is not working or may suddenly implode. No one likes surprises, especially ones that have parentheses around them in the budget and

lead to freezes, cuts and the like. Using the formulas honestly can help forecast a reality to avoid surprises and initiate work on retaining students to maintain fiscal and operating health.

SL stands for students lost annually from total population and revenue production. And T equals annual tuition at the school.

So here is what showed up when we analyzed CSF1 for Mammon University. You may know it. Its motto is Omnes Por Pecunia. Anything for a Buck.

Its total population was 500 students.

Annualized attrition was at 39.6%

So SL (students lost annually) was 198.

Times an annual tuition of $13,000.

So, the formula becomes:

[(500 x 39.6% = 198) x $13,000] = a revenue loss of ($2,574,000).

To carry this forward a bit, we can plug in other numbers and see how an increase in retention could add to the bottom line and thus the ability to pay for full time faculty, staff, their benefits, increases for adjuncts, instructional equipment, tutors, research release, new curricula and programs, maintenance, …. All those pesky costs that make a college or university better.

If attrition dropped by 5% for this school and we substitute 5% increased retention for attrition percentage in the formula.

CSF1 = [(500 x 5% = 25) x 13,000] =

$325,000 more revenue.

Plug your school’s numbers in and see how increasing retention affects your budget and instructional strength while attrition will sap the ability to meet budget and mission.

For the full white paper, please contact

(I have been told the link is sending people to our web page where the email can be found but if you wish to skip the web page, copy and paste the address in your email editor. Sorry for any inconvenience.)

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