Tuesday, May 06, 2008

Schools Budgets Aren't Flush

There is an article in the current edition of the Chronicle of Higher Education that begs for a comment. The piece “In Turbulent Times, 2 Small Colleges Brace of the Worst” ( 5/09/08, P. 1, and A12-14) discussed how Tiffin University and Heidelberg College are going about their financial issues in what I have to consider traditionally dumb ways. They are trying to increase admissions, primarily by increasing their tuition discounting, trying to raise donations, cut costs and build perhaps a new building. You know,” if we build it, they will come” as if The Field of Dreams was a recruitment training film and not a well scripted fiction. The only thing that is guaranteed by a new building is increased debt load and more belt tightening. I can hear the budgets flushing now.

They are using a traditional frontloading approach, i.e. recruiting more and more students. Spend more and more money to do that. Cut more and more costs to cover the recruitment and discount costs. Sort of a Payday Loan approach for academia. Keep borrowing up front to keep spending more and more to try and stay afloat when the answer is not in taking out more loans but in conserving what they already have.

Not recruitment but RETENTION.

Heidelberg College has a 47.9 four year graduation rate and a 51.7% six year graduation rate. Tiffin University a 24.2% four year graduation rate and six year graduation rate 31.1% according to the Educational Trust. This means that each of them lose at least half of all the students who start at the schools prior to graduation. All the money they are spending to increase the size of incoming classes is going out the back door with the students who leave the school without graduating.

Let’s use some of the formulas in the new book Customer Service Factors And The Cost Of Attrition that help calculate the losses schools suffer from attrition to clearly see the folly of frontloading without retaining. Formula 1 states CSF1 = [(P x A = SL) x T] or population times attrition equals the number of students lost times tuition which tells us how much money has been lost by a school.

So for Heidelberg’s current year it can look forward to a loss of at least $4,800,950 from its annual budget.

(using the figures from the four year graduation rate from the Educational Trust CSF1 = 1565 X 52.1% = 815 headcount x $18,190 = $14,824,850 over the four year period. Even if students left in an equal rounded down attrition distribution of 203 students a year that would mean Heidelberg is losing $3,692,570 a year by not focusing on retention.

By the way, every one of those students would need to be replaced and at least the average recruitment cost of $5460 (which is low for Heidelberg since it is using consultants and many people and money to recruit students). CSFactor 2 lets us know that Heidelberg is then losing another $1,108,380 in wasted recruitment cost just to bring in the students who have left and double that to replace them.

Tiffin University (using 6 year graduation rates since they have a fairly large non-traditional on-line population) loses an annualized $13,479,263 a year from attrition.

If either could cut their attrition rate, they would realize a significant increase in revenue and fiscal relief.

When will schools realize that the success comes not from bringing in more and more students to replace the ones they lose but from retaining the ones they have? And it costs a heck of a lot less and results in a self-perpetuating situation.

Students who stay become alumni.

Student who stay recruit other students.

Students who stay help build the strength of a school.

Students who stay do not have to be recruited again and again and again.

Students who stay are key to the long term stability and growth of a college or university.

If schools want to spend money, spend it on programs and assistance to keep the enrollment they have. That is the smart thing to do.

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