Tuesday, January 14, 2014

Zeno and The Retention Paradox

Zeno the Greek philosopher devised a paradox that describes the situation of many colleges and universities right now and into the near future.  He stated
that if a person wants to get to a goal but can only cover half of the distance each time, he will never get to his goal. This is so because there will always be 50% of the distance remaining to go. 

Considering that the average college or university loses half of its population every year, it holds that they will never get to their goals either.  Fifty percent annually means that it must always recruit at least half of its population every year just to try and stay even. And it gets worse because the distance to go actually increases annually because the cost of operating goes up every year. So all things being equal, the college loses ground just by staying even at a 50% attrition rate.
Okay, so all one needs to do is increase tuition costs to cover for the lost retention just to stay even. But every increase in tuition also has costs in the number of students a school loses due to the tuition increases. So as tuition goes up, population goes down as fewer students can afford the cost increases. So the school increases its scholarship and financial aid funding to help students pay for the tuition increase thereby still depleting the budget by the cost of the increased aid. The school spends more just to try to stay even. 

Zeno would be proud.

Here is the secret to success and ending the paradox schools face. Recruitment costs money. Retention makes money.

Let’s take an imaginary school we will call Mammon University where the motto is Omnes Por Pecunia. Mammon has a budget of $10,000,000 a year for all its operations. It is a private school so it gets no direct state funding  (unlike a public college or university which gets almost no state funding). It exists based on tuition revenues as do most schools. It charges $10,000 a year tuition so it needs just a total population 1,000 students to make its revenue demands.   For purposes of the discussion let’s assume the classes are equal in size and graduate in four years not six which is the new average.

If it has 100% retention, it would only need to replace its graduating class of 250 or 25% of its population. If it has 100% retention rate it would not have a rough time at all acquiring a new class since there is a direct correlation between retention and applications. Moreover, it would also likely have a high referral rate from its current and graduated students which also cuts into its acquisition costs for that new class. There is also a correlation between retention and referrals because a high retention rate means that students want to be there. 

Students who want to be at a school let others know of their desire and satisfaction with the school. Students also want to be at a school that meets their needs and expectations, i.e. provides good academic customer service.  Therefore, the replacement costs would be lower at this 100% retaining school than at others that do not retain at the same level which is true of most every college and university in America. They simply would not have to work as hard as other schools to recruit a class.
Let’s assume they spend the national average of $5,460 per student to acquire and process a new enrollment.  This figure includes marketing, recruitment, financial aid processing, bursar and registrar contributions as well as orientation and other costs associated with bringing a new student into the college. So Mammon would have to spend $1,365,000 to replace the graduating class. This would be equal to 13.65% of their total budget to recruit a replacement class to give them the $10,000,000 they need to continue on at the same level as the year before. 

If Mammon retained at 75% of population it would need to recruit not just the 250 from its graduating class it would need to recruit an additional 250 students to keep the budget balanced. That means it would have to recruit 500 students into its population from a mixture of new first time students and transfer students just to keep the budget level. But this means that they need to spend 27.3% of budget just on acquiring and processing the new students.  It has to recruit a number of students equal to half of its total population. This is going to cut into its operational budget by an additional $1.36 million plus whatever additional costs it must spend to hire more recruiters, do more marketing, financial aid officers, money for scholarships, and additional processors in the bursar and registrar offices. 

If it retains at just 50% which is close to the national average, it actually has to acquire at least 750 new students to stay at its budget of $10,000,000. It has to replace the graduating class plus the drops.   It will be losing at least half of its population again so much anticipate that loss at a cost of $4,095,000 or just about half of its budget going to acquiring and processing the students it needs to just stay at its $10,000,000 budget. But this means that it only has just over $5,000,000 to operate when if it retained its full population it would have $8,635,000 to operate.  So in reality if it is to stay at the operating budget of $10,000,000 it really has to recruit an additional 363 more student to be able to afford a full spending budget of $8,635,000 or a total of 1113 students.

To do that it will again need to add to its marketing budget to attract potential students, as well as hire more recruiters, financial aid processors and so on. That means it will spend even more of its budget to get the population it needs just to stay even and to do so will cost it more money so like Zeno’s traveler, it will never get to its goal finally. It may try to not hire more people to process the additional new students but that will have deleterious effects on service and cause more students to drop out. 

Moreover as the pool of potential students shrinks in the next few years, it will get tougher and tougher to recruit a class and maintain the operating budget.  The budget demands will grow as the pool depletes making it even more difficult just to stay even.  College and universities will find themselves in the position of so many of their colleagues cutting faculty and staff just to be able to stay in place; not making any forward movement. 

As staff are cut the ability to process newly acquired students will also decrease as it has in many schools where for example we have found most financial aid offices understaffed when we do a college customer service study.  They cannot process the increasing number of students fast enough to please a student population that expects its money when it wants it, which is now. Students get aggravated when they cannot get the service they expect for their ever increasing tuition costs and decide that “this place isn’t worth it” and drop out.  This of course adds to the need to recruit students to replace them yielding additional costs and less money to educate and serve the students the school has. We know that the feeling that the school does not care and poor customer service are reason for 48& of attrition at a college. And the more depleted the service gets the more students leave the school thereby increasing the need to recruit even more students.

And the paradox goes on.

The only way to disrupt the paradox is to change the basic reality of it. That is to start to retain more of the students a college already has to reduce the distance between population and the budget neded to operate at an effective and efficient level . And to do that we have to change the basic levels of service the college provides when 48% of students leave due to poor or weak academic customer service which takes place not just in the financial aid office but the classrooms and everywhere on campus. So it appears that one way to begin altering the paradox is to increase the level of customer service provided to students on campus to help retain more of them; as many as 48% of them.

If you are interested in keeping more students through increased customer service excellence and ending the paradox at your school  get in touch with us today at 413.219.6939 or contact me nealr@GreatServiceMatters.com . Check out our company at www.GreatServiceMatters.com.

Check us out below by clicking on the arrow to see what we can do for you.

No comments: