Net Revenue: two pieces of data you really should know (Part One of Two)

This post, written by Credo Affiliate Jeff Spear, is part one (of two) in the Thriving series focusing on “Net Revenue: two pieces of data you really should know.” Today’s entry covers the first set of data and is entitled “Isolating Individual Student Net Tuition Revenue: the micro environment.”Higher education speak is replete with various forms of information.  From audited financial statements and strategic plans all the way down to dashboards and daily cash reports. We live in a data-rich environment. For whatever reason, however, we are a bit light when it comes to understanding what I will call “revenue behaviors.”  That is, in my travels to over twenty institutions this past year, I found it fascinating how few had a good handle on the drivers of what keeps the place going. Institutions that truly want to thrive need to understand this information so that net revenues can be managed appropriately. Let’s explore this first on a micro (student) level and move to an enterprise perspective.  I’ll presume an institution with four primary streams of net revenue: net tuition, auxiliaries, donations, and investment earnings.  The focus of this discussion is on the first one. Part two in this blog series will cover the second one through a macro lens.  Net tuition and fees for each student – the numerator Students are typically billed for a flat rate of tuition and are subject to a variety of fees, from those that are ubiquitous to individual course and lab fees.  Offsetting at least a portion of this conglomeration of tuition and fees are various kinds of financial aid, some of which come from the institution itself.  For most places, the greatest portion of institutional aid by a large margin is in the form of tuition discounts.  These are grants and scholarships that do not represent real dollars that the institution receives and passes on to the student.  Rather, they are reductions in price, made to look like they are real awards and they come in all shapes and sizes. Some receive academic awards, recognizing the competitive nature of attracting the brightest students.  Others are recognized for their athletic abilities or artistic gifts in the performing or visual arts.  Some have a particular affiliation as an alumni kid, a member of a particular church or a resident from a region either near or far from the institution.  Then, there are the access grants.  These combine with governmental assistance for those whose family resources will not provide sufficient financial support to sustain an experience in college.

Each of these in isolation is manageable but it is the combining and what we call “stacking” that makes life interesting. Think of the bright athlete who is the child of an alum, a member of the sponsoring denomination, and has a high level of financial need.  Contrast this with the family of means whose son barely squeaked by in high school.  The former gets something akin to a full tuition grant when adding up all the awards.  The other pays the full price. In between are hundreds of students, each with the potential of having a different profile.  To express this mathematically, presume that there are five categories of award, comprised of academic, athletic, artistic, affiliation, and access (add a sixth “alliteration” award, if you like).  Within each category, assume five levels of award are available.  If stacking was not limited, the possibility exists to have 5⁵ combinations of awards.  That’s 3,125 possibilities.  Now, because the maximum awards in each category likely presume that there will be no other assistance, the 3,125 represents a mere calculation.  You wouldn’t be awarding five times tuition to a student who qualifies for the maximum in each category.  Even so, you get the point.  As every good infomercial assures us, the possibilities are endless. But wait, there’s more …Added to the multitude of tuition discounts are various semester hours of coursework being taken by each student.  If the range for a full-time flat rate of tuition encompasses twelve to eighteen hours, there are then seven possibilities of credit being taken each semester.  Half-hour classes wind up doubling the possibilities, as does the fact that students tend to attend an institution for two semesters each year.  Then, there are the course and lab fees that are different for each course.  Is this overwhelming yet? The good news is that the structure is already in place to capture all of this without having to add any new data. Students receive a bill each semester, identifying all the costs associated with their attendance and breaking out each financial aid source, including institutional discounts.  Using the student ID number as a key field, the gross tuition and fees and net tuition and fee revenue for each student can be derived. This is step one and represents the numerator of our equation. Course hours attempted for the semester – the denominator For step two, using the same student ID number as a key field, identify the number of hours being taken by the student and use that as the denominator. Because student hours can vary, wait until final census information is tallied before performing this calculation. The result is a report that shows tuition, fees and tuition discounts for each student, divided by hours attempted (after the last day to add a class,) yielding net tuition and fees per hour.  The use of this information is quite extensive.  The net tuition per hour for courses, departments, majors, classes (freshman through senior) and by those who receive various awards including each of the alliterative categories above can be calculated. When an industry has the assortment of student revenue profiles that higher education appears to have, this kind of information capture is a fundamental requirement. Stay tuned for Part 2 entitled, “The Annual Change In Net Revenue: a macro report,” coming soon!