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Meet your revenue challenges with new strategies

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Local and national demographic trends leading to lower enrollment levels have become a revenue concern for colleges and universities. Institutions are facing the quandary of maintaining long-term success and adequate levels of enrollment and revenue without sacrificing academic quality by lowering application standards.

The demographic changes begin with a simple population count. The pool of prospective incoming freshmen will be in decline for years to come. Forecasts are that birth numbers will drop more precipitously in the Northeast and the Midwest. The realities of a population decrease, a student base highly sensitive to tuition increases and financial aid levels as a key driver in enrollment decisions are together forming a downside risk for net tuition revenue.

Approximately 50% of public institutions and 42% of private institutions are likely to see their net tuition revenue grow less than inflation in FY 2015, according to a Moody’s report.1 We expect this to be a continuing trend. Additionally, a Moody’s study of A-rated private colleges and universities shows a cumulative increase in net tuition of only 8.5% for the four fiscal years 2010 to 2013.2

In response to these challenges, institutions are looking at ways to be more strategic in their revenue practices. They are seeking to mitigate risk, and provide for stability and potential growth in revenue. Long-term financial planning has become a vital component in this strategy.

Consider these four approaches as your institution formulates plans:
  1. Refine your fundraising strategy.
    The profile of significant donors is changing. As entrepreneurial-minded individuals — including venture capitalists and technology executives — become increasingly active donors, many substantial gifts are straying from the traditional model of scholarship-driven endowments and funding for building construction. These individuals are more focused on high-engagement donations to programs that will have the most immediate impact or to areas considered innovative and forward thinking. As an example, according to Harvard Magazine, in 2014, Harvard’s School of Public Health received a $350 million donation, a portion of which is designated seed money to promote pioneering ideas and underwrite research on emerging diseases in Africa.3

    An institution does not need to be market-leading to experience this trend; colleges and universities of all sizes are increasingly receiving donations focused on research activities, innovation hubs and technology improvements. Consider adjusting your institution’s model of fundraising for large gifts, and focus on the evolving nature of your alumni base.

  2. Monetize campus tangible and intangible assets.
    For most institutions, campus facilities are valuable assets that at times are underutilized. Think of unique ways to monetize beyond the traditional sports camps, weddings and other gatherings. The real estate development of air rights — profiting from the bonus area above a building — is gaining interest, especially on urban campuses where there is high demand and limited supply for land use. Non-higher education not-for-profits have capitalized in this manner; e.g., the 2014 air space licensing by the New York Museum of Modern Art for $14 million and by a New York City church for in excess of $70 million.4

    Other trends are emerging, as well. Public-private partnerships — particularly for R&D — in facility construction and usage are gaining traction. Institutions are also centralizing administration of facility usage, instead of allowing selection by department or school, to free up capacity, minimize the need to expand and, importantly, make space available for revenue-generating activities. Finally, colleges and universities are collaborating with other institutions and with for-profit companies on the development and monetization of research initiatives, including new drugs, technology and medical devices, which furthers the likelihood of successful commercialization of research.

  3. Modify admission and academic strategies for target demographics.
    Unique aspects of local markets can inspire varied responses to tuition challenges. Although overall declines are expected in enrollment industrywide, there are certain demographic segments that may represent a growing portion of potential enrollees. These include first-generation students, master’s degree seekers, older adult populations and individuals in online classes. Re-examining your strategic target market demographics and fully understanding their needs will allow you to successfully modify admission and academic strategies. For example, you may elect to update student support systems to promote retention of first-generation students and, during recruitment, communicate the value of these systems.

    These demographic trends may require you to be more flexible in discounting decisions while keeping within overall budgetary discounting parameters. This may mean providing higher discounts to key target demographics on a case-by-case basis and having less reliance on formula-driven discounting models. Additionally, consider modifying or investing in academic choices to target key populations, and demonstrating a clear linkage between these educational offerings and career placement and success.

  4. Put a laser focus on student retention.
    Recruiting excellent students is already a costly process. When these students aren’t retained, a captive revenue stream is lost, resulting in further financial pressure — both to replace lost revenue and the duplicative cost incurred as a result. Maximize retention by gaining a high level of understanding of the needs of your incoming and future students, and tailor communication strategies, including webinars and individual consultations. This may mean investing in expanding student readiness programs, more frequent communication with at-risk students through surveys and online connections, or improving communication about career connections. Utilize data analysis to uncover risk factors relating to individuals leaving the institution; you can identify students by these red flags and tailor specific practices to improve their experience.

Most of all, be adaptable to change
Take an adaptive stance. Be ready to change even long-held beliefs about strategies if they are no longer effective. Be willing to experiment with new models. No one approach will work for every institution, and no singular solution will remediate all problems. But with informed planning and analysis, you can maximize your institution’s revenue potential.

Back to The state of higher education in 2015

1 Moody’s Investors Service, “Tuition Revenue and Enrollment Pressure Remain Acute for Many US Universities,” Nov. 17, 2014.
2 Moody’s Investors Service. “Preliminary FY 2013 Medians Show Widening Stratification Among Rating Categories,” April 10, 2014.
3 Harvard Magazine. “Harvard Public Health’s $350 Million Infusion.” Sept. 7, 2014.
4 Weiss, Lois. “NYC Church Gets $71M for Air Rights Over Steeple,” New York Post, Sept. 19, 2014.