Numbers to Track

If you work for a private institution, there are three basic numbers that your institution will look for in the next couple of weeks: New student enrollment, retention, and discount rate. The success and failure of the college as a business depends on these three numbers. In the last week, we realized many people outside the business office don’t always know why those numbers are important. We think it’s paramount to understand these figures and how each relates to the health and success of your institution.

New Student Enrollment

Obviously, acquiring new students is necessary to any institution. But there are hidden markers that also require attention.

Cost of Acquisition
The admissions office will closely track how much it costs your institution to acquire each student. That cost is typically calculated as salaries in admissions, marketing costs, admissions travel, open houses, an apportionment of the institution’s overhead, incidentals, and other activities. Divide that total by the number of new students gained, and that figure should then represent the cost of acquisition. What amount per student does your institution feel is too high? Does the cost of acquisition exceed that figure, or does the institution find it to be too little? As we’ve previously mentioned, a general comparison to other colleges in this point it irrelevant. What matters here is a year-to-year comparison to understand where your institution stands.

If a school is not getting enough students, it can pump up the volume on admissions and attempt to boost future enrollment. The measure of how well that is working will be the calculated cost of acquisition.

Likelihood of Future Retention
Every student that enters your college will have a known index indicating the likelihood they will complete their program. Some of the factors include the amount of financial aid (more does not equal better), chosen program fit, family history, geographical location, religious affiliation, access to sports, SAT/ACT scores, and other like items. When your admissions office detects the collection of student indices are lower than desired, they know they have their work cut out for them in the upcoming year, for they are always expected to fill the holes in retention with more incoming students. (It goes without saying that a dip in retention bodes badly for the institution.) Smart admissions administrators will prepare the institution for the upcoming class and encourage student services to cater their offerings to increase the retention of the upcoming cohort.

Retention

The number of students who return to continue their studies is the single most prized possession of every academy. Losing a single student is not only bad for the student, but for the rankings of the institution and the budget topline.

A rule of thumb used for calculating raw student revenue loss is to multiply the number of non-retained students by their foregone income, discounted by your average discount rate. As an example, let’s say as a 4-year institution, you expect a $30,000.00/year income from your students. The stated discount rate is 20%. Now suppose the institution failed to retain 50 freshmen and 10 sophomores. Lost income will be calculated as (($30,000.00 x 50 x 3) + ($30.000.00 x 10 x 2)) * 0.80. That means an 80% loss of 3 years of income for your freshman cohort and 2 years of income for your sophomore cohort. This example would then represent an income loss of $4,080,000.00 for your institution. This number grows quickly and will be monitored closely by your institution.

Discount Rate

The institutional discount rate is often confused with general financial aid numbers. They are not the same. Students will receive money from a variety of different sources, including parents, grandparents, the federal government, and student loans. Usually the college itself will provide funding to students in three important categories: athletic scholarships, non-athletic scholarships funded by the college endowment, and uncovered non-athletic scholarships.

Uncovered non-athletic scholarships are monies given in the form of scholarship to students that are not offset by some other income of the college. In other words, these scholarships are direct discounts given to students who receive such scholarships. (It is likely that a large portion of an institution’s athletic scholarships fall under this category as well). As an example, if one student is given a full scholarship worth $30,000.00, from where does that money come? If an institution has millions of dollars in the bank earning at least $30,000.00 in interest (college endowment), it can withdraw $30,000.00 from the bank and pay itself to service the scholarship for that student. That translates into $30,000.00 to run the institution for one year. However, if the endowment only earned $15,000.00, and if a $30,000.00 full scholarship was still given to one student, then the school would have no option but to run its operations for $15,000.00 that year. The discount rate in this case is 50%. 

Using this example, when one extrapolates from one to thousands of students (which is more realistic), maintaining close control of the discount rate becomes ever more crucial to ensuring that the institution is not sinking itself just to fill the seats.

Understanding the numbers related to new student enrollment, retention, and discount rate will help provide a general understanding of where your institution is headed.

FundFive

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