The Economics of Enrollment

You're not here for the recipes.

So let's get into it, shall we?

The Economics of Enrollment

Let's start at the beginning: in order to have a school, you need to have students. Depending on your school type (preschool, elementary, primary, middle, high, secondary, whatever you call yourself), the number and variety of those students will change.

In order to have someone to teach those students and administer the school, you need employees.

Those employees have to get paid, so where does the money come from?

• In public schools and charter schools, the government provides funding.
• In private schools, tuition and philanthropy are the sources of funds.
• In Catholic schools, a mix of tuition, philanthropy, state funding, Church/Parish support, and various other sources come into play.

The basics of enrollment are that in order to operate, a school needs an ever-renewing source of prospective students. Designing an effective process, and managing it well, is what we call "enrollment management."

A simple formula exists to figure out how to run these schools and how to manage tuition and enrollment:

Cost of staff + cost of facilities + assorted costs = (Number of students X tuition) + other revenue

• The cost of staff is something schools have a little bit of flexibility on, but once a year begins it is usually a fairly fixed cost - and you at least need to have as many students in a classroom to cover that teacher's cost plus extra for additional staff.
• The cost of facilities is a variable cost over time, but at the start of the school year it is pretty fixed. This cost is spread across the entirety of the student population.
• Assorted costs are wildly variable, but usually fairly minor.
• The number of students, assuming you can convince them to enroll, is variable on a quarterly basis, but planning based on that number can be managed.
• The tuition number depends on everything else, but families expect it to be fixed for an entire year.
• Other revenue is something you need to be working on all the time.

Let's get a little deeper into how this works for most schools.

Illustratives Example

Here is a very basic example, simplified beyond belief. The idea is to illustrate the direct relationship between tuition and costs.

A one-room schoolhouse

• Costs: $30,000/year
  • 1 Teacher: Salary and benefits total $25,000/year
  • Facilities and Miscellany: $5000/year
• Revenue: $30,000
  • 25 Students
  • Tuition: $1200

Clearly as costs go up beyond the miscellaneous amount here, there will be a need to either increase tuition per child or increase enrollment. And at the outset, this equation nets out to zero.

Going one step further... and again noting made up numbers for simplicity's sake...

A one room per grade level elementary school

Costs: $355,000 personnel + $45,000 = $400,000

• 9 teachers, 1 per grade level (K-8): $25,000 X 9 = $225,000
• 1 principal: $35,000
• 1 school admin: $15,000
• 4 staff/extra teachers: $20,000 X 4 = $80,000
• Facilities and Miscellany: $45,000

Revenue: $400,050

• 225 students, 25 per classroom per grade level
• Tuition: $1778

As you can see, there is a minor net gain of $50. This larger school incurs many additional costs and charges an increased tuition to account for it. That said, there are very few advantages of scale at this point. The relationship between the number of students and the associated needs climbs higher and higher. Doubling the size of this example school would provide some small benefits of scale - the need to still only have one principal and instead of doubling extra staff/teachers, only 2 more added here.

A two room per grade level elementary school

Costs: $725,000

• 18 teachers, 2 per grade level (K-8): $25,000 X 18 = $450,000
• 1 principal: $35,000
• 2 school admins: $15,000 X 2 = $30,000
• 6 staff/extra teachers: $20,000 X 6 = $120,000
• Facilities and Miscellany: $90,000

Revenue: $725,400

• 450 students, 25 per classroom per grade level
• Tuition: $1612

And here we have the makings of scale and where a truly transcendent strategy begins to take hold. Here we have increased revenue versus the one classroom per grade level example while decreasing tuition and netting a minor amount. If the school were to charge the same as the previous example, the tuition revenue would yield an additional $75,000, good enough for a rainy day or additional staff.

One final example could be very useful and instructive as well...

A co-ed, Catholic, high school

Costs: $4,365,000

• 85 teachers: Avg salary of $35,000 X 85 = $2,975,000
• 15 administrators: Avg salary of $45,000 X 15 = $675,000
• 15 staff: Avg salary of $30,000 X 15 = $450,000
• Coaches, other personnel: Total cost of $65,000
• Facilities and Miscellany: $200,000

Revenue: $4,365,000

• 1000 students
• Tuition: $3865
• Revenue from philanthropic giving: $500,000

With these as the basics, you can start adding enrollment, adding comparatively minor fees, increasing philanthropic giving, and decreasing costs on the way to a smaller tuition and/or greater reserves. For example, if the total cost amount stays the same, a decrease of $500,000 at the current student level would lead to a tuition reduction of about $500. An increase of 50 students at the current cost and revenue projections would lead to a decreased tuition amount of approximately $200. Of course these numbers are made up and not based on a specific example.

But what it comes down to is this: enrollment is the straw that stirs the drink. Without enrollment, you have no school. Without enrollment, you flounder. Make sure you focus on enrollment - and give it the time and attention it deserves.