April 2009
A newsletter for higher education executives to ensure financial and strategic success in their online learning initiatives.
Dr. Gloria Pickar
Dr. Pickar is the President and Chief Academic Officer of Compass Knowledge Group. With over 35
years of higher education experience, Dr. Pickar is a former college dean and distinguished author of a bestselling textbook in nursing.
- Theme #1 – The Business Side of Online Learning - Gloria Pickar, Ed.D.
Article #3 of a twelve-part series.
Financing Online Programs in a Period of Budget Cuts
My objective with this series of articles is to address each link of the supply chain in the online education industry. In my last article, I summarized the need for good market and institutional assessments. In today’s article, I will address something that is on everyone’s mind – how we finance the development, implementation, and operation of our online programs. If we have done our homework, our market assessment will yield an offering that is desirable in the marketplace, and our institutional assessment will give us an idea of what resources and processes we need to arrange in order for our organization to be able to build strong, quality enrollments in that discipline. Now, we have to find the resources to plug into our plan.
In the past, many organizations have maintained pools of entrepreneurial funds to devote to such ventures, but in nearly every school with which we work or with which we might work, this is no longer the case. Endowments and operations budgets have shrunken to the point of expropriating all such line items. Yet, online operations, as evidenced by my colleague’s article, Dr. Fred Snow (see below) in this very edition, can yield significant net operating incomes. So a catch 22 exists. We have a budget problem. Online operations can help solve that problem, but we don’t have the money to invest in developing such a program. And frankly the money to be invested can be quite significant.
In Dr. Snow’s article, he suggests that a good online program can gross the university over $4 million per year and net the university well over $1 million per year. But reaching those revenue levels takes significant investment in the year before those revenues occur. In fact, the $4 million per year level can take up to a million dollars in up-front, unmatched expenditures on infrastructure, marketing, recruiting, and other costs. We have helped many institutions identify those costs.
Schools do have an alternative to an up-front investment. The alternative is called revenue share. Organizations like Compass Knowledge front most – or occasionally all – of these costs in exchange for a share of the revenue when the student actually enrolls. The model is quite accepted and fairly standard in online learning today. Another advantage of going this route is that it typically allows the university to focus on its core strength – delivering great academics, leaving the backend business to subcontracted professionals. If you have any questions on how a revenue share model works, send me an email or give me a call.
Next time I will discuss the increasingly complex marketing function of the value chain.
Best to you in these challenging times.
Dr. Gloria Pickar
Dr. Fredrick R. Snow
Dr. Snow has served in academia as university President, Vice President, Dean, and Tenured Faculty. He was the Founding Dean of the Online Graduate Programs of Norwich University. These programs are often cited as industry examples of academic rigor, financial success, retention, and effective marketing.
- Theme #2 – What Should You Expect out of Online Programs? – Fredrick R. Snow, Ph.D.
Article #3 in a twelve-part series
Financial Performance Expectations
In my last article, I described how online programs could actually enhance your academic outcomes, and as a result, long-term reputation and competitiveness. But few of us think about online programs in academic terms first. Usually we think of online programs as a way to augment our failing budgets. Online programs have made some schools a lot of money, no doubt. But in some cases online programs actually bring the opposite results, piling additional financial pressures and management headaches on CFOs, Provosts, Deans, and Chairs alike. And, this is happening on an increasing basis as these markets become more competitive.
But, even with the plethora of new online competitors, there is still plenty – yes plenty – of room for financial success. Those opportunities do not come in every discipline; one has to do a lot more research to identify them. There was a time when if you built it, they would come. That time is no more. There is plenty of room for success; it just takes a lot more due diligence. When the due diligence is completed, the market assessed, and the marketing strategies and recruiting personnel in place, then the following three enrollment scenarios are not uncommon. In fact, I sit with universities every week and tell them that the following enrollment and financial scenarios are what they SHOULD expect, given the right programs.
We see each of these situations quite often. The first is a slow ramp up and a capped program. The second is a quick ramp up and a capped program. The third is a higher cap.
The financial rewards of Program #2 are shown below. The model shown is a revenue share with a business partner, such as Compass. In this situation, the business partner covers almost all upfront costs, allowing the university to break-even and start to profit very, very early in the program’s life. In this case, by year three, the program is grossing over $3 million and netting over $1 million. And that net is a true net. We have been pretty careful to include fixed, variable, and hidden expenses.
Are you getting these financial results? You can.
Next time we will look at retention and graduation rate issues, and I’ll share a few more stories with you as well.
Dr. Fred Snow
Dr. Cynthia Wheatley
Dr. Wheatley is the Vice President for Academic Partnerships with Compass Knowledge Group. She has 15 years’ experience as both a faculty member and an organizational consultant. She has presided over 20 online program launches and has expertise in instructional design and change management.
- Theme #3 – Foundational and Organizational Issues in Implementing Successful Online Education - Cynthia Wheatley, Ph.D.
Article #3 of a twelve-part series
Bridging the Great Divide
In my experience working with many different colleges and universities to get distance learning degrees started, the greatest challenge I see is the divide between the faculty and staff who reside in the academic departments and the staff who reside in student services. When I was a faculty member, it was an utter mystery to me how students came to be sitting in my classroom. They just appeared or disappeared, and I never gave much thought to how or why. Launching successful distance learning degree programs requires that the academic team understands what it takes to get students through the application process, registered, and matriculated in their courses.
At Compass we conduct a process mapping session with each new institution we work with. During this session we bring together representatives from all of the administrative departments that will touch the distance learning student (Admissions, Registrar, Academic Advising, Bursar, Financial Aid, IT, Library, Bookstore, etc.) as well as the Program Director and staff from the academic unit. As the title implies, we map the process that a new student follows to inquire about a program, complete their application, apply for financial aid, make their first payment, get their transcripts reviewed, obtain an email address, etc. Then we look for touch points in the process where distance learning students might struggle or drop out because processes are created for on ground students. This is the key message that we convey to the participants in this process: distance learning students are more likely to remove themselves from the process at any point along the way if they experience barriers than campus-based students.
Before investing the large amounts of money it requires to develop and market distance learning programs, I strongly recommend that you map the student experience and ensure that your institution’s processes are friendly to distance students. Your process map will then become the bridge across the great divide between the academic and administrative sides of your campus.
Dr. Cindy Wheatley