How Auxiliary Can Power a New Model for Independent School Revenue

At this year's SPARC Symposium, NBOA President and CEO Jeff Shields delivered the keynote presentation, "Independent School Business: Revenue Drivers, Expense Levers, and Innovation." Citing current financial trends and concerns, he highlighted how the traditional independent school business model fails to provide schools with the financial health they need to operate long-term.

An Independent School is a Business

Jeff begins by listing three indicators of a financially healthy school:

• They have resources to sustain their operations for the long term, relative to their individual missions.
• They have successfully developed and implemented financial plans for both operations and facilities.
• They have plans that, funded in part from tuition and fees, also maintain financial reserves which adequately cover all current and projected future operations.

While most independent schools are non-profits, they are businesses nonetheless. The challenge is aligning their budget with their individual mission. "We are in the ultimate people business," Jeff says, stating that "not-for-profit does not equal for-loss." 

The Growing Gap Between Cost and Net Revenue

While most schools have seen in an increase in total net tuition revenue, a gap remains between that revenue and the cost to educate students. Jeff cites an example of an average school of 500 students: if the schools needs $30,000 to educate one student, publishes a tuition rate of $28,000, then grants $4000 in tuition remission, this results in a gap of $6000 per student, or a significant $3,000,000 total per school year.

Despite an average growth in enrollment, after factoring in tuition, fees, and financial aid, data indicate this gap in revenue is growing. Annual giving per student has also decreased.

The Vital Role of Auxiliary

The success of auxiliary programs, however, shows their potential to help shift the traditional independent school business model. Data shows that auxiliary bucks the current trend in the growing cost/revenue gap: revenue gained per student in auxiliary is greater than the median cost, with a particularly high net gain in day schools. 

Average auxiliary expense per student has increased 5.4%, while revenue per student has increased at a greater rate--12.8%--highlighting the potential of auxiliary programs to generate much-needed revenue in independent schools. Notably, revenue from auxiliary programs outpaces, on average, that gained from either annual giving or interest and investments.

As schools work to create financially healthy business models, the data is clear--auxiliary programs are powerful generators of non-tuition revenue and should be prioritized as key components of any new business strategy. 

SPARC member schools gain free access to the annual SPARC Symposium and other SPARC events. Join today for valuable professional development webinars, roundtables, tools, reports, and a wealth of auxiliary community support.