Jan 18, 2018

Recalibrating an Industry – The Historic Business Model of Private Schools


There is no doubt that the private education sector is under duress.  A universal softening of demand at the K to 12 sector, increased price, leveraged financial aid, and a changing set of core customers in Millennials places this industry in a challenging place.  In our series “Recalibrating an Industry”, where we explore the potential solutions to these current woes, we first look at the business model. It seems like the most appropriate place to explore revision.

Our current situation is a complex one with many factors contributing to the financially unstable future of independent schools.  I find history always provides an excellent context for understanding our current situation.  So, it is useful to start with an historic perspective and pose a simple question:

Why has the high price – low volume, selective admissions business model of independent schools prevailed for so long without any major overhaul?

Our experience with a national base of these schools as clients is that the industry has believed it can successfully address and stimulate softening demand through short-term, tactical solutions.  Some of these solutions over the past decade or two, and some of their ramifications, have included:

1) Increasing leveraged and targeted financial aid and filling seats through a net tuition revenue approach (leading to reduced revenue per student and greater diversity)

2) Altering admission standards to widen the universe of potential students (leading to retention and persistence challenges)

3) Reducing programmatic expenses that support the learning and professional development experience (leading to a lessening of the core academic experience)

4) Building an assumption of growth into non-core programs, such as auxiliary revenue (leading to occasional mission creep and challenges of organizational focus)

This is simply a sample of some of the most obvious.  There are other ways in which the industry has attempted to address a softening of demand through various short-term solutions.  However, we still find the industry overall in a weakened state seeking direction.

History can tell us a lot about where we have been and how we got here, but it may not reveal the ultimate next steps for our industry. The reality is that these short-term, tactical efforts historically have done little more than maintained our current situation and kept the industry treading water. They have not provided any transformation to the industry.  

Our next series of posts will look beyond the historic business model and overlay some future trends, perhaps providing some potential new direction for the future. We will discuss some innovations in other industry sectors that may prove useful in considering as potential tools at our disposal.

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