Financial Management |
Article by Darren Dahl
From the November/December 2015 Net Assets
Sixteen years ago, Nat Saltonstall began his job at Beaver Country Day School with an attitude that might at first glance have seemed incongruous independent schools. As director of summer programming at Beaver Summer Camp, his topmost goal was to generate a reliable stream of new revenue for the school. “As a non-profit organization, our summer camp is critical in generating significant additional revenue for the school,” he said. “My job is to generate a net positive number that supports Beaver's mission and bottom line.”
In his full-time, year-round position at the Boston-area school, Saltonstall runs a program that employs 225 people (two others also full-time) and serves 1,400 kids each summer. In the non-camp months of September through May, a long task list includes programs to evaluate, open houses to host, fairs to attend, transportation and meals to arrange, insurance coverage to secure, and staff from ages 16 to over 60 to recruit, vet and train. And of course there are budgets to balance—and, in the case of some schools, top-down support to secure.
“Summer programs can be a great source of revenue for schools if they can control expenses and scale effectively,” said Saltonstall. He adds that he has long had the support of his school’s leadership team—and indeed, “to be successful, [such programs] require a strong commitment from the administration.”
The same might be said for any serious program intended to narrow the gap between tuition revenue and operational costs. Traditionally, many independent schools have viewed net non-tuition revenue as something of a holy grail, given the overlooked and/or indirect costs (energy usage, facilities wear and tear, etc.) that often erode profits. But with financial sustainability an increasingly urgent concern, growing numbers of schools are taking a second look at a broad array of programs that can add much-needed support to the bottom line.
In Gainesville, Florida, Jeff Malloy is director of athletics and director of summer program at Oak Hall School, which serves 820 students from preK through 12th grade. “The revenue we make from our auxiliary programs take us from being a good school to a great school,” said Malloy. That revenue also helps close the gap between tuition revenue and operating costs, which include need-based tuition assistance.
Summer programs are the most prevalent such program type, but they’re in increasingly good company.
Why develop an auxiliary revenue program? Given the many scheduling, maintenance and staffing complications, the question bears careful consideration.
For many independent schools, a key motivation is the potential untapped income in that beautiful, well-equipped and often-unused campus. “There is an opportunity cost in having your facilities sit empty,” said Karen McCann McClelland, director of auxiliary programs at Sidwell Friends School, in Washington, D.C., and Bethesda, Maryland.
With more than 1,100 students in grades preK–12, the co-ed day school has two campuses that include six gyms and two turf fields. A key way it leverages these facilities is through the robust Sidwell Summer program, which hosts 3,400 campers every June, July and August. Moreover, year-round facilities rentals net $150,000 each year through weddings and other special events, along with gym rentals to basketball and indoor soccer teams from the community.
“Yes there is wear and tear, and you have to pay someone to monitor and clean your facilities,” McClelland said. But because of the additional net revenue, “we have found it to be worth it.”
In nearby Falls Church, Virginia, Congressional School of Virginia has for 75 years operated summer camps on its bucolic 40-acre campus, complete with swimming pool, archery range, ropes course and horse stables. Camp lasts 10 weeks and attracts upwards of 2,000 campers who stay for as little as one week or as many as all 10.
Interestingly, about 85 percent of participants are not students of the school. That’s an intentional result designed to help grow the program, said Dan O’Neil, the school’s director of co-curricular activities. When he was hired 10 years ago, O’Neil said he was asked to head up both the summer camp and the school’s after-school program. He was also given a mission. “The head who brought me in told me he wanted me to help grow our sources of alternative revenue.”
After-school programming is also evolving at independent schools, most of which have long offered some kind of after-school option for the benefit of working parents. “But kids’ attention spans are only so long,” said Mark Ravelli, head of school at St. Mark’s Episcopal School in Upland, California, which has 167 students. “We wanted to find ways give them opportunities to be exposed to subjects they may not otherwise have the chance to explore.” Lending urgency to this goal, Ravelli knew that some parents were picking up their children after school and then shuffling them to activities elsewhere. He saw an opportunity to address both concerns in a single stroke.
The result was an extensive after-school enrichment program with options focused on cooking, chess, dance, knitting, karate, soccer and Lego robotics, among other options. Outside vendors source most of the classes, but Ravelli said that some teachers also participate. “It is a win-win since parents are not carpooling all over the city, and the school is generating a healthy income we can use to supplement our budget,” he says.
Another school where after-school programming has expanded is The Philadelphia School, whose 450 students are scattered among three buildings in downtown Philadelphia. Until a few years ago, the program was mostly designed to take care of kids in the 5th grade and younger until their parents picked them up, explained Carol Lerner, director of finance and operations. Six years ago, she began to explore programs for 6th, 7th and 8th graders—including students who weren’t enrolled in the school.
Going back to the program’s origins, Lerner said it was Betsy Neiva, then the school’s director of auxiliary programming, who built upon an already-robust after-school program to implement a roster of clubs focused on topics like robotics, karate, ballet and ceramics. The school also partnered with a community outreach program that teaches kids how to wrestle.
The goals of the after-school program, Lerner explained, were to give parents more after-school options, to generate income, and to ensure accountability for all students in the buildings after school. “It was never just about income,” she said. “But every club has to sustain itself. It can’t be a money loser.” By that metric, the clubs program is successful in that it generates about $100,000 of additional net income each year while the music, enrichment and summer programs add another $150,000 to the school’s bottom line.
After-school programs and summer camps can even recruit year-round students. “Our summer and auxiliary programs are huge for our recruitment and marketing efforts, especially because we are based in an area of the country where people tend to overlook private school options,” said Malloy. Most every year, a few summer program attendees turn into year-round tuition-paying students at Oak Hall School. “I like to think of it as dipping your pinky toe in the water to try things out first.”
Auxiliary programming is certainly a strong recruitment tool at University School, in Shaker Heights, Ohio. David Wright, finance director, said the K–12 boys’ school doesn’t even charge some groups to use its facilities if they seem like potential admissions targets. Moreover, the school’s strong summer camp program brings in some $400,000 a year.
But while Wright is happy with the summer program, he warns against focusing on revenue dollars alone. For instance, that $400,000 is only about 2 percent of University School’s total revenue. He also advises being sure to include admissions and facilities staff in discussions about summer programs and facility rentals.
“Philosophically, we see our facility rentals more as an admissions tool than a source of auxiliary income,” Wright said. “I think the question we all have to ask ourselves is whether it’s worth spending the energy and money in marketing these programs that generate relatively small amounts of revenue, when we should really be trying to get 10 more kids enrolled in the school.” In the meantime, he is working on an objective system for correlating new student recruits with auxiliary programs.
Needless to say, it’s critical to understand the total costs of running an auxiliary program before launching it. In creating a budget, Malloy underscores the importance of factoring in all expenses, including facility costs (cleaning, utilities, wear and tear), promotional costs and any necessary insurance adjustments.
Staffing is another key consideration. While many existing faculty may appreciate the potential for earning extra income, summer programs in particular usually require hiring from outside the school. This prompts some schools to outsource not only running summer programs, but also recruiting, vetting and training staff.
According to O’Neil, schools that run their own programs tend to be more profitable because most vendors take about a 75 percent cut of the revenue. “You can contract the cooking company to run your cooking camp, but it’s going to be a much smaller margin than if you did it in-house,” he said. On the other hand, “if it’s your first year doing cooking and you have to buy a convection oven, hot plates, pans and utensils, it may more sense to outsource.”
The other side of the profit equation is pricing. It’s common among schools to set a price that is roughly equivalent to similar nearby programs—and then strive to ensure that revenues exceed costs. “It's helpful to build a supporting worksheet that includes detailed enrollment projections three years out, along with tuition amounts and increases,” said Saltonstall. “This allows you to effectively forecast with what various growth scenarios look like in terms of revenue.”
Don’t overlook the expenses of hiring additional staff either, from a nurse to a full-time camp director. “It makes sense to place this in the budget,” said Saltonstall. Be aware, however, that additional year-round staff “is often one of the biggest reasons why a start-up program may not be profitable for at least a couple of years.”
Any successful auxiliary program also requires effective marketing. O’Neil believes marketing is most successful when the branding is distinct from that of the school—a different color scheme and a separate website, for instance. He said this is especially important for reaching non-students. “You need to make it clear you are selling a summer camp program, and not an independent school.” His summer marketing channels usually include print ads in local publications along with online ads and paid search placement.
Parish Episcopal School in Dallas has both a traditional summer program as well as online classes. Amy Ariagno, director of accounting and auxiliary programs, believes that to ensure a school doesn’t get in over its head too quickly, these programs should usually be started gradually. That includes her belief that the best marketing comes from word of mouth targeted at existing families first. “It is easier and less risky to run a program for families you already know, and you can reach them at a lower cost,” she said. “You usually know what they want because of your existing relationship with these families. Later you can start to see what the greater community might find appealing in your programs and begin to add those things. You can’t jump in all at once, or even as fast as many will want you to, without a greater risk of financial failure.”
Even as Parish Episcopal School expands its roster of after-school and summer programs, Ariagno is overseeing the creation of less-common income-generating programs, including a driving school that combines online and in-person instruction. Added up, Ariagno said all those programs brought in some $1.25 million in revenue last year.
She didn’t stop there. Last year, the school transitioned from using an outside vendor to selling uniforms directly through its spirit store. This shift generated an extra $250,000 in revenue with a nearly 50-percent gross margin (the store’s total revenues are now $700,000). “We find that the net profits from these programs is giving us some financial flexibility and can allow for programming and staffing we couldn’t ordinarily fund from the operating budget,” Ariagno said. “The programs are also targeted towards convenience for our families, which helps simplify their busy lives and results in a more satisfied school population.”
More outside-the-box thinking is on display at St. Paul’s School for Girls in Brooklandville, Maryland. There, Kate McKew, chief financial officer, spotted an opportunity in local demand for tutoring services aimed at students as well as those not enrolled in the school. The school now offers tutoring from 4 p.m. to 7:30 p.m. during the school week, drawing from a staff of faculty members as well outside counselors. McKew said the program grew tenfold in just its second year, but she’d like to grow it further still—especially because it serves as a marketing vehicle in an extremely competitive market for independent schools. “We are making some money,” she says. “But we could do better with it.”
Other schools are generating revenue by stretching beyond academics and programming. Consider Trinity Christian School in Fairfax, Virginia, which generates some $42,000 a year through its “special lunch” program.
With 680 students enrolled in K–12 programs, the school sits on a 25-acre campus supported by a septic system, which prevents it from installing a cafeteria. Traditionally, that forced students to bring their own lunches or, on occasion, to dine on ordered-in pizzas and the like. Debbie Walne, assistant headmaster for business operations, says the school tried at one point bringing in a food service vendor, but the meals didn’t go over well with students.
About five years ago, Walne and Megan Liss, the school’s events coordinator, arrived at a different solution: to contract directly with restaurant chains including Dominoes, Boston Market and Subway that deliver individually wrapped orders. Parents and students who wish to participate to the school’s website once a quarter and order up to three lunches a week from the different options available. Vendors then deliver the lunches to the school, and volunteers distribute them to students.
Walne says that about 60 percent of the student population orders at least one meal a week, with many of them ordering more. The school adds a surcharge of about $1 surcharge on every meal. “It’s a great program that helps us by generating revenue and solves a real problem for our parents at the same time,” she says. “One of the secrets to this being successful is that the parents and the students know what they are buying,” she adds. “Unlike a food service, they know these brands and what they are going to get.”
In another partnership, Trinity Christian School last fall joined the Amazon Associates Program, through which the school gets a percentage of the price of participating purchases. “We’ve been educating our parents and their extended families to go to the TCS website to access their Amazon account and place their orders through this link to their account,” Walne explained. Trinity gets a rebate, typically 7 percent on average, or $11,750 on purchases of $175,000 during the program’s first 11 months.
“A rebate check comes in monthly and we can spend it as we like,” Walne said. “It’s easy, passive income to the school, and it provides a way for families who may not have other means to bless the school. It has been very successful especially for the effort that is put into it.”
The real secret to profitable auxiliary programs? Quality content provided by outstanding professionals. “If you run really high-quality programming, the money is the easy part,” according to Betsy Neiva, since June the director of auxiliary services at Germantown Friends School, a K–12 day school in Philadelphia.
For the previous eight years, Neiva ran the auxiliary program at the Philadelphia School, where an astonishing 86 percent of the student body participated in after-school programming last year. She strongly believes there are two keys to achieving this kind of success:
• Finding and developing strong, trust-based relationships with professionals who provide excellent programming year after year;• Infusing the programs themselves with “ultra-high-quality, theme-based, project-oriented content.”
Neither is necessarily easy, Neiva said. But they’re worth the effort.
In many cases, the biggest hurdle is getting school leaders to abandon old thinking about after-school programs. “A joke among us is that after school is an afterthought,” Neiva says. Yes, the programs have grown, but largely driven by busy working parents scrambling to afford rising tuitions. Unfortunately, the programs’ programmatic goals haven’t kept up. Too often, today as 20 years ago, “the focus of after-school programming remains keeping track of children and keeping them safe,” she said.
By comparison, schools that set a high bar for after-school programming can thrive. “If excellent people are hired to offer excellent programming after school, parents—who are very discerning customers—will enroll their children not only to take advantage of the actual classes, but also to take advantage of the convenience,” Neiva said. In other words, parents will pay a premium to avoid sacrificing “precious weekend time” that might otherwise be spent taking their kids to enrichment activities.
For all the financial benefits auxiliary programs can bring, they can also be surprisingly difficult to pull off successful. “I have met a lot of people new to these roles who quickly get overwhelmed,” said Karen McCann McClelland, director of auxiliary programs at Sidwell Friends School. “It’s important to recognize that there are schools who are doing these programs you can learn from.” Start by asking these questions:
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