As direct-service organizations like yours start their 2009-2010 fiscal year facing one of the tightest financial budgets in memory, it is important to start planning now around some of the financial decisions you can take this year, next year, and beyond to guide your institution toward greater sustainability. Below you will find several of our “top pitfalls” to avoid a vicious cycle and move to a virtuous cycle of financial sustainability. These insights are drawn from analysis based on data gathered from over 250 independent schools, but apply to most direct-service organizations.

1. Do not let your fee/tuition price slip much below actual full cost per participant. The larger the gap between tuition and actual cost per participant, the larger the burden on your development department to raise funds for full payers instead of those with financial needs. Furthermore, by not charging at the level of your true costs, the marketplace may not perceive the full value of your services. For example, if you are a school with a cost of $15,000 per student but you charge only $10,000 per student, your development department needs to go back to full payers and raise an additional $5,000 just to break=even on that full paying student. You would also need to raise additional dollars to provide financial aid to those with need. Parents may inadvertently value the worth of your education at $10,000 because they don’t know your costs, only the price you charge.

2. Do not necessarily keep fees/tuition flat. As tempting as it may be, remember that there are inflationary pressures on the entire economy and on your organization. Your participation fees should be set to reflect the perceived value of your organization, and your organization's perceived value will drive participation. From our statistical analysis of the effect of schools’ price increases from 2002-2007, we have found no correlation between price increases and subsequent participation levels. At any percentage increase, half the institutions saw participation grow and half saw participation shrink. The relationship we believe drives participation is perceived value, and price should (but is typically not) set in line with the perceived value.

3. Have a clear understanding of how your organization's value is perceived by key stakeholders. We are often asked, “how do I increase my perceived value in a tight economy?” You need to find the best bang for the buck, so to speak. The solution is to survey your stakeholders to find out what they most value, where you are most underperforming, a pick a few select areas accordingly in which to invest to become best in class. For example, in our Yardstick Parent Surveys where we have already collected data from over 8000 parents, we help schools identify which areas will produce the best bang for the buck by comparing school’s performance with peers, local competition, against their own longitudinal history, and among different demographic groups, as well as predicting parents’ willingness to pay for the education.

As your boards begin to make some of these decisions in late fall, ensure that they be based on data and not based on anecdotes and emotion. The Yardstick Suite of Tools® can help you do just that by facilitating data collection and analysis. To learn more about how Measuring Success can help your organization make data-driven strategic decisions please contact me at Sacha-newsletter@measuring-success.com. To read of other pitfalls that can be avoided, please find the full article on our website Financial Sustainability in an Uncertain Market.

Sacha.