Myths, Realities and Solutions for K-12 Christian School Finance

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Myth #1: Christian school parents are extremely sensitive to even the slightest changes in tuition pricing.

Reality #1: Christian school parents are first and foremost concerned about QUALITY.  They are shopping VALUE.  It’s all a lot of money – not to mention time, hassle, transportation, etc.

Solution #1:  Any “cutting expense” solution to balancing the budget risks losing the core strength and main attraction of a Christian school, which is providing a HIGH QUALITY EDUCATION.  Focus on revenue solutions instead.  That is our focus at GraceWorks, starting with real help in marketing and fund development.

Solution #1a: For many schools, significant increases in tuition or significant decreases in automatic discounts ARE POSSIBLE with limited consequences.  However, to really know if this is true for your school, you need to take GraceWorks’ Parent Satisfaction and Referral Survey.

Why?  As a completely normed device, comparing your results to 579 schools other Christian Schools, we know, we knowWE KNOW if your parents are truly satisfied or not.  And that makes ALL the difference as to whether you can do something dramatic in raising prices. 

In addition, the PSRS tells you satisfaction by income level of your parents.  In question would be families who formerly “got by” with all your automatic discounts, but now must apply for financial aid.  (This would be the $50,000 to $74,999 level, and depending on the number of children, perhaps even $75,000 to $99,999.)   Our data is normed at the subgroup level, so we can tell you the relative satisfaction at each income level.With a “home-grown” survey, you are never really sure whether your scores are good scores or not, especially when the average Christian school is so highly satisfying.  For Christian schools that are not so satisfying, raising tuition is a VERY risky proposition

Note: Both “Should you?” and “How do you go about it?” are in question here.  It is only because of the survey results of some 88,000 respondents that GraceWorks can speak with authority about how unnecessary many Christian School’s financial problems really are – ditto many school closures. (The “How to” part is explained in detail in our Revenue Revolution Bootcamp, session #5.)

Solution #1b:  In general, it is a BAD idea to present tuition increases as a percent.  Just state the lump sum.  There are many schools that are horribly under-priced, and need tuition increases of the order of 50-100%. (E.g. member rates at some denominational schools.)

Don’t present it the percentage way – simply state the amount of the increase in dollar terms – best is extra dollars per month.

Myth #2: The world has changed so much that K-12 Christian schools can’t survive.

Reality #2:  The problem is Christian Schools’ old wineskins, which are simply not working in today’s new world. To be blunt:  Old wineskin schools will NOT survive in today’s changed world.

This is particularly true in Christian school finance, where emotions, collective “common sense,” and “hardening of the categories” keep in place a totally counter-productive organizational culture.  To paraphrase Mark Twain, “What we know that ain’t so” is the real problem.   

By the numbers Christian schools are among the most satisfying “businesses” in the world, using international metrics.  More satisfying than Disney and John Deere, on average.  Many are more satisfying than Amazon or even Harley Davidson. Our parents will sacrifice to put their kids in our schools – if we maintain quality.

However, a significant problem is that the next generational cohort of parents, Milliennials, have lower income and wealth than any of the last three.  In addition, household income is highly variable, both nationally and individually.  Overall, the middle class is declining.  Many immigrants, now in many parts of the country, will also be motivated to have their children in a Christian school.  Many of these will likely need help to attend our schools.

Solution #2a:  Ultimately one-size, low-cost leader pricing will not “fit all.”  Because of the nature of our changing job market, and variable incomes, some parents, some years, will be able to contribute to financial aid fundraising.  In other years, these same parents may need financial aid for their child to remain at the school. 

To survive, Christian schools will need to move to a higher tuition, and often, a much higher financial aid model.  At a minimum, we need a full-cost model, but in reality Christian schools should be value-priced, which – recognizing past generosities that add value today – will actually be higher than the current cash cost to educate a child.  (And yes, the amount we should be paying our teachers needs to be part of the equation here.)

Solution #2b:  This financial aid program will, of necessity, be highly sophisticated.  An objective, third party such as FACTs or FAST should assess financial need.  To avoid abuses, and to engage the truly needy to apply rather than walk away, a Biblical integration of social norms theory in behavioral economics is needed.  (See session #3 of our Revenue Revolution Bootcamp.)

Solution #2c:  Behavioral economics has also taught us that price influences demand in often unexpected ways, particularly in big ticket purchases.  Many schools have noticed that demand seemed to go up with significantly increased tuition (e.g. The Rock, Gainesville, FL, East Linn Christian, WA).  Through a series of carefully controlled experiments, a giant in the field of behavioral economics, Dr. Daniel Ariely, has determined that:

Traditional economics assumes that prices of products in the market are determined by a balance between [supply] and [demand] … The price at which these forces meet determines the price in the marketplace … as our experiments demonstrate, what consumers are willing to pay can easily be manipulated, and this means that consumers don’t in fact have a good handle on their preferences and the prices they are willing to pay for different goods and experiences (Ariely, Predictably Irrational, p. 47-48)Solution #2d:  Ultimately, for Christian schools to survive, we will be filling up our classrooms through a mix of full and partially-paying students.  With more students, our cash cost to educate a child will decline, while at the same time, total revenues will increase, as seats formerly empty now have partially paying students.  (With the exception of staff, we recommend that most everyone else pays at least 50% of tuition, regardless of the result of the needs assessment.)

Solution #2e:  Ultimately both church support and fund development efforts will need to move to an inspirational basis – and “filling the gap” is NOT that.  “Your gift(s) help children be here, who otherwise wouldn’t” is a powerful case for support when coupled with the very real benefits of Christian schools (higher college graduation, character, staying in church, etc.)   Note that only when tuition is raised can church support of budget gaps be redesignated to needs based financial aid. There is no way to do it otherwise. Needs based financial aid for worthy students is a cause concept that will be more supportable to younger church-going givers.

Myth #3:  All we need is more students, and we will be fine. 

Reality #3:  For some schools, this is true.   For these schools, a practical problem is – where would a significant influx of new students GO – into what grades?  Or more realistically, based on our typical entry points, in what grades would we expect to pick up a much larger than usual group of new students? 

The problem is, it is often difficult to fill a gap in students at certain grade levels, such as 2nd or 3rd or 4th or 11th grades.  Even with very aggressive promotion, we don’t get students “in just the right places.”  Thus, enrolling a large number of new students typically means we have to add a teacher / aide or two at our usual entry points (e.g. PK, K, 6th, 9th), which then negates our cash flow gains from the new students’ tuition. 

The lower the NET tuition – full tuition minus average discounts and average financial aid – the less likely it is that you will be able to “market your way out” of a deficit financial situation.  You have to add staff all too soon.

Solution #3a:  You have to know your numbers.  GraceWorks’ marketing coaching clients use an elaborate, multi-tabbed spreadsheet which shows you the results of hypotheticals in real time. This is both in terms of the overall budget, and per student costs and revenues. 

In many cases the only way out will be to reduce discounts and/or raise tuition.  A starting place for the change process is a leadership discussion on this question:  On what grounds do we say that certain people will pay less than the cost to educate a child?

Myth #4:  All financial aid needs to be FUNDED.

Reality #4: This idea ignores the positive financial impact of families who are paying 50% or more of their child’s tuition, even if the other half is not funded.  Typically this myth results in too little financial aid being given away, resulting in prospective families not enrolling, or current families not re-enrolling.  This results in empty seats and lost tuition payments.  In the case of current families who exit, often this leaves you with gaps in the hardest grades to fill.

(And never mind why we didn’t have to fund automatic discounts all these many years ….)

Solution #4a:  Do everything possible to raise dollars for financial aid, a year in advance if possible. (It’s a great case for support, as mentioned above.)  But do NOT limit yourself to awarding just the amount of financial aid you raised.  Instead, the amount of financial aid awarded would be based on the individual family need – where you are giving JUST ENOUGH for that family to say “Yes.”  In addition, use the “as you go” week-by-week assessment in #5 below to make sure that for the school as a whole, you are NOT giving away too much financial aid to make your budget.

Solution #4b:  To assess the overall effectiveness of your financial aid program, change your metrics to:
                (1) Do we have more or less net tuition revenue compared to last year?
                (2) Do we have more students than last year?

For our marketing coaching clients, we have developed very sophisticated methodology to determine if too much financial aid is being given away – both to individuals or for the schools as a whole.

Myth #5:  If we don’t fund financial aid, there is no way to know if we will make our budget at the start of the school year. 

Reality #5:  By converting your budget need into the number of “Full Pay Equivalents” you need, you can assess, week by week, where you are both in achieving the number of FPE’s you ultimately need, and you can thereby control the percentage of financial aid (relative to the budget) being given away. 

To be clear, no Christian school could survive if every student was paying 50% of tuition.  There are times when you may need to say “No” to a family who can pay the 50% if accepting that child will preclude a full paying family.  

Solution #5a:  Use the week by week FPE & ANT(s) analysis tool we have developed for our Marketing Coaching clients.  We recommend that an FPE is the actual cost to educate a child, regardless of your actual tuition.  

(c) 2016 Dan Krause GraceWorks Ministries All Rights Reserved\

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