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Net Tuition Revenue 101: Adopting a Revenue-Positive Mindset

June 24, 2024
Drew Cocco
Vice President of Client Experience

Once upon a time in the innovative town of Learnville, there was a charming institution named Sagewood Academy. As the years went by, the school faced increasing financial challenges. The financial aid director, Mr. Daniels, realized that traditional methods of tuition discounting were no longer sustainable.

One day, while attending an educational conference, Mr. Daniels heard a presentation about Net Tuition Revenue (NTR) and its strategic use in achieving enrollment and financial goals. Intrigued by the potential of NTR, Mr. Daniels shared his newfound knowledge with his fellow school administrators. Together, they decided to embark on a journey to transform Sagewood Academy's approach to financial aid.

The term Net Tuition Revenue (NTR) has been around for decades in the world of tuition-based schools. It’s a term that has carried a multitude of understandings, misunderstandings, contexts, and connotations. Put simply, it is calculated as the amount a family is left paying (net) after all discounting has been applied to the full tuition amount. But NTR is much more than basic mathematics; used properly, it is a highly effective tool in achieving your strategic enrollment management goals. As far as I can tell, Scott Looney was one of the first (if not the first) to describe the strategic use of financial aid in this manner. In Chapter 2 of the NAIS Enrollment Management Handbook (2012), Scott states that “the discount your school offers should be…a strategic reduction in price to achieve mission-related goals,” which is a perfect summary of how schools can and should be thinking about their overall discounting strategy that is driven by the net revenue students must generate to keep the school financially sustainable.

So if NTR is so useful, why do schools still shy away from embracing it as a strategy? The simple fact is that there are a great many misunderstandings about NTR still lingering within the private school industry. For one, there is the classic “airplane model” which suggests that a school is like an airplane that is about to take off and if the plane isn’t full, it’s taking off anyway so you should do what airlines do and discount the seats until they are filled at whatever price necessary. This model leads to bad practice because it encourages infinite discounting and negotiation with families which runs counter to generally accepted best practices. Instead, as Chris Tompkins points out in his 2016 NAIS article, “used properly and intelligently, net-tuition revenue is a valuable form of need-based financial aid and a tool that enables broad access and affordability” but also that it must be done with financial sustainability at the forefront.

In my view, Net Tuition Revenue as a strategy relies on a single basic understanding: that every enrollment decision is also a revenue decision. This is critically important because the vast majority of schools depend upon tuition as the biggest driver of operating revenue. If we keep that in mind, then we never lose sight of the part that every enrollment decision plays in ensuring the sustainability of our schools and by extension their ability to fulfill their mission statements. Once you recognize this, you’re now simply shifting your view of financial aid from “a cost to the school’s bottom line” to “a key driver of enrollment, mission, and revenue.” This is a revenue-positive outlook as opposed to a revenue-negative outlook. To illustrate, think of the traditional way that budgets are set up and reported. Frequently, it will look something like this:

In this simple example, financial aid is clearly portrayed as a cost against potential gross revenue. The problem with this outlook is that it implies that the school would have more revenue if it had not “given out” $1M in financial aid. For most schools, this is a flawed assumption because for them, the days of filling every single seat with a mission-appropriate full-pay student have long since passed. Instead, I propose that schools adopt a revenue-positive mindset and change their reports to look something like this:

Here we see clearly the revenue that is generated from the investment in both need-based and merit-based discounting that has yielded the necessary revenue and enrollments for this hypothetical school. Instead of asking how much was “spent” on financial aid, we demonstrate how much revenue was generated by investing financial aid into these students.

So let’s assume we are now ready to adopt a revenue-positive mindset. What next? Net Tuition Revenue, used strategically, must be grounded in collecting the right data on all students, year over year and that data collection and analysis is exactly what I’ll cover in Part 2 of NTR 101. 








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