When it’s all put together, a detailed financial model for online programs should provide a deep understanding of the main levers that drive enrollment growth and financial sustainability, a bottom-line view of the program’s contribution margin and the number and timing of academic and administrative staff required to support enrollment growth.
The 10 Keys to Financial Success in Online Programs incorporates the main aspects of a successful online program, including course development and delivery, course instruction, program administration, marketing and recruitment and student retention.
Here’s a closer look at Keys 4 and 5:
Key 4: Reduce Your Instructional Expenses while Increasing Faculty-Student Interaction
Reducing the number of courses offered each term means increasing enrollments in individual courses. To ensure a low faculty-student ratio in online sections, consider the master teacher model in which an Instructor of Record develops each course and also supervises a group of qualified adjunct instructors who lead groups of about 20 students. This instructional model:
- Reduces instructional expenses.
- Increases faculty-student interaction through small cohorts.
Your target goal should be to reduce instructional expense to below 20 percent of tuition revenue without reducing faculty or adjunct pay. The carousel model can cut instructional expense by up to 75 percent. It relies on the curriculum not being highly sequential, i.e., reducing reliance on prerequisites. Every prerequisite course increases your instructional expense by 10 percent or more, as it requires you to offer it far more frequently than non-sequenced courses.
Key 5: Keep Program Administration Lean and Student-Focused
Online degree programs can generate great academic outcomes as well as substantial returns to your department or university. But, they require fiscal discipline. Plan to budget for three administrative expenses:
- Program Director. This is the faculty champion. In addition to teaching in the program, he or she will be the main decision-maker for admissions requirements and curriculum. Typically, program directors are committed fractionally with a part-time release from other duties. Online programs above 500 students may require a dedicated program director.
- Program Coordinator. Programs often benefit from a solid staff-level program coordinator to extend the program director. The program coordinator may coordinate clinical or externship arrangements, work out faculty scheduling and manage new applicant timelines.
- Other Administrative Staff. Growing an online program to hundreds of students will take additional departmental resources that you must budget. A quick way to do this is to analyze your department or college’s current administrative staff expenses and determine a ratio of those expenses to tuition revenue. For instance, you may discover that your college invests 5 percent of tuition in academic advisors, financial aid advisors, clinical preceptorship coordinators and other student-facing roles. Budget a portion of revenue against these future needs to develop a true picture of a program’s required resources and expected profitability.
Endeavor to keep your program administration costs below 15 percent of your total direct expenses. The goal of administrative budgeting at the program level is not to include all of the “nice-to-have” roles, but to determine the true cost of operation for your online program.
Does your financial model empower new program development by identifying resource requirements, providing an initial budget and launch plan, and supporting decision-making?