Do they always represent considered decision-making? Or does your school risk failing the pub test with its annual cash-grab?

Ticket scalpers have a single goal in mind – to make as much profit as possible. They exist because they appreciate price elasticity in the marketplace knowing that when demand increases, and supply decreases, there is an upsurge in the equilibrium price – Exhibit A, the price of fuel lately. As the perfect opportunist, they exploit the lack of supply to their advantage.

Let’s say, as an avid fan, I’m keen [demand] to attend a blockbuster football game, but the limited tickets [supply] have all sold out. Fortunately (for me) a secondary market exists – enter the ticket-scalper. The scalper knows that once supply has dissipated any unmet demand will push prices up. The initial selling price of a $100 now becomes $200-$500 – or more – depending on how aggressive that demand is.

You’re probably wondering, what does a ticket-scalper have in common with a reputable educational facility?

Hopefully, very little. But they both need to understand the Law of Supply and Demand and how that affects prices leading to their successful pursuits. The chasm between schools and ticket-scalpers is educational providers aren’t focused on profit – or at least they shouldn’t be – but they are focused on financial sustainability.

What is the purpose of collecting fees?

It’s been rhetorically asked more times than I care to remember – “Do we really need to charge school fees?” – as though charging parents to instil the passion of learning into their children’s minds was a complete anathema. Surely (they assume), education is the final bastion of society’s privileges and should eschew any discourse around parents parting with their hard-earned money.

Sadly, for some, the revelation that teachers need to be paid, resources must be purchased, and air-conditioners require constant money-gobbling temperature changes throughout the day demands that income generation is a high priority.

Yet fees aren’t just required to service the school. They represent the opportunity to grow, and improve, and innovate, and project for its long-term sustainability. Great fee strategy recognises that good years produce a harvest, but not every year is a good year. Revenue is the lifeblood of possibilities, and its management cannot be ad hoc.

As a Fee Strategy, what do your school fees represent?

A Patek-Phillipe watch can retail for $100k or more while a Seiko can set you back a couple hundred. Both achieve their core function – displaying the time. So does my Pixel 5. Your school fees, like the analogy of the watches, demonstrates a perception of value to the community it serves.

The perception of fee value is intrinsic to the parent paying them. Typically, parents are aspirational when it comes to their children’s futures so their perception of value may surprise most educational leaders. The common assumption is educational outcomes (aka “What’s their ATAR ranking”). However, the intangibles such as their children networking with students of like-minded families, or obtaining opportunities based on the reputation of the school, far outweigh the academic standing (although it all helps).

Philip Kotler first devised the Pricing Strategy Matrix with nine defined pricing options. Three options have been shaded out as schools shouldn’t be considering these, which leaves six for schools to think deeply about.

Fee strategy options

The varying strategy options are:

ECONOMY – I think we all understand what economy is. It’s the squashed seat at the back of the plane with no frills and limited baggage. From a school perspective it’s utilitarian buildings and infrastructure, large class sizes, and basic recruitment policies. While it sounds horrendous, it is a viable option for schools but to make it work it requires a very large student population. It is also a difficult strategy for your competitor schools to emulate.

AVERAGE – At this fee point, parents are neither impressed nor unimpressed with the service they receive or the fees they pay for it. It’s expected. The pro for the school adopting this strategy is that enrolments are very stable so it’s easy to forecast ongoing growth (usually in line with population growth) and total market share is equally constant.

GOOD VALUE – This is typically a school with moderate infrastructure and stable recruitment strategies. Parent’s perceptions are favourable, so they remain loyal and fee growth is in line with parent’s expectations. The flip side to this strategy is that margins are usually tight so investing in a different fee strategy becomes difficult.

SUPERB VALUE – Parents realise they are onto a good thing at these schools. Some might even tell other families that surely this is too good to be true. Usually, these types of schools are receiving significant government funding to cover operational costs with school fees providing the cream on the top. This allows them to invest significantly into their infrastructure, or staffing, to improve the value they offer parents.

Schools with lower margins due to less government funding may opt for this strategy to effectively buy market share (aka secure more enrolments). Enrolments produce more dollars and economies of scale begin to kick in.

HIGH VALUE – Customers perceive they are getting a high value for their dollar through these types of schools. There is room to increase margins, but significant investment is required to move into the Premium bracket. This might be a good strategy for schools who have several competitors vying for the same market share.

PREMIUM – This fee point is where schools position themselves as offering a premium service backed by impressive buildings and infrastructure, highly credentialled staff, and successful outcomes in many areas of school life. The continued high fees add to the perception that value is provided. Market share is limited by the pricing thus producing an exclusivity about their service. The longer a school can maintain this perceived value, its longevity is guaranteed as a reputational hit is seen as a mere blip on a parent’s radar.

The price elasticity for each of these options differ greatly. A school in the Premium bracket should have no problems increasing their annual fees by 10% to cater for the extension of the Payroll Tax. While families hit with a 3% increase from a school positioned in Economy will petition, at best, or search for alternatives, at worst.

How should school’s plan their fee strategy?

A school’s fee strategy should be informed by the governing strategy. It extends the symbiotic relationship between the strategic vision of the school’s leadership and how it is implemented effectively.

Understand Your Data

The data you collect and retain is powerful for your strategic thinking. It may support your intuition but its more likely to provide insights into how your fees affect your current and prospective parent community.

Enrolment waitlists are the proverbial canary in the coal-mine. If school fees continue to escalate beyond the means of your parent community, or if they no longer represent value for money, then it’s highly likely waitlists will dissipate in direct correlation.

Review your waitlists over a period of 3-5 years and gauge the trend for intake years. If they’re slowly waning then it’s time to take the foot off the accelerator pedal, but if they remain constant or increase slightly, your fee strategy might be on point and could provide an opportunity to test the price elasticity of next year’s fees.

Accounts receivable is another great indicator. The collection days ratio should be consistent or trending lower if there is any room to lift your fees. If the ratio increases, and your follow-up procedures are working correctly, it’s a sure sign that friction is growing.

Review your competitor's fee strategy

Using Kotter’s matrix, jot where your competitor schools are positioned and consider which strategy they have adopted. You should be able to get a fair idea of their positioning, but having others review this alongside you (board/council, leadership team) will provide a greater accuracy.

Then consider how well they are doing in this space. Are enrolments dwindling? Is staff turnover increasing? MySchools will provide useful data to assist your research, or you could proactively direct your conversation at your local hairdresser to garner the word on the street. There are many avenues to get a feel for how a school is progressing.

Consider the alternatives to you, or you competitors

Sometimes we assume that students leave one private school to attend another. Invariably, it may be true. But there is a growing diversity of options for parents these days and with inflationary pressures parents are being forced to review their budgets.

The first option is finding a suitable government school alternative. I can already sense the gob-smackedness from many of this post’s readers. I appreciate it is alarming. Yet, there are many high-performing government schools with dedicated professionals and relatively low-behaviour issues. They do exist. And a quick scan of the freely available MySchool distribution of Socio-Educational Advantage will show a large cohort in the top-quartiles for some schools. These are traditionally private school families.

Another option is home-schooling. The educational revolution (aka COVID-19) showed some parents that they enjoyed the daily interaction with their children and felt that they might be just as capable educating them. Enough time hasn’t passed to truly test the validity, or longevity, of this sector as a bona-fide alternative, but it is certainly progressing well for the time being.

Other alternatives include specialised schools that cater for students with learning or behavioural difficulties. While some schools won’t rue the departure of these students, these specialised alternatives are successfully working well, and growing.

The alternatives are important to consider when developing your fee strategy. They exist because parents consider their perceived value is somewhat superior, for their children at least. This must be a consideration when trying to transform your school from one fee strategy to another.

When should you lower school fees?

Effectively, never. If you inherit a school positioned in the Overcharging, False Economy, or Rip-Off zones then it makes sense to keep fees constant rather than seek an annual increase. Investing in infrastructure and better recruitment policies provides a way to increase value to parents and students.

It may take time to find your equilibrium again but reducing fees only suggests one thing – the school is not doing well.

Conclusion

School fees should always reflect value for parents and value for students. Schools need to consider which fee strategy they adopt and what that is promoting to current and prospective parents. While schools with a Premium fee strategy can enjoy the annual cash grab for a period, there are ongoing, and growing, market pressures that continue to challenge their seemingly robust margins.

Schools with well-priced fee structures that convey an expected value will continue to prosper.