The New Normal A GameChanging Model for Financially

The New Normal: A Game-Changing Model for Financially Sustainable Schools Patrick F. Bassett, NAIS President

Outline § Taking the Pulse Nationally: How Are NAIS Schools Doing? § All Reality Is Local: Reading the Map § Case Studies: Easy Street Prep vs. Copasetic Academy § Navigating Your Path through “The New Normal” § Taking the Pulse Locally: Where are Your Schools Headed? § If You Think Life Is Hard for You….

Tuitions vs. CPI: Luxury-End Pricing

Mixed Market / Changing Profile 600 2000 -2010 Enrollment Core Sample: Changes in Enrollment 62 500 32 15 2 25 34 59 184 96 204 205 400 212 Schools 98 300 178 19 15 110 200 8 65 11 21 24 49 55 207 65 156 52 124 100 40 92 51 Lost 5% or Less 0 10 -years Gained 5% or Less Lost between 5% and 10% 5 -years Gained 5% to 10% 59 Lost more than 10% 78 3 -years Gained more than 10% 2 -years 74 No Change 1 -year

Markers of Success: Giving (Day) 2007 -08 Alumni % Parent % Trustee % Alumni Avg Gift Parent Trustee Avg Gift Average Gift Percentile(25) 4% 48% 93% $135 $556 $2, 007 Percentile(50) 9% 64% 100% $271 $916 $3, 670 Percentile(75) 17% 80% 100% $447 $1, 508 $6, 288 Percentile(90) 29% 91% 100% $692 $2, 388 $10, 667 2008 -09 Alumni % Parent % Trustee % Alumni Avg Gift Parent Trustee Avg Gift Average Gift Percentile(25) 4% 49% 93% $137 $508 $1, 936 Percentile(50) 8% 64% 100% $261 $860 $3, 804 Percentile(75) 16% 79% 100% $427 $1, 438 $6, 228 Percentile(90) 27% 91% 100% $612 $2, 208 $10, 486

Markers of Success: Giving (Boarding) 2008 -09 Alumni % Parent % Trustee % Alumni Avg Gift Parent Trustee Avg Gift Average Gift Percentile(25) 9% 32% 87% $304 $711 $3, 067 Percentile(50) 17% 51% 100% $439 $1, 136 $6, 334 Percentile(75) 27% 69% 100% $645 $1, 771 $10, 306 Percentile(90) 39% 81% 100% $988 $3, 048 $18, 454 2009 -10 Alumni % Parent % Trustee % Alumni Avg Gift Parent Trustee Avg Gift Average Gift Percentile(25) 8% 28% 87% $268 $688 $2, 912 Percentile(50) 15% 48% 96% $443 $1, 166 $5, 455 Percentile(75) 24% 65% 100% $605 $1, 699 $11, 076 Percentile(90) 36% 78% 100% $875 $2, 647 $18, 814

Top 5% Incomes ($200 K+): The X Factor % Change Top 5 Percent Income Changes (Current Dollars) Versus Inflation Rate 1947 to 2008 14. 00 12. 00 10. 00 8. 00 6. 00 4. 00 2. 00 0. 00 -2. 00 -4. 00 1948195019521954195619581960196219641966196819701972197419761978198019821984198619881990199219941996199820002002200420062008 Inflation Rate Current Dollars

Map: Our Current & Future Prospects

Case Study #1: Easy Street Prep § Easy Street Prep is a school of 500 in a very affluent community: demand exceeds supply for quality independent schools, and it’s too expensive to build more schools, given the price of real estate. § In the down economy, so far, the school’s admissions seen barely a blip, maybe 5 instead of 7 applications per opening, but lots of margin there. § Its high octane board wants to keep driving hard on tuition increases, capital campaigns, and expensive renovations. § Some diversity of race and ethnicity, but not many Latino/a students in a state whose school-age demographics is moving strongly in that direction.

Case Study #1: Easy Street Prep § Strong support for financial aid, but not many middle class kids in the school (or even “the psychological middle class. ”) § A growing number of X-Gen board members recently have been asking for “outcomes” analysis of how students and the school performs. And Some entrepreneurial parents wondering if the rather traditional curriculum is as innovative as it could be. § Lots of the kids seems stressed all the time, pressured by their parents and self-imposed expectations for an all-star resume. Some of those secretly are beginning to dread school. § What’s important for the leadership of Easy Street Prep?

Case Study #2: Copasetic Academy § Copasetic Academy, located in upscale suburbs of an urban area where the urban independent schools continue to prosper but Copasetic faces a very different market reality. § A PS-Gr. 12 school, Copasetic was a school of 475 just eight years ago, when its lower school admissions started to falter: At first, the school maintained enrollment by increasing financial aid and by accepting students with some academic deficiencies. § Their planning consultant 5 years ago convinced the school and board that his firm’s formula for financial solvency should be adhered to: offer great programming and facilities, and charge what it costs to deliver on that. § Meanwhile, a lower-cost neighboring K-6 independent school was becoming competitive, siphoning off some of Copasetic’s admissions prospects, as was a new magnet school.

Case Study #2: Copasetic Academy § The result of that plan: exorbitant tuition increases, greater attrition and fewer applicants: enrollment goes down to 400 now, admissions numbers were looking weak for the coming year, and current full pay families were applying for financial aid in record numbers. § Market study showed that families with high incomes in the immediate area of the school were declining in numbers, and while there were plenty of high income families within an hour’s drive, the school had not been successful in attracting them to Copasetic Academy. § While the school had successfully been using a “net tuition revenue” approach to filling empty seats, some on the board felt that one way to balance the budget was to cut back on financial aid. § What options should the school be considering as it plans for the coming year and the future?

Has Your School Hit Its Price-Break Point? § Admissions Funnel Trends? § Financial Aid Application Trends? § Demographics Projections for your Area for Full. Pay Families with School-Age Children? § Growth of high quality, no-cost or low-cost school options in your area (public magnets and charters, parochial schools, other lower-cost private schools, home-school networks)? § Top 5% Incomes ($200 K+) vs. CPI Trends? In the context of increased taxes and health care costs for this group (i. e. , less discretionary income)?

A Game Changing Model for Financially Sustainable Schools

The Value Proposition Equation for Parents…and Donors Perceived Outcomes = Value Perceived Price PFB Note: For prospective parents, as perceived price goes up, value goes down unless perceived outcomes increase proportionately. For advancement, substitute “giving expectation” for “price” as the “value-proposition” for donors.

Old Normal: Budgeting for Excellence § “Old Normal” Assumptions: Øour spending spree has no limits to it. We are America: We spend too much; we assume too much debt; we save too little. Øhigh tuition increases are necessary to expand program and staff while at the same time sustaining both small classes and competitive faculty salaries. Øtop 5% income families will always be able and willing to pay whatever we ask. Øall schools in a local market compete on product, not price.

Old Normal: Budgeting for Excellence § “Old Normal” Assumptions (cont. ): Øfinancial aid the fixed variable; enrollment the flexible variable. Øprimary purpose of a board is to maximize excellence for current students (in many cases, their own children). § Traditional Budgeting Process Østarts with the needs: “nice to have” column migrates to the “must have” column. Øends with increasing tuition, usually well beyond inflation.

New Normal: Budgeting for Sustainability § New Normal Assumptions: Øcontinued commitment to competitive salaries and “intimate environments” where each child is known. Øexcessive tuition increases have undermined demand (or will). Ømantra: increase “productivity” without a decrease in quality (i. e. , increase enrollment or decrease staff)

New Normal: Budgeting for Sustainability § New Normal Assumptions (cont. ): Øschools compete on prestige (“brand”), program (“uniqueness”), or price (“best value”) Øenrollment the fixed variable; financial aid the flexible variable. Øprimary function of the board, to secure the future of the school (creating their children’s school). Østarting and ending points of budging process are reversed.

New Normal: Game-changing Vision § The New Discipline: Budgeting for Financial Sustainability (even if you are Easy Street Prep) Øcommitting to increasing enrollment without increasing staff. Øadopting a “sunset provision” of retiring an old program when introducing a new one so that no net staffing increases are required (and deciding which is which by value-proposition surveying (e. g. , The NAIS Survey).

New Normal: Game-changing Vision § The New Discipline: Budgeting for Financial Sustainability (cont. ) Ørightsizing: re-thinking class size or workload or the number of teacher specialists and assistants or school size (e. g. , Choate: downsize to become better & sustainable) Ødevoting 1/3 rd of each fund-raising dollar raised (annual giving, special events, and capital giving) to endowment, ultimately the insurance policy of the school that will guarantee its future: “intergenerational equity. ”

New Normal: Game-changing Vision § Outcome of New Model: Øfinancially sustainable schools, “built to last. ” Østable or improved value-proposition.

The Value Proposition Equation Perceived Outcomes = Value Perceived Price PFB Note: • Option 1: As perceived price goes down (projection of tuition increases as modest), value goes up, even if perceived outcomes don’t change. • Option 2: Up outcomes as up price (“more, ” including new technology & accountability). • What’s easier/better to manage: price or outcomes? What about, “Both”?

Projecting from our admissions funnel results so far this year compared to last, our enrollment should be the same or greater than this year. 1. 2. 3. 4. Definitely Probably Maybe Unlikely

Our best marketing strategy for the future will be to compete on… 1. Prestige (“brand”) 2. Program (“uniqueness”) 3. Price (“best value”)

Next year’s tuition compared to this year’s is… 1. Lower 2. Frozen at this year’s rate 3. Increased by CPI 4. Increased by CPI+1 5. Increased by CPI +2 or more

In the future we’ll consider a more aggressive net tuition discounting strategy to ensure full enrollment 1. Yes 2. No

Our school is considering “right-sizing” by increasing enrollment without adding staff or by stabilizing enrollment and reducing staff or by merging. 1. 2. 3. 4. Strongly Agree Disagree Strongly Disagree

If my school were “Easy Street Prep, ” I’d… 1. Change nothing 2. Leverage perceived strengths 3. Take “school of the future” risks

The End… …Is the Beginning Patrick F. Bassett, President NAIS (www. nais. org)

Are you prepared to face increasing competition for a decreasing number of students? “St. Louis Magnet Schools offer an EXCITING, TUITION FREE alternative for students of all ages and abilities. ” 2009/2010 is the inaugural year for the St. Louis Virtual School.

Raleigh, NC

SF-Metro, CA

LA-Metro, CA Return

NAIS’s Value Proposition Surveys: Value/Performance Matrix High Performance High Value Low Performance Low Value High Performance Low Value Leadership’s Responsibility: To assess all operations on the matrix, then reallocate resources