In the monthly CEO Keys blog series, Keypath Education CEO Steve Fireng shares his thoughts and insights into the most prevalent topics in the higher education industry today.
For many years, schools have partnered with companies for various services from marketing, enrollment and food services to IT and many others. Mostly these decisions were based on a certain fee for services. About eight years ago, a model called online program management (OPM) emerged and changed the game with its tuition-sharing approach. For those not familiar, here is a brief description:
School X partners with a third party to assist with the capital deployment, course development, marketing and pre-admissions recruitment in exchange for a share of the tuition for students enrolled in a program. The school retains control through instruction, curriculum, and financial and admissions decisions. Tuition-shares have large ranges but are usually in the 50-60 percent range, depending on the services.
Today, there are more than 30 online program management companies including Keypath Education. The pros and cons of OPM relationships have been covered in the press quite a bit lately so I wanted to share my point of view after working with a multitude of top-tier institutions to launch more than 150 programs.
First, understand that this is not a one-size-fits-all model. The one rule I live by is that both parties (the school and the third party) should receive very similar rates of return after each group’s investments. Misalignment here is the most common reason for dissatisfaction.
As you think about whether or not a tuition-share is right for your institution, ask yourself a few simple questions:
How much capital do we have to invest in launching an online program?
Studies will tell you that you need between $300K-1M of capital per program to successfully scale. My definition of scale is a program with 300-400 full-time students. One of the main advantages of tuition-share is that the third party will invest most of the necessary capital to launch a program. So if capital is tight, tuition-share is a good option.
What internal capabilities do we have? Do we have the capacity to launch and grow these programs on our own?
The key driver of this is the student experience. Online enablers offer a seamless experience for the student since all services are under one roof. Think about what internal resource capacity you have to allocate to launching and growing online programs. This is not a part-time initiative.
What size of a program are we looking for? Is it niche or mass market?
Every school receives inquiries through its website and other channels. In many cases, this can attract 25-50 students. If that number works for you, there’s no need to bring in an OPM provider and share tuition. But, if you want a program with 300+ students, a tuition-share relationship would provide the necessary capital and marketing and recruitment skills to accomplish this.
Online program management partnerships are not solely focused on increasing enrollment. An OPM partner acts as an extension of a school’s team, handling the logistics so the university can focus on teaching and upholding the quality of its institution. Online pedagogy experts work with the school’s faculty to optimize courses for online instruction, and student success advisors focus on retention strategies as they support students along their journey.
Here are three guidelines and considerations for establishing a mutually beneficial tuition-share relationship:
- Make sure you receive a profit-and-lost statement for your side of the relationship. You must share your cost structure, but you should expect to see that the tuition-share gives you a rate of return throughout the life of an agreement. Quality OPM providers will provide this as a best practice.
- Push for a fair tuition-share. The OPM players are all for-profit companies and have to see a return on investment. Most do not need to see it in the first several years but will look for a return by Year 4. The lowest tuition-share may feel good today but has long-term negative implications for growth. If it is too one-sided for the school, it will limit the amount of investment from the OPM. What may seem like a big risk in the beginning will often lead to a larger reward in the end. Again, the goal is for both parties to receive a similar return after each other’s costs.
- Be ruthless in your cost to make an agreement work. Many institutions try to deploy their typical cost structure. Remember, your goal is to receive a net return to re-invest into your school.
Deciding whether or not an OPM relationship is right for your institution can be complex. Base your decision on your school’s mission and growth plans.