The issue of fee elasticity is one that all independent schools should be thinking about in the face of rapidly escalating costs, a cost-of-living crisis and the very real threat of VAT on school fees and /or the loss of charitable status.
The webinar:
The first MTM Consulting webinar of 2023 took place on this prevalent topic last week. Hosted by Duncan Murphy, Director of Education at MTM Consulting, we welcomed several panellists, each an expert in their own area: Dr Nick Rowe, Lecturer (Assistant Professor) at the University of Essex; Jonathan Wheeler, Consultant Bursar with more than 25 years’ experience in independent schools; Adrienne Forster, Director of Admissions and Marketing at Banstead Prep and former AMCIS Board Member; and our very own Daniel Cohen, Head of Business Development.
Attended by a record number of Heads, Bursars, Directors of Marketing and Governors, the webinar tackled some of the big questions around fees. These included how much of the escalating costs can be absorbed by parents, how this might vary on a regional and school basis – and what schools should be doing in order to adopt a more scientific approach to fee elasticity at such a pivotal time.
Summary:
As Nick was keen to point out early in the webinar, the topic of fee elasticity is not new. Instead it is one that companies have always used to plan their pricing strategy for the products that they offer. While it may be a new approach for many independent schools, it is not one to fear. This was echoed by Jonathan who highlighted the need for schools to have a very clear understanding of their cost base and for the Bursar to have a strong voice and a definite seat at the proverbial decision-making table.
All panellists were keen to highlight the importance of knowing your market. Adrienne spoke about the millennial parent and how they are different from previous generations of parents. They are more likely to want regular proof that the school is delivering real value and far more likely to vote with their feet if they feel this is lacking. She raised the important point that schools can often be guilty of making unevidenced assumptions that they are delivering the product that people want. This was reiterated by Jonathan who questioned whether schools are selling what we think parents want to buy or really examining what they want – and then delivering it. How often do schools survey their parents and non-joiners to assess this?
This led to a discussion around the trend towards families purchasing stages of education rather than being able to afford the full age 3-18 experience. The importance of schools showing agility, flexibility and adaptability to their market was emphasised. Panellists recognised the specific difficulty of this for schools of an all-through nature. Adrienne referred back to the financial crash of 2008/2009 and pointed out the time-lag that the sector had seen in terms of future impact on numbers. Current parents will always do everything they can to keep their child in independent education once committed. Those starting their journey will be more circumspect. The timeline thereby suddenly becomes far less clear.
A Positive Outlook:
There were some positive takeaways. Whilst Nick was clear that the economic environment was not going to magically improve in the near future, there are clearly opportunities for the sector in spite of the well-documented challenges. Daniel pointed out that one of the great strengths of an independent school is, as the name suggests, its independence. This allows the sector to be outward-facing, reflective and creative. At the same time, he warned that we will see closures of some schools as a result of the current economic pressures. He reiterated the real and urgent need for all schools to understand their market, their competitors and their fee structure.
Adrienne spoke eloquently around the transparency of fees and what this might or might not include. For example, do parents worry about the extra cost of uniforms, trips, lunches, etc? David Milner, Chair of AMCIS, urged schools to evolve how they view income and to look at all possibilities – not just fees. This includes the potential for revenue by hiring out the campus for events, conferences or holiday clubs.
The closing comments by the panel hinted at an air of optimism. Jonathan was clear that the current climate did not signal the end of the sector by any means but that the sector must change and evolve in order to be relevant. Nick ended the webinar with the statement that, “People with means will always value opportunity more”. By pointing to the deterioration in the state sector – a reduction in budgets, strike action and poor delivery during Covid – he emphasised the opportunities that exist to those forward-thinking schools in the independent sector.
Next steps:
It was very clear from the webinar was that there is no “one-size fits all” answer when it comes to fee elasticity. Indeed, it is dependent on a variety of factors. Whilst understanding your market fully will provide a significant head start, an accurate calculation of possible fee elasticity for each individual school will benefit from expert, objective assistance from a third party.
MTM are commencing an exciting project with Dr Nick Rowe and the University of Essex to do exactly that. So, if you would like more information on how MTM can assist your organisation with interpreting the local market and establishing bespoke potential for fee elasticity, please contact us. We will be glad to help!
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