Over the last several years, greater attention has been given to alternative revenue sources. While segments of the higher education industry have embraced this idea of alternative revenue streams, others (mainly small liberal arts colleges) have been cautious.
The results of our 2019 Annual Higher Education Outlook survey responses and follow-up interviews drew us to an unexpected result. Our prior Annual Outlook surveys asked about schools’ searches for new revenues outside of academic programs, and 73 percent said they have engaged in this search. However, very few mentioned it this year as we sought to learn more with open-ended questions instead of multiple-choice responses.
This year, many of our clients and colleagues are focused on plans to build enrollment as a way to expand revenues and maintain financial sustainability. Many of them had plans to more fully use facilities and space in ways that added revenue. A fair number were engaging in expense management, and some were even actively discussing merger and acquisition strategies. But only a few appeared to have strategies that engaged the process of alternative revenue streams.
ENTER ALTERNATIVE REVENUE STREAMS
Digging a little deeper, we also branched out with some additional research on alternative revenue streams. We found that many schools do, indeed, have alternative revenue plans. Most of those plans had some common attributes:
- They had clearly defined targets
- In some cases, they leveraged their core assets of people, knowledge and space
- They realized one winner will not get the job done—“There are no silver bullets”
- Most focused on producing early wins to gain momentum for the plans
- Some had separate management to enable their success
- Larger public universities with staff focused on real estate utilization were more active than their private counterparts (even though the private universities had opportunities)
Our firsthand observations told us that when considering this strategy, being mission-focused is critical. One other helpful focus, especially to private colleges, is reaching out to the broader local community.
One school appointed a special task force to review and understand the potential for additional alternative revenue streams. That task force continues to meet semiannually to review progress toward enhancing alternative revenues.
We found one school that was so convinced it needed multiple plans to achieve its alternative revenue and net income goals, it launched 11 different initiatives simultaneously this past year. The benefit of pursuing many different revenue streams was that only about half (six) of them needed to succeed for revenue and net income targets to be achieved.
When considering this strategy, being mission-focused is critical.
To assist in the evaluation of multiple revenue-generating ideas and to display a sample of the alternative revenue ideas that were discussed during our research, we’ve provided the Alternative Revenue Source Evaluation Tool in the Appendix. This tool displays 18 different alternative revenue production ideas. The list is not intended to be all-inclusive. You can download the Excel-based version at bkd.com/higheredoutlook.
The three sections within the tool (Enrichment Programs, Product Sales and Small Business Creation) are designed to serve as a jumping-off point. For example, the list doesn’t include monetizing land, buildings or other hard assets. Nor does it include natural resource harvesting like oil and gas exploration or entertainment industry involvement like use of the campus for movie and television production. There also are many examples where hard assets are being “monetized,” i.e., used to produce new types of revenues. Those ideas are captured in the Leveraging Assets section of the outlook.
One important consideration in this analysis is the customer focus. Customers for these goods and services need to have the willingness and ability to pay in order for these ideas to pay off. As schools use the Evaluation Criteria section of the tool, they may decide to substitute or add to the criteria for evaluation. We suggest a 1 to 10 scoring system along with a scoring percentage allocation from 1 to 100 percent, which would be easy to conceptualize and implement as part of the evaluation process.
Once schools total their scores, they can rank the ideas from best to worst and then pick the top several to work on. It will be important not to rely on one idea alone. These are all ideas and many of them may not pan out, so working on multiple ideas at once seems to be the best approach to increase the likelihood that economic results are achieved. The overall evaluation process, including weighting the percentage for each idea’s score, should be the focus of a revenue task force discussion. The percentages shown are simply an example.
If your institution doesn’t currently have a group actively discussing alternative revenues as a strategy, we suggest it would be worth the effort to surface some ideas and evaluate them as a first step.
The list of schools mentioned in this section’s research and discussions include:
- Grace College and Seminary – Multiple simultaneous initiatives
- Taylor University – Town revitalization grants improving the “front door” of the university
- Houghton College – Land lease for solar power generation
- Pacific Union College – Revenue from land utilization
- William Jessup University – Land development on adjacent land; consulting revenues for entrepreneurial entities
- Bryn Mawr College and others – Facilities rental
- Middlebury College – Language programs
- Keep up the effort on alternative revenue streams. Try multiple ideas all at once.
- Use a task force and an evaluation tool.
- When thinking of alternative revenue ideas, keep the customer top of mind.
Read more about how colleges and universities are innovating to improve financial sustainability by downloading our 2019 Higher Education Outlook.