The Economics of SEM

It is my philosophy that all members of the institutional team must be educated and begin to have an understanding of the economics of Strategic Enrollment Management for the SEM plan to succeed.

Revenue is an important part of the SEM strategy building. The institution must determine its Optimum Revenue, defined as the sum of appropriations and tuition revenue. Like Optimum Enrollment, (benchmark enrollment figure that indicates revenues and expenditures are in balance) Optimal Revenue is a benchmark that fluctuates and is impossible to calculate with absolute precision. An institution's Optimum Tuition rate may actually be lower or significantly higher that the tuition currently charged. Current Revenue is then compared to Optimum Revenue. The difference becomes the SEM Revenue Goal.

Current Enrollment x Current Tuition = Current Revenue
Optimum Enrollment x Optimum Tuition = Optimum Revenue
Optimum Revenue - Current Revenue = SEM Revenue Goal

Strategic Reinvestment, a key economic model of SEM, is a function of the SEM Revenue Goal rather than an absolute dollar figure. This refers to allocating resources saved from existing revenue streams, or allocating new revenues generated by SEM strategies to further the success of the SEM program. An example of this is setting financial aid levels as a function of revenue. The flexibility of this reinvestment provides unexpected control in bringing in the class at or above numerical and quality expectations until optimum levels are achieved. Such an approach eliminates important opportunities through miscalculating yields on financial aid offerings or putting continuing students in competition with new students for limited financial resources.

However, investments must be measured against their resulting performance. Key Performance Indicators (KPIs) are essential in aligning solid fiscal practices with reinvestment and SEM strategies. KPIs are numbers an institution may use to measure its position against its competition (market analysis), success of its strategies and tactics (strategic planning), or its relative position with respect to its past performance (trend analysis and benchmarking). Examples of KPIs are:

Recruitment KPIs Retention KPIs Operational KPIs
# Prospects # Cohort Freshmen $ Revenue
#Applications # Cohort in Other Classes $ Expenditures
#Admitted  # Dropouts FTE and HC Enrollment
# Deposited # On Probation $ in Financial Aid
# Enrolled  # Graduated $ Gifts and Donations

KPIs allow an institution to determine its effectiveness and efficiency, success or failure, growth or decline, as well as improvement or deterioration. These are essential as they form the basis for developing the SEM program, recruitment and retention strategies, and evaluating the effectiveness of each without becoming sidetracked.

* Sources cited for this article are Strategic Enrollment Management, 2nd Edition, AACRAO, 1997, and SEM and Institutional Success, AACRAO, 2008.

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The Economics of SEM

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