Strategic Exercises to Illuminate the Fee-for-Service Advantage
By Tim Sheehan
When deciding to work with a third-party servicer, particularly in the domains of recruitment and marketing, the financial aspect of the conversation often revolves around choosing between two key models: revenue-sharing and fee-for-service. This choice has significant implications for an institution’s financial health and requires careful consideration.
While both models have their merits, understanding the nuances and implications of each can be challenging. In this blog, we aim to shed light on the fee-for-service advantage through a series of strategic exercises designed to illuminate the differences between these two approaches.
These exercises offer financial leaders a tangible and comprehensive view of how fee-for-service models can align with their own university's strategic mission and financial considerations.
Cost Breakdown Comparison: Create a side-by-side, multi-year projection that enumerates your university’s total financial outlay under both models. Note the cumulative long term costs.
Scenario Analysis: Simulate different scenarios to underscore potential outcomes. For instance, if enrollments surge or dip, how would the costs of each model react? If the OPM cuts investment in marketing the program – and enrollment drops accordingly – what are the long-term implications in the model?
Compare Long-Term Commitment Costs: A critical aspect often overlooked in revenue share agreements with Online Program Managers (OPMs) is the enduring financial obligation, commonly known as the "poison tail" or "teach-out" clause. It's essential to anticipate and manage these costs effectively. Through strategic forecasting and proactive negotiation, limits can be set on these post-contractual payments, ensuring that they align with your university's fiscal strategy and do not extend indefinitely. This can include establishing a clear break-even point to evaluate the long-term financial impact against a fee-for-service model and planning for a smooth transition of services to mitigate potential financial strain after the contract ends.
Service Value Mapping: List out all services offered under both models and assign a value to each based on utility and significance. This will help clarify costs and illuminate any unnecessary and unneeded services e still being paid for in a bundled revenue-share model.
Stakeholder Feedback Sessions: Conduct listening sessions where faculty, students, and other stakeholders provide feedback on services believed to be crucial, and why. This can help financial leaders see where real value exists, supporting a more tailored fee-for-service model.
ROI and Strategic Flexibility Analysis: Calculating the potential ROI is crucial, but it's equally important to consider how each model affects institutional agility and capacity building. A fee-for-service model offers the flexibility to adapt services—whether in-house or outsourced—to align with changing strategies and program needs. This adaptability can enhance program responsiveness to market changes, allowing institutions to pivot between online and on-ground support efficiently. Factoring in the value of this flexibility, alongside the direct costs and anticipated returns enables clearer assessment of which model will yield more favorable outcomes in terms of both ROI and strategic positioning.
Case Study Review: Analyze real-life case studies of universities that transitioned from one model to another: their reasons, the processes they followed, and the outcomes they achieved or avoided.
The goal of these exercises is to foster a deeper understanding of the models, allowing financial leaders to make informed decisions that align with the university's strategic and financial objectives.
In conclusion, the choice between a fee-for-service model and a revenue-sharing model is a substantial one that requires a thorough examination of the institution's long-term financial strategy. Incorporating a methodical and holistic approach that includes comparative cost analysis, scenario simulations, stakeholder input, ROI calculations, and case studies can empower a more informed decision.