There’s no question that we are living through challenging times and no evidence that the future will be any simpler to navigate. It’s very common to encounter the words revenue and sustainability in the same paragraph or conversation. In order for an organization’s mission to continue indefinitely into an uncertain future there must be financial resources available to fund the various components required for mission fulfilment.
When considering revenue streams within the business model canvas, it’s worth asking are there any specific steps we can take to make the organization more resistant to collapse in the face of uncertain circumstances? Or, to ask that same question more positively, are there any wise practices we can follow to thrive as we move into the future? I find the work of Nassim Nicholas Taleb insightful as we think about how to build organizations that are “anti-fragile” and less susceptible to failure in the face of catastrophic events (or, what Taleb calls “black swan events”).
Here are two wise practices when considering revenue streams:
- Balance your financial and organizational “portfolio”
Almost ten years ago Winebrenner Seminary embarked on a journey to purchase a large campus in south central Pennsylvania. While there were positives that emerged from those efforts, one of the largest errors was that the decision to pursue this project focused almost all organizational energy and finances on this one endeavor. It was truly an effort that placed all of Winebrenner’s “eggs in one basket.” Fortunately, we have learned from that experience.
Taleb explores the risks that come with placing too much emphasis on one particular initiative and how scalability that only grows one particular segment of an organization can place the entire organization at risk. One way to combat the randomness of life (think the unexpectedness of COVID-19) is to have a more balanced “portfolio” when it comes to financial or organizational investment.
In 2013, Greg Henson explored how the most sustainable seminaries had no single revenue stream account for more than 40% of their total revenue. You can click here to read his full article and the five revenue streams identified in ATS-accredited seminaries. Quick math reveals that this requires that there are more than two revenue streams (often tuition and donor contributions). In February 2021, Chris Meinzer, Senior Director of Administration & COO for ATS, provides insights into spending among ATS schools (click here to read his work). Henson and Meinzer are helpful to think about how we can build an “anti-fragile” mindset into our organizational planning.
- A helpful indicator of a sustainable approach of a seminary is the Cost to Educate a student
Any school participating in the federal financial aid process must submit an annual “cost of attendance” as part of the record keeping. This is a student-facing number that indicates how much a year will likely cost a single student. A separate number that is helpful for internal planning is the actual cost to educate (CTE) that same student. You can simply divide the overall expenses by the number of students to determine the CTE (factoring in whether you want to include only graduate students or all students in all programs).
While there are many ways to lower a school’s CTE (such as flatlined expenses and increasing enrollment or flatlined enrollment and decreasing expenses), the best way to lower a school’s CTE is through a combination of low or decreasing costs accompanied by increasing enrollment. A worthy goal is to focus on a continued lowering of CTE for the purpose of getting that number as close to the actual net tuition a student pays (note: not the advertised tuition of the school) as possible.
A decreasing CTE is a good indicator of a school’s understanding of the level of integration and intentional planning necessary for long-term sustainability. Further diagnosis is necessary if the CTE is increasing year over year since this places the organization at greater risk over the long-term.
Note that I used the phrase “wise practices” when introducing these two observations. Very often the term “best practice” is used, which is really nothing more than the average practices of those working within a broken system. For example, in many seminaries there is an assumption that there is a need to raise money to pay for the work that is completed. As we consider new ways to evaluate revenue streams we can continue to work through how to best build a sustainable approach to fulfilling our organizational mission.
As we continue on with our exploration of the business model canvas, it’s worth noting that the healthiest organizations within theological education do not view themselves as the sum of its component parts, but as a single integrated organizational system. This truth adds an extra challenge in writing these post since this series is exploring the separate parts as if they exist independently even though they are part of a larger whole that can’t be broken apart. Hopefully, each post is assisting your understanding of how all of the parts of Winebrenner, or your own organization, fit together into a coherent whole.
– Dr. Brent Sleasman, President
– Image from Pexels, accessed on Adobe Spark