This article appeared as "Measuring the Full Cost" in the Winter 2024 issue of Independent School.
A teacher’s salary, the digital subscription for a textbook, the newly installed Promethean board, the piece of playground equipment that strengthens sensory and motor skills—these are among the wide array of fixed costs that schools must manage. At the same time, they also must manage more fluid, unexpected costs like fixing the boiler or negotiating insurance premiums that are adding up.
Typically, heads of school work with their business officers to budget for and reduce expenses and with their admission and development staff to plan for and raise revenue. But standard perspectives and processes may not accurately account for some of the school’s hidden expenses. These “soft” school health indicators—culture, offerings, satisfaction, and staff time—are hard to quantify and even harder to measure, yet they can dramatically impact a school’s growth. Over the past two years, I’ve found that an effort to assess the full financial costs and benefits of a given change or choice in these four areas can improve efficiency, strengthen operations, protect the budget, and identify increased future revenue. A simple acronym, C.O.S.T., provides a helpful framework.
Culture
Grant Thorton and Oxford Economics’ 2019 Return on Culture report found that businesses with extremely healthy cultures were 1.5 times more likely to have experienced 15% growth over the previous three years. The report found that “a sense of community,” “investment in employees,” and a “purpose and value system” were almost equally important in creating that culture.
What does that mean for school leaders facing a post-COVID river of challenges related to hiring, firing, managing, and retaining teachers? It means culture impacts growth—positively or negatively—and school leaders who can best quantify that impact will make human resources choices that are less costly or more beneficial in both the short and long term.
Consider, for example, a teacher who has become a cultural lightning rod for parent complaints, for student gossip, or for staff resentment about a lax work ethic. The problem is such that reasonable people in the community are asking (or thinking), “Why is this behavior being tolerated?” In this not uncommon situation, school leaders have the responsibility to assess the cost of firing the teacher versus the cost of retaining them. They can bring economics to the aid of emotions by asking three culture questions:
Is the employee’s behavior driving away good students and families and their years of tuition dollars?
Is the employee’s behavior driving away good faculty or staff who will be expensive, and perhaps hard, to replace at the same experience level?
Is the employee’s behavior leading to weaker school community trust or investment?
Approach each question in two parts: a quick gut-level yes or no, followed by a more analytical reflection in which you ask, “What evidence can I identify that proves my answer?” Finally, ask a trusted team member to undertake the same assessment and share their conclusions.
In addition to assessing the institutional cost of firing or managing troublesome staff, these culture questions can help you assess the true cost of retaining and developing the people who make your school community flourish: In what ways is the employee’s behavior drawing in good students and families and their tuition dollars? Nurturing loyalty among good faculty or staff via salary or benefits is a worthy investment that leads to stronger student retention, parent trust, and alumni investment.
In a competitive job market, it can be hard to ensure that good employees are satisfied and compensated appropriately. But there are hidden costs to not trying. According to data from the Learning Policy Institute, job searches cost between $4,000 and $20,000, and that is not counting your team’s time in conducting the interviews and the possible added salary cost to attract someone in a competitive market. As such, it is important to review processes, perform cost-benefit analyses, and calculate the value of the relationship between low turnover and retention, to assess what a raise or additional benefits, while costly in the short term, might secure in terms of dollars in the long term.
Offerings
Independent schools often try to offer as much programming as possible—a wide variety of AP classes or global language courses, a large selection of clubs and co-curriculars, even value-adds such as a lunch program or coffee bar. Given the cost of tuition, independent schools often feel pressured to provide families the maximum return on their investment. But the cost of trying to do too much can be high.
It’s easy to just “do what we have always done.” According to the National Research Council, “Research on organizational politics and institutional processes has made clear that organizations face strong inertial pressures.” But a thoughtful evaluation of a school’s offerings helps fight those inertial pressures.
From an admission standpoint, it may seem great to have lots of clubs, but schools must determine which clubs have active participation and engagement. What kind of compensation are staff getting to be sponsors? What is the time commitment from staff, and do they resent being asked to take on these additional tasks? Does staff resentment or a low compensation model lead to dissatisfaction that impacts culture? Answering these tough questions might result in eliminating an offering, a difficult decision outweighed by the long-term benefits in the aggregate.
Of course, a school may need to add programming, and the immediate costs can be scary. For example, schools, particularly small schools, often focus on having enough athletic offerings with qualified coaches. The offerings audit needs to look at a program’s immediate impact, its marketability in your service areas, and its sustainability over the long term. Will the addition improve culture, retain students, or potentially add students? If so, it is worth considering, because while startup costs might be difficult to manage, the benefit to the institution will almost certainly financially bear out.
Satisfaction
Are your constituents satisfied with your school, and what impact is that satisfaction, or lack thereof, having on the bottom line? It might be tempting to rely on word-of-mouth to answer this question, but a robust satisfaction survey administered annually and tracked over time will help you understand your customer and is an essential part of the C.O.S.T. analysis framework.
Ironically, as institutions that are constantly grading people as part of the services they provide, schools do not like to be graded. A survey may identify areas of weakness, and if there is a comments section, specific staff may be (or perceived to be) negatively targeted. But the discomfort of being “graded” by the families we serve is not a good enough reason to avoid a satisfaction survey. It is incredibly important to understand what is being said about your school at the pool parties, around the water coolers, and along the sidelines of the soccer game. Satisfied parents stay at a school, which improves retention, and tell other families how happy they are, which improves enrollment. If understanding where issues might lie and correcting them keeps five families in your school, and those five families tell five other families who convert to students, the value of measuring satisfaction becomes clear in dollars and cents.
In addition, surveying parents not only measures satisfaction but can also increase it. Often, dissatisfaction stems from a lack of communication or a misunderstanding that can be easily rectified. Simply telling your story authentically makes both students and parents feel more connected to what they are experiencing. A 2021 study in the Journal of Retailing and Consumer Services indicates that educating your constituents on what you do, and how well you do it, makes them better advocates:
Educating customers enhances customers’ positive word-of-mouth for a brand. This effect is driven by an increase in customers’ satisfaction with the brand, as well as their perceived expertise vis-à-vis the educational topic. Moreover, we find that the impact of customer education on positive word-of-mouth is stronger for novice customers with less prior knowledge about the educational topic, and customers who are more social-friendly and enjoy knowledge sharing.
Assessing satisfaction allows you to drive word-of-mouth by identifying key areas of strength and helping your current families spread the word. It can also help your school close the satisfaction gap in areas where there is a perception that you are not meeting the mark. And, of course, it also allows you to better allocate time and money to areas where you are missing the mark.
Time
In most schools, the cost of labor is the highest expense, so it is vital to get staffing right. As Marguerite Roza and Lucretia Witte wrote in a 2015 Independent Ideas blog post, “for some independent schools, labor costs can approach 90% of total expenses.”
In the independent school world, we expect our teams to be “all-in” on our traditions and culture, but leaders need to bolster that expectation with some form of accountability. We want to maintain teachers’ independence, but we can assess the allocation of their time during the workday and give appropriate credit for what many do outside the building. Are employees accomplishing the tasks they’ve been assigned—or given themselves? Can student success and parent satisfaction—or struggle and frustration—be traced back to time invested by specific employees? Can poor performance and dissatisfaction be traced back to inefficient use of time, and can that be improved?
Auditing time in this way protects your employees. By paying closer attention to how they spend their time, and guiding that expenditure, school leaders can recognize discrepancies in workloads and expectations that may lead to burnout. While it may seem efficient to cut staff and ask those who remain to do more, inevitably the remaining staff get tired, which leads to dissatisfaction, which leads to faculty attrition, which leads to student and family attrition. And, of course, those things lead to a large financial loss. Making sure that responsibilities assigned to teaching and non-teaching roles have high but achievable expectations is the key to getting the most out of everyone’s time. “Productivity is not about keystrokes or minutes online,” Zeb Evans wrote in an October 2022 Fortune commentary. “Analyzing and improving productivity comes down to efficiency and working smarter, not harder.”
Conducting a C.O.S.T. analysis, whether you are the leader of a classroom or a school, can help quantify the things that make independent schools great: the culture, the incredible offerings, the satisfaction of students and parents alike, and the time invested in student development. Improvements in these areas help support and empower teachers and staff who are delivering an excellent education, which will keep families at your school re-upping their enrollment and telling others to schedule a visit.