By David
Posted June 1, 2009
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There are different models for private school tuition. At one extreme, we have the idea that charging top dollar implies that the students will receive top value in terms of a quality education -- and often, that is the case. This model can be found in private grade schools, prep schools, Ivy League universities, etc. It is similar to the notion that it makes sense to pay a premium price for a Mercedes, because it is viewed by many as having a superior engine in comparison with lower-cost vehicles.

At the other extreme, there is the strategy of finding the tuition price point that will maximize revenue, utilizing a typical Supply and Demand model. Under this plan, we look for the tuition price point at which the maximum number of students would apply for admission. Of course, this could lead to a losing proposition for the school, if it must increase its fixed costs to handle the increased student body size beyond a certain point. So, it is important to take certain measures to ensure that the increased student population results in a profitable equation.

The essence of this model is to offer an academic and/or artistic program that is affordable, yet recognized as no lesser quality than that which is offered at much higher tuition levels in other schools. In other words, offer the Mercedes quality at affordable prices.

Finding The 'Right Price'

I recently had the opportunity to speak with a number of Jewish Day School parents, many of whom have been negatively affected by the downturn in the economy, and some who have found tuition to be almost unbearable even in normal economic times. The question I wanted to answer was, "What is the 'correct' price that the majority of the parents could comfortably afford to pay for their children’s tuition, keeping in mind that most families have two or three children."

I found that the typical comfort zone was $5,000 per child, per year. At that price, there would be practically no economic hardship for this particular group. So, I tried to come up with a tuition pricing model that could work at the $5,000 level.

Some of you may question whether this is possible, or whether it’s just wishful thinking. The answer is undoubtedly yes, it is possible, and it has been done for many years in various places in public education.

Of course, in the case of private schools, there is a tendency to raise the prices just as soon as a school gains sufficient popularity. Thus, the $5,000 model is less prevalent -- not because it is not possible, but because of a choice that successful, well-established schools make in order to maximize profitability.

Pricing In Practice

Here are just two examples of low-cost, yet academically renowned institutions that are full, with waiting lists, as well:

1) The Cooper Union College in New York City, which is competitive with any Ivy League school of engineering, yet is free (although funded by alumni donations), and

2) UCLA, which is well known for its academic excellence that meets or exceeds that of USC, at a fraction of the cost.

In both cases, we have examples of lower cost (or free) schools able to build reputations for excellence. Yet, they also teach us some valuable lessons, including the point that "free" only works with a substantial outside revenue stream, as in the case of Cooper Union and its alumni donations. That is one reason why I do not advocate a totally free program.

Revenue generated from tuition must be sufficient to provide a high-quality program, and to avoid reliance on outside funding that can be cut at any time -- such as the recent California state budget deficits that affect UCLA.

I would also add a third example, which is the Pinecrest School (Preschool through Middle School), which operates 11 campuses in California. They charge approximately $5,000 per student, which includes after-school enrichment classes at no additional cost. Is this possible? Sure. The folks at Pinecrest have been successfully operating their schools for the past 56 years. Academically, Pinecrest is known to be above average, but not at the top of the heap. Still, it is one of the few schools that has been rapidly expanding and it offers a very considerable value-proposition to its students.

Making It Work

Looking at these three examples, we can now piece together each school's most important features to flesh out our own $5,000 model.

Under this model, there is a three-step process:

1. Determine the price point at which a maximum number of applications will be received by the school. Notice that we say "applications," not students. That is key.

2. Determine the maximum number of seats available without a significant fixed-cost increase, and at which the school will still be in profit.

3. Rank the top-quality applicants to fill the available seats.

4. Only admit the best of the best applicants, keeping in mind that some will excel at academics, while some may display other outstanding talents like sports, music, art, etc.

Recap

With this model, some of the main goals would be:

1. To offer a low-cost tuition (but still operate at a profit).

2. To produce a sizable student body in order to provide a dynamic and well rounded social environment.

3. To have enough applicants to select only the best, thus boosting the academic, artistic, and leadership programs offered by the school.

4. Improving the school’s academic standing in the community by building a reputation for academic, artistic, and leadership excellence.

Having a reputation for excellence will ultimately help attract better and better candidates into the school, and also produce financially successful and influential alumni.

This strategy, I believe, can be used as the foundation for a top-notch, self-perpetuating private Jewish day school that can survive and thrive with a $5,000 tuition plan.