The cost of attracting new customers in most sectors has been steadily rising for many years. The increasing Customer Acquisition Cost (CAC) has been mirrored in the HE sector and significantly for online courses. This acquisition cost includes direct marketing such as digital advertising, staff salaries, marketing software, and other associated marketing and recruitment costs.
Customer Acquisition Cost (CAC) is the cost of winning a customer to purchase a product/service. Wikipedia
A Guardian article in April 2019 lists the total marketing spends of several UK universities. The University of Central Lancashire spent £3.4 million on marketing in the 2017/18 academic year, the University of the West of England spent £3 million, and Middlesex spent 2.6 million. These figures only represent around 1.5-2% of total revenue but equivalent to between 370-280 students’ tuition fees. I could not find specific numbers for online courses but have observed in conference presentations that the marketing spend can be as high as 20% of the student fee, mainly due to a lack of scale.
Any rising cost in running a university has a significant effect. The student loan has been fixed since 2017 and does not rise with inflation. All things being equal, a fixed tuition fee loan means that each year universities need to grow or make cuts similar to inflation (1.6%) to break even. HESA data states that staffing costs represent 54.7% of university expenditure and has decreased by 6.54% over the last seven years. The Institute for Fiscal Studies estimated before the pandemic that at least thirteen of the one hundred and sixty-seven institutions were financially at risk, and several high profile universities, including the University of Leicester, have announced large scale redundancies.
Universities can start to address this freeze in tuition fee loans and increasing marketing costs by first focusing on customer retention and then on customer lifetime value.
Customer retention is the collection of activities a business uses to increase the number of repeat customers and to increase the profitability of each existing customer. Shopify
Customer lifetime value (CLV, or CLTV) is the metric that indicates the total revenue a business can reasonably expect from a single customer account throughout the business relationship. Hubspot
The Guardian article calculated that the University of Bedfordshire spends £432 per enrolled student; if that student stays for a three-year undergraduate degree, it will provide a £27,750 return if the student drops out the first year, this return reduces to just £9,250. HESA data states that 6.3% (20,295) of first-year, full-time UK-based students in the 15/16 academic year did not continue to their second year. That 20,295 students not continuing their course represents almost £190 million lost in the sector for just year two of a degree and double that for losses going into the third year.
“Evaluating who your customers are and dedicating time and effort toward re-engaging them is not only essential, but often comes at the fraction of the cost of sourcing entirely new ones.” Dynamic Yield
Student retention is not a simple thing, and some drop-outs may be unavoidable due to life circumstances. Still, this number can be reduced, especially for institutions with rates of 10% and above. The first step to retention is to collect data on why students are dropping out through exit interviews and use this to build an intervention process that can identify students before they pass the point of no return. A solid intervention process should set clear and high expectations, monitor against those expectations, and intervene when they are not met.
After addressing the most significant issues and with a solid tracking and intervention process, institutions can focus on personalising the student experience. Dynamic Yield, experts in online personalisation, suggest that loyalty and retention efforts should be data-driven and deliver captivating, tailored experiences. Retention efforts should be iterative to build on what works and lose what doesn’t.
The final piece of the puzzle is to focus on the lifetime relationship the student has with the institution. Most graduating students have loyalty to where they studied and will probably require significant upskilling throughout their careers. Universities should build on this relationship, and learning needs to provide ongoing qualifications for their alumni at critical stages of their working lives. Cross-selling comes at a significantly lower cost than acquiring new students allowing the courses to be more affordable or will enable more of the tuition fees to be spent on making the experience better.