Decoding the Enrollment Marketing Budget

Most enrollment leaders struggle with precision when planning an enrollment marketing budget. The marketing cost to acquire a particular class is indeed calculable, but only if the institution is prepared to measure individual marketing initiatives. And while there may be a great deal of certainty about the divisional budget as a whole, when it comes to knowing and evaluating how much to spend on the array of channels, most enrollment professionals seem to rely more on intuition than metrics. Why is this?

First, I believe that the difference between marketing and sales is not well understood. They are indeed distinct from one another. Marketing encompasses sales, but the activities, talents and budgets differ. Rick Bailey, principal of RHB provides an excellent primer here.

Second, the tools for evaluating marketing success in higher education have been adopted relatively slowly. For instance, the introduction of digital marketing tactics introduces a host of new metrics to evaluate.

Third, there seems to be a broad unwillingness to overtly associate the success of a marketing initiative by how much revenue it generates.

Nonetheless, you can successfully calculate a marketing budget and you will need three formulas to do so. The first is the cost to acquire an individual conversion during the customer journey (CPA). The second is the cost to acquire the customer or enrolled student (CAC). The third is the customer lifetime value (CLV). For the purposes of enrollment marketing, let’s modify this to be student lifetime value or (SLV). Knowing these three values allows you to determine what your marketing budget can be. Know that this calculation is for marketing activity but can easily accommodate a sales budget (admission rep salaries and benefits, travel time, and the like).

CPA

Why is this calculation valuable? First, it allows you to get a sense of how much you’re spending to acquire a conversion. CPA allows you to measure the success of individual tactics, at different conversion points to understand your investment. This is where the alternate description of CPA, or cost per Action is helpful. For instance, if you were to invest in junior student search, you would calculate the cost of the purchased name, any creative/development/placement fees and divide by the number of inquiries (however you define those, but usually by form completion) to get a cost per inquiry or cost per action. You might do this to understand the value of the list source (and/or the external vendor you engage), but this specific cost per conversion to inquiry is only a part of the story. Although it may seem natural to only use the CPA formula for direct response tactics without acquisition fuzziness, it can also be used to evaluate other initiatives like campus visit or application appeals.

CAC

The second formula is CAC or the cost to acquire a customer. Crudely, CAC is the aggregate of all of the individual actions on the customer journey. Entreprenuer Brian Balfour defines CAC this way: “CAC specifically measures the cost to acquire a customer. Conversely, CPA (Cost Per Acquisition) measures the cost to acquire something that is not a customer.” These “somethings” are typically defined as: inquiry, visitor, applicant, admit and enrolled students.

CAC= Total Marketing $+Total Sales $/total number of new students

SLV

The third piece of the budget puzzle is student lifetime value (SLV). This can be calculated in this way:

SLV = m (r/1+i-r)

m is defined as the margin. Margin is the price you charge a student, minus the cost of serving that student. You may need to call the CFO to know the margin.

r is defined as retention rate.

i is defined as the discount rate.

Once you have the SLV average, you can use it to set a maximum on what you can spend to acquire each student (CAC). Easy right?

Let’s dive a little deeper into each.

You can use CPA as the basis for testing a mix of initiatives. You may have SEM and paid social running concurrently. If you vary your investment in each at planned intervals, you can watch the effect on CPA for each channel. You can introduce CPA as the evaluation for A/B testing analysis as well.

Discussing student lifetime value (SLV) can seem somewhat controversial (or crass), particularly in light of recent news about wealthy parents endeavoring to buy admission for their students. Eric Hoover’s latest Chronicle profile of Lloyd Thacker highlights the resistance to the clinical nature of the modern enrollment management machine. Revenue must be a consideration when evaluating marketing investments toward institutional priorities but, of course, it’s not the only quality to consider, from my perspective. With that caveat, let’s discuss.

First, SLV considers two buzzy topics in higher ed. First, is the discount rate and the second is retention. If you need more evidence that campus marketers need to understand and be involved in initiatives beyond promotion, look no further than Ohio Wesleyan’s Connection or Odyssey at Hendrix. My advice when calculating SLV is to use average retention and discount rates. However, you’ll see that CAC will fluctuate with populations that have extremes within either retention or discount rates.

So, while SLV and CAC/CPA are related, they exist to optimize value by generating more income. And here’s the significance of understanding these two calculations in non-profit higher ed where students have intrinsic missional value unrelated to, and often in opposition to, income: If you don’t know how much it costs to acquire each type of student, you can’t build a budget to recruit all types of students.