With the rising costs of education, changing student demographics, and the push for digital transformation in learning, FP&A teams of higher education institutions play a crucial role in identifying and tracking specific metrics to gauge their organisations' financial and operational health.

These Key Performance Indicators (KPIs) clearly show how well an institution is performing against its goals, helping decision-makers steer the institution toward long-term sustainability.

While we are familiar with the important KPIs for businesses in general, this blog explores the most critical KPIs for the higher education sector which help FP&A teams of universities and colleges ensure they are efficiently allocating resources, meeting student needs, and achieving strategic objectives.

Financial KPIs for Higher Education:

Higher education institutions often face tight budgets and rising costs, making financial KPIs crucial for maintaining fiscal responsibility. These KPIs allow FP&A teams to monitor cash flow, revenue, expenses, and overall financial health.
 

1. Revenue per Pupil (RPP)

Revenue per pupil measures the total revenue the institution generates divided by the total number of students enrolled. It offers insights into how well the institution is generating income from tuition, fees, government grants, and other sources relative to its student base.

For FP&A teams, this KPI helps assess financial sustainability. A declining revenue per student could signal issues such as rising costs or insufficient tuition rates, prompting the need for cost-cutting measures or revenue diversification strategies.

Example: If a university earns $100 million in revenue and has 20,000 students enrolled, the revenue per pupil is $5,000.
 

2. Cost per Student

Cost per student measures the total expenses incurred by the institution divided by the number of students enrolled. This includes costs related to faculty salaries, facility maintenance, student services, and academic resources.

Monitoring the cost per student is essential for FP&A teams because it directly impacts financial planning. An increasing cost per student could indicate inefficiencies in resource allocation, requiring a review of operational processes to reduce overhead and improve budget efficiency.

Example: If a university's annual expenses total $120 million and it enrols 20,000 students, the cost per student is $6,000.
 

3. Operating Margin

The operating margin represents the percentage of revenue that remains after covering the institution’s operating expenses. This KPI reflects an institution’s ability to generate surplus revenue that can be reinvested into academic programs, infrastructure, and strategic initiatives.

For FP&A teams, maintaining a healthy operating margin is critical. A low or negative operating margin can signal financial distress, requiring corrective actions such as budget reallocations, tuition adjustments, or cost-cutting measures.

Example: If a university generates $50 million in revenue and incurs $45 million in operating expenses, its operating margin is 10%.
 

4. Endowment Performance

Endowments provide financial stability for many higher education institutions, supporting scholarships, research, and operational needs. Endowment performance measures the return on these investments over time.

For FP&A teams, closely monitoring the endowment's performance ensures that funds are being managed effectively. Poor investment performance could threaten the institution’s financial stability, necessitating a review of investment strategies or withdrawal policies.

Example: If a university’s endowment is valued at $1 billion and achieves an annual return of 7%, the endowment performance would be $70 million.

 

Student-Centric KPIs

Students are at the heart of any higher education institution. KPIs that focus on student enrollment, retention, and outcomes help FP&A teams assess institutional effectiveness and make data-driven decisions to enhance student experiences.
 

1. Enrollment Growth Rate

The enrollment growth rate measures the percentage change in the number of students enrolled over a given period. This KPI is a vital indicator of the institution’s market appeal and competitiveness.

For FP&A teams, tracking enrollment growth helps forecast future revenue and capacity planning. A declining enrollment rate may signal a need for increased marketing efforts or adjustments to academic offerings to attract more students.

Example: If a university had 10,000 students last year and now enrols 10,500, the enrollment growth rate is 5%.
 

2. Student Retention Rate

The student retention rate measures the percentage of first-year students who return for their second year. A high retention rate indicates student satisfaction and the institution's ability to support students academically and socially.

FP&A teams rely on retention data to assess the effectiveness of student services and allocate resources to programs that foster student success. A low retention rate may indicate a need for better student engagement, academic advising, or financial aid services.

Example: If 1,000 first-year students enrolled and 900 return for their second year, the retention rate is 90%.
 

3. Graduation Rate

Graduation rate measures the percentage of students who complete their degree programs within a set timeframe, typically within four to six years for undergraduate students.

For FP&A teams, the graduation rate is a key indicator of the institution’s ability to deliver on its academic promises. A low graduation rate may signal issues with curriculum effectiveness, student support services, or even financial accessibility, prompting FP&A teams to re-evaluate where resources are being allocated.

Example: If a cohort of 1,000 students enrol and 700 graduate within six years, the graduation rate is 70%.

 

Operational KPIs

Higher education institutions must manage extensive infrastructure, from academic buildings to student services. Operational KPIs help FP&A teams track resource utilisation and ensure efficient operations.
 

1. Faculty Turnover Ratio

Faculty turnover ratio is a key KPI in higher education, measuring the rate at which academic staff leave an institution within a given period.
High turnover can signal issues like job dissatisfaction or lack of growth opportunities, impacting educational quality and student experience.

Example: If a university’s turnover rate jumps from 5% to 12% within a year, it may need to review its retention strategies to maintain faculty stability.
 

2. Staff-to-Student Ratio

The staff-to-student ratio measures the number of faculty and staff relative to the student population. A lower ratio typically indicates more personalised instruction and support, which can improve student satisfaction and outcomes.

For FP&A teams, maintaining an optimal staff-to-student ratio is important for budget planning. A high ratio could mean staffing inefficiencies, while a low ratio could result in a strain on staff resources, impacting the quality of education and student support.

Example: If a university has 500 faculty members and 10,000 students, the staff-to-student ratio is 1:20.

 

Other KPIs

External factors such as donor support and alumni engagement also play significant roles in the financial health of higher education institutions. Tracking these KPIs helps FP&A teams ensure a diversified revenue base.
 

1. Student Aid & Scholarships

Student aid and scholarships is a vital KPI in higher education, tracking the financial support provided to students through grants, scholarships, and loans. This metric reflects an institution’s commitment to making education accessible and affordable. 

Example: If a college increases its scholarship allocation from 20% to 30% of its budget, it signals a strong investment in student support, potentially enhancing enrollment rates and attracting a diverse pool of applicants who may not otherwise afford tuition.
 

2. Grant and Research Funding Growth

Many higher education institutions rely on grants and research funding to drive innovation and bolster their academic reputation. Tracking the growth of this funding allows FP&A teams to assess the institution’s research impact and competitive position.

For FP&A teams, increasing grant and research funding not only supports the institution’s mission but also diversifies revenue streams. A drop in funding may indicate the need for improved grant application processes or enhanced collaboration with industry partners.

Example: If research funding grows from $20 million to $25 million year-over-year, the growth rate is 25%.

 

Conclusion:

In the ever-changing landscape of higher education, tracking the right KPIs allows FP&A teams to provide actionable insights that drive strategic decision-making.

From financial stability to student success and operational efficiency, each KPI is vital in ensuring the institution's sustainability and growth.

By focusing on revenue per student, retention rates, space utilisation, and alumni donations, among other metrics, FP&A teams can help higher education institutions navigate challenges, meet their financial and academic goals, and continue to provide high-quality education to future generations.