Key Financial Metrics for Boards

Higher education governing boards are stewards of the financial resources of their college, university, or system—in fact, protecting their institution’s long-term financial health is one of the board’s most important fiduciary responsibilities. Effective boards provide strategic oversight without becoming sidetracked by operational issues that are the purview of institutional staff.

Yet when a college or university faces declining enrollments and revenues, rising costs, or a shrinking endowment, campus leaders must often consider painful ways to overcome budget deficits, such as eliminating programs, cutting staff, and deferring facilities maintenance. These cost-cutting measures might be necessary when the institution is in tough financial circumstances, but they can limit student success and future enrollments, which could in turn spiral and threaten the institution’s viability. In other words, the stakes are high when a college or university experiences financial stress.

Therefore, all higher education governing boards need financial data that is timely and accurate, with the appropriate level of detail to enable trustees to exercise their strategic fiduciary responsibilities. Fortunately, certain metrics can eloquently summarize an institution’s financial situation. Presidents, board chairs, cabinet members, board professionals, and committee chairs are among those who may choose to incorporate this data into dashboards and committee reports. Moreover, trustees can use these metrics to ask relevant questions about their institution’s business model and make informed strategic decisions without spending time second-guessing every expense or budget line.

The following list explains some of the most common financial metrics that boards should consider. More information about the concepts in this list is available in chapter 2 of AGB’s publication Higher Education Business Models Under Stress, the report Collaborative Leadership for Higher Education Business Model Vitality, and Making the Grade: How Boards Can Ensure Academic Quality, 2nd Edition.

1. Net Tuition Revenue/Expenditures

Net tuition revenue reflects the actual income received from tuition after accounting for scholarships, grants, and other financial aid. The ratio of net tuition revenue to expenditures shows what fraction of annual educational and general expenditures net tuition covers. In other words, it indicates the institution’s dependency on tuition as a primary revenue source. Boards should track the trend lines of net tuition revenue/expenditures over several fiscal years and project future trends. This helps in assessing the sustainability of this core revenue stream and making necessary adjustments to tuition policies or financial aid strategies.

2. Endowment per Full-Time Equivalent (FTE) Student

The endowment per FTE student is a measure of the financial resources available to support each student. A healthy endowment can provide a stable source of income, support scholarships, and fund strategic initiatives. Boards should monitor the growth and utilization of the endowment, ensuring that these measures align with the institution’s mission and long-term goals. This metric also helps in evaluating the institution’s ability to weather financial uncertainties and invest in future growth.

3. Marketing and Recruiting Costs

Boards should know the total annual expenditures committed to marketing and the average recruiting cost per matriculated student. Marketing and recruiting costs are significant expenditures that directly impact enrollment numbers, so trustees can use this data to evaluate the effectiveness of these investments by comparing the costs to the number of matriculants and the overall enrollment trends. These metrics help in determining the return on investment for marketing and recruiting efforts, as well as identifying areas for improvement or reallocation of resources.

4. Annual Debt Service per FTE Student

Annual debt service per FTE student measures the institution’s debt obligations relative to its student population. High debt levels can strain financial resources and limit the institution’s ability to invest in new initiatives. Boards should monitor this metric to ensure that debt levels are manageable and that the institution is practicing prudent debt-management strategies.

5. Deferred Maintenance per FTE Student

Deferred maintenance per FTE student is an indicator of the institution’s investment in maintaining its physical infrastructure. Neglecting maintenance can lead to higher costs in the long run and negatively impact the campus environment. Boards should track this metric to ensure that adequate resources are allocated for maintenance and that the institution’s facilities are in good condition.

6. Student Attrition and Retention Rates

Attrition and retention rates are critical indicators of student satisfaction and institutional effectiveness. High attrition rates can lead to revenue losses and damage the institution’s reputation. Boards should analyze these rates to identify underlying issues and implement strategies to improve student retention and success. This information is most valuable when shown by class year.

7. Instructional Costs per FTE Student

Spending dedicated to instruction for each FTE student helps boards see how well expenses align with the institution’s core educational mission. Monitoring this metric over several years supports accountability and transparency, demonstrating a commitment to prioritizing educational quality. By understanding and examining this cost data, boards can identify areas for improvement, restructure high-cost programs as needed, and explore cost-saving approaches without compromising quality.

8. Percentage of Budget(s) Dedicated to Innovation

Innovation reflects the institution’s commitment to staying competitive and relevant in the higher education landscape. Boards should evaluate the investment in new programs, technologies, and partnerships that align with the institution’s mission and strategic goals. This metric helps in assessing the institution’s ability to adapt to changing demands and seize new opportunities.

9. State and Local Appropriations per FTE Student

State and local appropriations per FTE student measure the amount of financial support provided by these entities for the student population. Boards should monitor this metric to understand the level of public investment in their institution and to advocate for adequate funding. This metric is particularly crucial for assessing the financial stability and sustainability of regional public universities and community colleges, which rely heavily on state and local funding, especially in times of budget cuts or economic downturns.

10. Workforce-Development Program Revenue

This metric measures the income generated from specialized programs that support local labor-market needs. Boards at institutions where workforce development is part of the mission should evaluate this data to ensure that the institution is effectively meeting the needs of the community and generating sufficient revenue to support these initiatives. This metric also helps in assessing the impact of workforce-development programs on the institution’s overall financial health and community engagement.

The examples above are some of the key financial metrics that allow boards to make informed decisions, support the long-term viability and success of their institutions, and fulfill their fiduciary responsibilities. Boards must always interpret such data, however, within the context of their institution’s mission and use it to focus on the institution’s strategic direction. In doing so, they ultimately benefit students, faculty, and the broader community.

AGB used AGB Board Bot^TM in the development of this blog post to help summarize recommendations from our extensive library of content.