On the cost of a Diploma
December 8, 2015 11 Comments
I have written on a number of occasions, about the rise in costs to students around diploma and advanced diploma qualifications since the introduction of VET FEE Help. The other day I suggested that I saw very little justification for pricing a diploma or even an advanced diploma at over $10,000 per student. I was challenged about this statement by a number of people, so I thought it might be worth exploring again and pointing to my justifications for my statements. Firstly I do agree that there may be some qualifications where due to the need for the RTO to have expensive equipment available for trainees that there could be a higher cost, however I think that these are not the norm and in the discussion that follows I will be considering average, highly accessed qualifications. I think where a provider thinks that their costs are outside of what I suggest that perhaps the onus needs to be on them to show us why they think that and not the other way around.
Firstly let’s go back just a couple of years to around 2011/12, where most diploma level qualifications were around the $5,000 mark and advanced diplomas around $8,000. At these levels providers seemed to be profitable and their business models seemed to be working. Now if we scroll ahead to today and apply a CPI increase over that time of about 10% (it was actually a little less but lets just use round numbers shall we) that would make a diploma $5500 and an advanced diploma $8800. However we are seeing prices in the market place above $10,000 for a diploma and in some cases above $15,000. Which leads me to suggest that well one of three things must have happened.
- Costs of delivery have risen by something in the vicinity of 200-300%
- Previous business models were deeply flawed, unable to cope with all of the changes over the last 3 years and needed to be altered, or
- There is perhaps a lot more profit being made then there was 3 years ago.
Certainly one of the things I think has happened is that now providers are charging much higher prices and running courses with substantially lower numbers. As we will see when I throw around some figures if the static cost of running a course is $30,000 then if you are charging $15,000 a student you only need two students to cover the costs, where as back in the old days (2011) you would have needed 6. But it also means that after those two students, except for any small per student on costs everything else is profit.
So lets take a look at how much a diploma might cost. Now remember I am just looking at what an average cost might be.
Firstly we have the costs associated with a trainer. Now lets say we allow $45.00/ hour as a base rate and to calculate our day rates lets say that the ‘day rate’ is made up of 8 hours of teaching and 4 hours of assessment, support and other activities. So that makes the per day cost of a trainer about $630. Lets then allow 2.6 days per unit (face to face) with an average of 15 units making the total number of days 40. This makes the total trainer costs for the course including marking and other activities around $25,200.
We have other costs apart from the trainer though don’t we. For administration lets add in an additional 30 hours at the same rate, which given the efficiency of technology is I think pretty reasonable, that brings us up to $26,550. But wait there is more lets add an additional 75% of that figure to cover general outgoings, management costs and all of those other little things including hopefully some profit. Now we end up with a total cost to run the course of $46,462. Now this is how much it costs to run the course whether there is one student or 15 students, save for perhaps a small resource cost per student. So that total costs to run a face to face diploma course is around $40-50,000. So I need 4-5 students at $10,000/ student to break even and make a little bit of profit (remember I built that in). Any more students than that and the profitability of the course goes up. At $15,000 a student we only need 3 students.
|Daily Rate Including Training, prepartion and assessment||$630.00|
|Days per course||40.00|
|Total Trainer Costs per program||$25,200.00|
|Administration Staff Costs/course||$1,350.00|
|Subtotal of Costs||$26,550.00|
|Costs related to management of programs||$19,912.50|
|Total Direct costs per course||$46,462.50|
This brings a very serious question to my mind, are there really providers out there who are operating on minimum students levels of 2-3 in their classes for face to face? More than that though if we start to think about all of the courses and programs which are being offered online, with the same price tag, yet in some cases 100’s of students, a cost of $15,000 seems completely unjustifiable to me.
Here is my honest opinion, I would probably not run a face to face program for a cohort of only 4-5 students, mainly because I struggle to see how with that small number you are going to get any real social, group learning going on. It is really just going to be a chalk and talk, here are the answers to the questions style program isn’t it? Please someone correct me if I am wrong. Also if I was only attracting that number of students into a course I would be asking myself whether or not there was a market, or if I was doing something radically wrong with my marketing.
Of course I have purposely left something out of this equation. The one single thing that in my opinion has not only caused the massive jump in prices for diploma and above qualifications, but also the thing that has had an incredibly detrimental effect on the sector as a whole and that is education brokers. With brokers taking between 25% and 50% of the cost of a qualification (I recently hear of one who was marketing 79 students who would enrol in any qualification you like, but his cut was 75% of the course fee) it is really easy to see why prices have gone up. At 50% a $15,000 qualification cost become $7,500 for the RTO. It is this cost, the costs providers have been willing to pay brokers, just to get students through the door that has more than anything driven prices up and in my opinion has provided nothing to industry except for numbers.
Anyway, that’s just my opinion.