THE EXPECTED, BUT UNSTATED PROFIT MARGIN

Georgia Military College

• Two-year liberal arts public independent college• 5 branch campuses, 3 extension centers, new branch

opening next year• 3 branches have larger student enrollment than our main

campus

Georgia Military College

• Tuition driven – no line in state budget

• Accelerated quarter system (5 eight week terms)• Over 8,500 students statewide, 250 cadets at main

campus

• Campus Directors report directly to the President.

Budgeting• Most branch campus leaders operate within a target

budget for expenditures.• Several more plan for revenue targets to support, in part

or in entirety, proposed expenditures. • What may not be clearly stated is an expected profit

margin.

Profit Margin• Most campus leaders in non-profit higher education do not

mention the word profit margin even if they are aware they are operating within some unstated margin.

• Consider how your approach to the budget process would change if you planned your expenditures, however you wanted, as long as you met a certain revenue target and a certain profit margin target?

Your Current Situation• How many of you budget for expenditures?• How many of you budget for expenditures and revenues?• How many of you are assessed an overhead allocation in

some form?• How many of you budget for a stated or unstated profit

margin?

Georgia Military College• Operated with an unstated profit margin for the last 15

years

• Transitioned to the profit center model in planning for FY13 budget• Stated profit margin goals for each campus

How Profit Center Budgeting Works• Provided a campus revenue goal

• Determine how that revenue goal will be met• Tuition and fee rates (set locally with approval)• Credit hours/Enrollments• Other revenue sources (bookstore, misc. income, etc.)

• Provided a profit margin goal• Determine expenditures to reach profit margin

• Real estate lease cost are excluded from initial profit plan but no other expenses are excluded

• All salaries and benefits are included

• Is this drastically different than what you do now?

Profit Plan Summary ExampleRevenue FY15Matriculation $9,500,000Fees $1,000,000Bookstore $1,100,000Other $20,000Total Revenue $11,620,000   Expenditures  Payroll and benefits $3,546,200Travel $40,000Operating Expenses (excluding facility lease cost)

$2,340,000

Total Expenditures $5,926,200Net Contribution $5,693,800Profit margin 49%

*The numbers in chart are for illustrative purposes only.

Advantages of Profit Center Model• No line item review of budget at submission• Monthly review of revenue and profit margin instead of

line item or department review• 10% allowance for over/under • Campus level autonomy for expenditures• More regular attention to the bottom line (takes less time

than the line item review)

Challenges of Profit Center Model • Determining the profit margin goal• Increasing the profit margin goal• Adjusting for capital improvements or large-cost initiatives • Adjusting from line specific to monthly overall details• Enrollment sharing

Relationships and the Profit Center Concept

• Inter-campus relationships (between campuses)

• Intra-campus relationships (within the campus)

• Institutional/Campus relationships (between campuses and main campus)

Impact on the budget manager• Would you approach the budget process differently under

this model?• How would you integrate ROI with institutional goals such

as improve student learning and the profit center model?

Phase Two - Main Campus Moving to Profit Center Model• Hiring a campus director for main campus• Main campus staff are being allocated to the campus

versus institutional • All campuses will be assessed overhead allocation for the

institutional expenses coupled with the profit margin goal• Main Campus will operate on profit center model

Keep Profit Margin in Mind• Even if you do not have a stated profit margin keep the

idea of profit margin in mind when you build your campus budgets or submit expenditure requests

• Be clear on the revenue your campus or department generates and leverage that in your requests

Follow Up Discussion• What are you initial thoughts about the stated profit center

concept?• Would you expect this process to be easier than what you

do now? • What advantages would you envision with this plan that I

did not cover?• What challenges would you envision with this plan that I

did not cover?• Would you approach the budgeting process differently

based on your revenue impact?• How could you use this model to your advantage?