The Business of Auxiliary Services

In many schools, revenue from auxiliary services is making up a greater percentage of the operational budget than philanthropic dollars. Between after school, vacation camps, rentals, and summer programming, 35% of campus facilities use may be going to AUX services. The dollars generated by AUX services have become a critical piece of the budget for many schools and I’m hearing calls for treating AUX services as its own business unit. I don’t think that’s appropriate because there are expenses that AUX services almost never counts – like their proportional share of facilities usage – that would be part of a P&L for a stand alone unit. Regardless, as more schools look to grow non-tuition revenue, getting a better handle on AUX services as their own revenue generating centers makes sense. 

A full P&L statement would show the financial performance of AUX services by:

• Revenue: All income generated by AUX services (tuition fees, program fees, rentals, sales, etc.)
• Expenses: All costs associated with running AUX service (staffing, materials, facilities, etc.) These include direct costs such as year round, seasonal and part time salaries and benefits, materials, and equipment. Then there are indirect costs such as the proportional share of utilities, administration, and facilities usage. Finally, allocated overhead, which is a fair portion of school-wide expenses.
• Net profit/loss: The difference between revenue and expenses

Developing an AUX P&L helps school leaders make informed decisions about whether to continue, expand, or modify services based on financial performance. (Note: There may be reasons that a school would want to keep a particular AUX service line other than financial performance, but that should be a considered decision not an uninformed one. This could include running a program for community outreach, improving town/gown relations, creating a pipeline for new students, or keeping all employees in dining services and facilities employed year round. For K-8 schools it might be providing after school options that are critical to working parents and an important tool in helping stem attrition.)

A comprehensive P&L for AUX service – if you see this as an actual business unit – might include the following:

Direct Personnel Costs

• Dedicated year round auxiliary staff salaries + benefits and seasonal employee compensation
• Partial allocations of shared staff time:
  
  • Faculty who teach/supervise in auxiliary programs. This requires prorating salaries between teaching during the standard school day and assisting with AUX programming oftentimes after school or vacation camps.
  • Nursing coverage for after-school programs or summer activities including prorating salaries if shared with nursing duties during the school day.
  • Business office staff processing auxiliary program payments, contracts, employment agreements, background checks, and reconciling accounts. Is this equivalent to an FTE? Part-time?
  • Marketing/communications personnel creating materials for auxiliary programs. What is the average number of hours per week they are spending on AUX services?
  • IT support for auxiliary programs and operations
  • Security personnel working extended hours or summer coverage. If you have security personnel who would otherwise leave at the end of the regular school day but are instead staying on for extended day or otherwise working because of summer programming, those costs should be reflected in the P&L.
  • Facilities staff supporting auxiliary spaces
    

Operational Costs

• Facilities and Space:
  • Proportional utilities costs during program operations
  • Additional cleaning services or increased frequency. If cleaning of classrooms, common spaces, dining halls, and gyms is happening daily during the summer only because of AUX services then this should be captured in the P&L
  • Wear and tear/depreciation on facilities uses
  • Maintenance costs specific to auxiliary spaces
  • Proportional HVAC costs for extended hours/summer usage
    
• Partial allocations of shared staff time:
  
  • Faculty who teach/supervise in auxiliary programs. This requires prorating salaries between teaching during the standard school day and assisting with AUX programming oftentimes after school or vacation camps.
  • Nursing coverage for after-school programs or summer activities including prorating salaries if shared with nursing duties during the school day.
• Administrative Overhead:
  
  • Proportional technology infrastructure costs
  • Software specific to auxiliary program management
  • Phone/internet service extensions or mobile phones for auxiliary operations
  • Equipment depreciation (computers, program-specific equipment)
  • Proportional accounting/payroll processing costs
• Insurance and Legal:
  • Supplemental liability insurance for auxiliary activities
  • Workers' compensation for seasonal/auxiliary staff
  • Legal review of auxiliary program contracts and waivers
  • Risk management consultations specific to auxiliary offerings
• Marketing and Communication:
  • Website development and maintenance for auxiliary programs
  • Advertising and marketing costs 
  • Design and production of marketing materials
  • CRM system costs for managing auxiliary customers
  • Registration system costs and maintenance
• Program-Specific Expenses:
  • Supplies and materials
  • Compliance costs. Licensing fees. Accreditation fees.
  • Transportation costs
  • Field trip expenses
  • Guest instructors/speakers/performers
  • Equipment rental
  • Curriculum/program development 
  • Snacks/meals 
  • Revenue sharing with outside program providers
    

Overlooked Costs

• Cash Flow Management:
  • Processing fees for credit card payments
  • Administrative costs of managing accounts receivable
  • Bad debt from unpaid program fees
  • Merchandise for school stores and the carrying costs of that merchandise
• Opportunity Costs:
  • Lost rental income from spaces dedicated to auxiliary programs
  • Administrative focus diverted from core operations
• Capital Expenses:
  • Dedicated equipment for auxiliary programs
  • Facility modifications to accommodate programs
  • Technology purchases specific to auxiliary needs
• Professional Development:
  • Training seasonal staff
  • Certifications and specialized training required for specific programs (lifeguarding, first aid, high ropes training, climbing wall training, boating, etc.)
  • Conference and workshop attendance for auxiliary leadership 

Key Questions for School Leadership

For heads of school, CFOs, and trustees conducting a thorough analysis, here are questions to be asking about auxiliary services:

Strategic Questions

1. What are your objectives for auxiliary services? Is your primary goal revenue generation? Providing a service to the local community? Something else? Being able to answer this question is critical. You can’t have several equally important objectives. You will need to choose and rank.
   
   I recall meeting with a very talented head of a summer school over the course of several years. This fellow was only allowed to run a summer session that was an extension of the same program offered as that in the academic year. This offering was not of great interest to the summer market, yet he was not allowed to offer significantly different programming because it was seen as being off mission. Nonetheless, he was under tremendous pressure to bring in more revenue. He could not get the board to choose the higher priority – their interpretation of mission advancement or revenue generation. Every time we met I saw that his frustration was growing until he quit in frustration.
   
   Clarity around the goals of AUX services and then communicating those clearly and confidently to the community and doing so frequently is important. And every year you need to make this determination again. Priorities can change. Revenue generation may remain #1, but instead of #2 being improved community relations, #2 may become getting prospective students to campus.
2. Revenue versus net revenue?: Because so many schools don’t use cost accounting, they often assess the AUX revenue as a simple percentage of operating income and as that proportion goes up, it may appear that AUX revenue is providing more and more contribution to the bottom line. But I’ve seen cases where as revenue has increased, net tuition has actually stayed flat because the expenses to drive that additional revenue outpaced the revenue increase. 
3. Competitive Position: How do your offerings compare to alternatives in your market? By age group? Price? Breadth of offerings – academic, athletic, recreational? Transportation? How late in the day do you offer after school? How many weeks of camp?
4. Brand Impact: How does this auxiliary program affect your school's reputation and visibility? Because the price point on AUX programs is lower than a year’s worth of tuition, AUX service can provide exposure to your school for school age families who otherwise would not have you on their radars. But brand impact can also harm a school.  A number of years ago a poorly run summer camp deeply wounded the school to which it was attached. And rightfully so. A camper died and the ensuing press coverage showed that the camp was clearly negligent. The PR issues had a damaging effect on the school as families wondered how the school could have had such poor supervision and lack of systems.
5. Facility Utilization: Does this program optimize your use of facilities during otherwise idle periods? What is the impact on construction and renovation work? Occasionally to get through a camp season, facilities work is compressed into a shorter period than it would be otherwise with the ensuing result that the cost of the work can go up significantly. The math may show that financially you’re better off cutting back on the number of weeks of offerings for a given year, but families may rely on the services you offer. This is where being clear on priorities is necessary.

Financial Analysis Questions

1. Full Cost Recovery: When accounting for all direct and indirect costs, is the program genuinely profitable?
2. Pricing Structure: Are we charging appropriate rates that reflect the true cost of service? It’s admirable to keep things affordable for families, but if you are subsidizing some offerings, remember that the dollars have to come from somewhere. 
3. Cross-Subsidization: If you are subsidizing some lines of business, why and to what extent?
4. Scale Analysis: Is the program operating at optimal capacity, or could profitability improve with scale?
5. Trends Over Time: How have the economics of this program changed over the past 3-5 years?

Operational Questions

1. Staff Allocation: Are we accurately tracking and accounting for staff time dedicated to auxiliary programs? Some AUX year round teams are able to take on website updates, marketing, billing, and accounting, while for other teams, much of this is handled by other departments. If this type of work is handled by other departments, there is a good chance that your net revenue is not as high as you might think given you are using resources that are being paid for by core operations. That said, if you have staff in various departments who are otherwise not fully employed, the additional work for AUX services can be what’s needed to fill a schedule on the margin to make someone an FTE, which can be a real benefit to the school. 
2. Seasonal Adjustments: How do we account for variation in overhead between peak and off-peak periods?
3. Risk Management: Have we properly valued the risk management aspects of these programs? Given the tremendous costs that can be associated with a child or staff member becoming injured, this is an area that should be deeply investigated.
4. Infrastructure Support: Are we appropriately charging for technological and administrative infrastructure?
   

Implementation Strategies

1. Conduct a Time Study: Have key personnel track their time dedicated to auxiliary programs for a representative period. This helps identify hidden personnel costs that may be absorbed by core operations. 
2. Develop Activity-Based Costing: Create a model that assigns costs based on activities. Rentals. After school. Summer offerings. School stores. Guest houses and inns. This reveals the true resource consumption of the various lines of AUX business.
3. Establish Clear Internal Service Agreements: Document the expected support from core departments (IT, facilities, MarCom, business office) with associated costs clearly defined. This is an area where the dreaded “islands of resentment” can build. For example, MarCom may be having a hard time keeping up with the demands of admissions, advancement, and AUX services. Which department is first in line? How is MarCom time allocated and who makes the decision?
4. Benchmark Pricing: Compare your auxiliary program pricing with similar schools and other options to see if you might be under or overpricing in your market. Sometimes there are nice-to-have aspects to programs that you could offer – transportation, family nights, sleep overs – but they may not fundamentally increase AUX revenue and come with additional expenses. Be careful of overbuilding. 
5. Conduct Regular Program Reviews: Implement a rotating schedule of deep-dive financial reviews for different auxiliary lines.You may find that the after school program is not profitable at its current price point, but the summer camp is. Rental income may not be high. Does the public know you rent facilities? Are you charging market rates including capturing the cost of staffing for the rental period, custodial support, wear and tear? 
6. Review Outside Program Providers: Increasingly, more schools are looking to outside parties to provide some part of their programming. These outside providers can offer a way to diversify AUX offerings that are in demand by families and would be too difficult for year round staff to design, build, and staff.
   
   In many of these cases, the school registers students and often there is a revenue sharing agreement with the third party. (Otherwise it’s a straight rental arrangement.) What is critical from a risk management perspective with these outside entities is that they are carrying their own liability and workman’s compensation insurance (providing a certificate of insurance making the school a named insured); they are conducting background checks on their summer employees; employees have the necessary certifications or training to be in compliance with local or state regulations; they are conducting reference checks on staff; and the training their summer staff who are interacting with your students meets basic standards including safety, incident reporting, and mandated reporting requirements. There should be clear contracts with each party detailing the requirements, revenue sharing arrangements, training, and minimum insurance coverage. All of this should be in writing. Because third parties are working directly with students that the school has registered and will have on campus, the school has a duty to review these materials.
7. Assess Non-Financial Contributions: There may be a belief that the summer camp helps bring families to campus and is playing an important role in helping market the school and bringing in new families. This may be the case and this is where AUX services partnering with admissions can track the data. If this is a serious objective, you need to collect the data to ensure accountability. Your school may also want to ensure that it is fulfilling its public purpose and therefore is making facilities and programs available to the local community at cost or for free to fulfill its charitable purpose.

Final Considerations

Ideally, auxiliary programs maintain a balance between mission alignment and financial sustainability. By implementing cost accounting, school leadership can make intentional decisions about which programs to grow, adjust, subsidize, or sunset. As tuition revenue covers a smaller and smaller proportion of school expenses, generating AUX revenue will become more and more important. Schools are branching out well beyond after school, summer camp, school stores, and rentals. I recently spoke to a head of school who is looking at buying a hotel, while other schools with open land and in areas where housing is in demand are building not only faculty housing, but additional housing that they are turning into year round or seasonal rentals. One school purchased a college counseling service that offers fee-for-service to the broader community while another developed a software platform for faculty growth that they now offer as a service to other schools.

Auxiliary programs can provide intangible benefits beyond direct revenue, such as feeder pipelines for new students, community engagement opportunities, and enhanced school visibility. These benefits should be acknowledged alongside revenue generation.

For a given school, the number one objective may not be revenue, but it’s essential to be clear on priorities. Ensuring cross-subsidization happens by design rather than by default allows for strategic decision-making that supports the school's long-term financial health and mission fulfillment.