Making a Buck

• By Julie Sturgeon
• 01/01/07

In the retail world, entrepreneurs can tell you to the penny what it costs them to set aside space for a restroom, a break room, or inventory storage. And you can bet your last dollar they’ve priced their products to cover the lost revenue.

College and university administrators are following suit, finding extra funds from mailing rooms, printing and graphics centers, dining services, and conference rooms. At Lehigh University in Bethlehem, PA, even the 6,000-seat Stabler Arena is expected to turn a profit by renting to ice shows, Black Watch marching band performances, home shows, and arena football leagues when the university doesn’t need it for basketball, wrestling, and graduation events.

Brown University in Providence, RI, recently introduced what it calls the Brown First program with its food services and graphic services departments. Implemented to help the university retain funds that previously drained to external vendors, the money from these auxiliaries will support academic initiatives, the hiring of new faculty members, improving Brown’s health care benefits, and tuition assistance programs.

The Mandatory Question

But while Brown University departments are asked to use their university’s services first, it’s not a mandatory requirement.“It does mean that food services and graphic services are the preferred choice and should be the first vendor you speak with regarding your food or print requests,” Ellen O’Connor, the university’s vice president of Finance, said at the Website FAQ.“However, if they cannot supply what is needed, Brown’s auxiliary services will obtain bids from outside vendors and will manage the contract on behalf of the department or group. There is a service charge for this contract supervision, but the proceeds of this fee ultimately benefit the university’s operating budget.” The preferred pricing the auxiliary departments are negotiating with external vendors will offset the service fees, she assured.

But the question of how much to require of departments is fertile ground for debate. Peggy Plympton, vice president for Finance and Administration at Lehigh University, chose a bit of a softer line. “From the on-campus community, the complaint most often will be, ‘If you give me responsibility for my budget, then it’s mine,’” she pointed out. “So if we say to the English department, ‘you have $5,000 to print your newsletter’ and then turn around and say ‘you have to use the university printer,’ that’s going to get you some real push back.”

Instead, she requires departments to get a quote from the university’s service but they are free after that to look elsewhere, “even if it’s not better, faster, and cheaper.”

Florida Atlantic University in Boca Raton used to have an exclusive agreement in place but dropped it in 2005, thanks to the resentment it was causing. “It starts off the relationship on a negative,” noted Stacy Volnick, director of Business Services. (Resident dining, however, remains mandatory because it’s more of a lifestyle feature in the residence halls, she added.) Since lifting the “thou musts,” Florida Atlantic has seen an increase in sales across its auxiliaries, as well as a perceived increase in quality service. “When they have to compete, they pay attention,” Volnick explained.

The Competitive Question

The biggest challenge on her plate: Administrators and faculty outside of the business office tend to assume these auxiliaries are big profit centers rolling in cash, a myth she’d love to dispel.

“As technology changes, and the university grows, we have to constantly improve. And that includes building new bookstores, new food facilities, and that all takes money. So there is an acknowledgement that any revenues generated and any profits have to go into those improvements,” she said. For example, her department plans to invest $3 million into a new food court soon. The dining operation alone provides free meals to resident students, and she has a $100,000 annual budget for giving in-kind services to student activities and events. “And it’s not like a business where money can go elsewhere. In higher ed, it all has to back into our programs,” she pointed out.

It’s all part of keeping the socioeconomic balance, in Plympton’s experience. For instance, when Stabler Arena first opened its doors it was the only facility of its kind for rent between New York and Philadelphia. Today, it competes with a half-dozen such venues. Likewise, the printing department, thanks to Internet files that upload to anyone in the world, competes globally for attention. Both departments have struggled in recent years to return funds, she noted.

Lehigh University does have one ace up its sleeve: As a tax-exempt organization, it can compete favorably with shops that do need to build that cost into their prices. Yet Plympton cautions her departments and colleagues against using this edge. “We don’t want to put small businesses out of business,” she said. “We don’t want to take undue advantage of our tax exempt status and damage the local economy.”

Finally, there is the issue of what Plympton dubs “perceived fairness.” In Lehigh’s case, the field house across from Stabler Arena is considered part of the athletic department, and therefore not required to generate revenues to cover the expenses of heating and lighting. So when a home-show coordinator needs spillover space, the field house can provide that square footage at a lower cost. “It’s not an issue for 99.82 percent of the people on campus, but for the folks running Stabler, the difference is visible,” she said. In essence, the dichotomy sets up the arena to potentially compete with the university — its owner — for business.

“Being able to articulate how the cost structures are designed, what it includes and doesn’t, and why, becomes an important part of the conversation,” Plympton observed.

A Different Mindset

Stabler Arena needed to hire a sales representative solely to book events and put people in the seats. Lehigh’s printing service is managed by a gentleman who used to have his own business in this niche, and understands the language of sales and profit. On the other hand, true entrepreneurs could chafe at some of the restrictions a university setting imposes, such as the need to offer salary levels commensurate with what other people not in profit centers are making. (Lehigh’s printing department, on the other hand, enjoys the fact it gets support gratis from the information technology crew, which it couldn’t do as a private business.)

Hiring such private-enterprise-minded folks is a key to success, but it needn’t trickle through the entire staff, in Plympton’s opinion. For many, the university employee benefits structure outweighs any of their preferences for profit or non-profit mindsets.

“I wouldn’t not go into this purely to make a profit,” she added. “I don’t think the way universities are structured makes this work well. You’d best be in it because you think it’s programmatically preferable, it will increase the value of the services you’re offering, or make it easier to get that service value you’re looking for.

“If your only reason is to change the financial picture, it would be hard to argue that it’s worth it,” Plympton concluded.