Tim breaks down Notre Dame's unit economics: how much revenue each professor generates, what undergrads and grad students cost, and where research funding and endowment fit. The math shows how strategic endowment growth can lower tuition and keep the mission intact.
So in past videos we've talked about the metrics. So let's take an example at Notre Dame of how do you think about what the unit economics are? So picking your unit is always interesting in any organization. At Notre Dame. We did this in Notre Dame Engineering recently and we said our unit is a professor. So each professor had Notre Dame. As we said before, there's a 9 to 1 student professor ratio. So each professor is responsible for nine students. Each of those students spend about 36k a year with Notre Dame. So that's their. That's the revenue per professor. If each professor is teaching nine students at their tuition load, then what we said is then in engineering, so they got nine students. So they teach. That's a big part of their job. And then they also do research. So at in engineering, it's about 100k of revenue per grad student. Most profs have five grad students, five to one. So this is a nine to one undergrad and five to one PhD student. So PhD students don't pay tuition. They actually get paid to work at MD. So you got nine students at 36K in revenue. You got research revenue of 100K times five, so about 500K. So this is about three, what is that, 330. Okay. And then on average in engineering, about 10% of the expenses are endowed in the department. So about 10% endowed. So that generates incremental revenue as well. So about 150k. So you have about a million of revenue per professor. Then you have expenses. So your expenses for the professor themselves, and then you have expenses for the grad students. So the PhD students get paid around 40k times five. So that's about 200k of cost. Professor all in is probably about 300k of cost. And then you have this big bucket of overhead at md and there's a lot of stuff in that overhead. And it probably makes sense to split that out a little bit more so that people optimize the overhead. The overheads about half. Add it all together. So you have a million in revenue, you have 300, 200 and about, and about double that in overhead and you break even. So if you notice the units here, professor teaching nine students, right? That's a great ratio. We don't have to make that any smaller. So there's no optimization needed on that. Five Ph.D. is about five is kind of the limit of what they can do. So if you grow the percent endowed of the professor or the grad students or the staffers that promote them that are encountered in the overhead, you'll notice that each extra hundred K of payout from endowment means a PhD student doesn't have to do a year of research. So you pay the PhD students 40 and they deliver most of the research revenue at 100. So that's a great ratio. The problem today is they have to spend all of their time doing research. Now if the research that research grants that the professor got are all perfectly aligned with the mission of being a force for good, then every minute they spend on research is helping advance the mission of the university. If the research is unrelated to the mission, then the PhD student is not helping move the mission forward with their research. So if you endow existing opex, so more endowment of the professor, more endowment of the PhD student stipends, you can actually have some of your research years be forced for good years. So what we're talking about in the next strategic campaign is growing this number up so that the tuition revenue can go down and the third party research dollars can go down and you can still break even. But every year that a PhD student can work as a force for good is a net positive. So max research dollars, not just research dollars total, but what are our research dollars? What percentage of our research dollars go to that force for good score? Which ones are not good? Which ones are leading us away from the mission? Let's, let's get 100% focused on research dollars that attribute to the mission of the university, helping families, planet Parish. Get the percentage of endowment income up so you can free up some force for good years with these research. And then if you increase this, you can also get rid of lower the tuition. So this is kind of a unit within the academy. On the provost side of the world you got a professor of nine undergrads and five PhD students. And these are your unit economics. Once you lay it out as your unit Economics, it's really easy to see how to optimize and how to get it better at serving the customer, which is the student and the Notre Dame family. And how you can get the mission, not only the mission metric, but the stewardship metric, working ever better. Now if you notice, science and engineering are heavy in research revenue, right? There's more revenue from research than from student tuition already in those groups. You'll see in other colleges, Arts and letters, business, etc. Where this research number is much lower. So they have to be much higher on percent endowed. In engineering, you don't really need any more endowment to run break even, but you'd love to see this number go up. So that you can have more force for good years on the research side. And if this number goes up, you can lower tuition and make Notre Dame more affordable for all families.
