What are the top five revenue risks for training providers?

Just like many sectors right now, training providers are up against some tough financial challenges. So, what are the key revenue risks on the horizon for training providers and how can you be ready for them?

A “revenue risk” refers to any situation that could negatively impact the future income of your business. These could be internal factors like business decisions or external forces like market conditions or political influence.

With stringent compliance rules and funding caps to work within, revenue streams for training providers are far from straightforward and not guaranteed. This means that providers have a unique set of risks to overcome.

This is one of the few marketplaces where you cannot price for quality, for example. For a significant percentage of their income, providers mostly rely on fixed rates of government funding and these caps put providers in a difficult position. You can’t put the price up, but you have to offer high-quality provision to win clients, to satisfy Ofsted and ESFA inspection and to stay in business.

Studies show that the apprenticeship sector won’t escape the clutches of inflation either. The Learning and Work Institute predicts that inflation will wipe hundreds of millions off the value of skills funding in England over the next three years. It warned:

“Inflation is projected to be much higher than expected at the time of the 2021 Spending Review. This could wipe out up to £850 million of the value of skills funding in England over the next three years, leading to either fewer adults accessing learning or risks to the quality of learning.”

Predicting potential revenue risks is not an exact science, but there are some clear flashpoints on the horizon.

We spoke to former Group Managing Director at PeoplePlus Simon Rouse to get his views on potential risks for providers – here’s what he said.

1. Failing to hard close (R14) and meet compliance needs

Failure to create and strictly follow processes that are fully compliant presents a huge revenue risk when it comes to hard close (R14). It’s all too easy for training providers to lose precious hours desperately trying to pull together historic evidence as R14 approaches. Missing learner records or irregular data creates risk of clawback, where funding that’s already been paid out has to be returned.

Additional Learning Needs (ALN) is one area of compliance that often concerns training providers as it can be difficult to evidence that support has been delivered and received. As a result, they may shy away from claiming this vital funding.

Non-compliance is always a revenue risk and it affects your business at every stage of the learner journey. The Education, Skills and Funding Agency (ESFA) updates its rules at key points throughout the year. It’s important to keep on top of these and, if you’re not using a platform like Bud, amend your compliance processes quickly.

Find out about the latest ESFA funding rules

2. Facing difficulties in maintaining the onboarding of apprentices

This is a marketplace that operates with very high fixed costs. As a training provider, you need everything from skilled tutors to curriculum capability in place. Only then can you start enrolling apprentices and bringing in revenue.

Once the business is operational, you need to maintain a steady volume of apprentices. Failure to do so can negatively impact your revenue in a number of ways.

The biggest risk is a simple one – failing to replace the apprentices coming off programme with new apprentices. Without a clear strategy around client and learner acquisition and a strong onboarding programme, it’s an easy trap to fall into.

Learners who withdraw from your programmes prior to EPA mean unclaimed funding, and are costly to replace. It’s more cost efficient to ensure you have the right learners on the right programme from the outset, and that their probability of completion is high, than to replace those who withdraw early due to dissatisfaction.

Make sure you have the processes in place prior to enrolment, to ensure the programme is right for that learner, and capture the evidence.

The systems you use can also help to spot declining engagement mid programme. Bud’s customers monitor learner engagement through its dashboards, enabling them to instigate early interventions to support learners who are at risk of withdrawal to re-engage with their programme.

3. Struggling to build a revenue flow that’s resilient to change

Being a resilient business is about making sure that you can deal with the inevitable ebbs and flows, like losing clients and not being overly dependent on single sectors. It might sound dramatic, but we only need to look back to the pandemic to find examples.

One of the biggest challenges for training providers at this time was coping with the fact that entire sectors, like the hospitality industry or in-store retail, shut down overnight. The providers that succeeded were the ones who were able to reinvent their delivery, seemingly overnight, who worked within a range of sectors or who delivered training across various funding streams.

This is something that providers can learn from moving forwards. Building resilience into your business model not only allows you to diversify your offering, it provides a buffer when times are tough. And it means that, when certain revenue streams are struggling, you are open to opportunities to build your operations in different areas. Having the systems in place that enable remote, digital training also means you are more likely to be able to continue delivery.

4. Being stung by rising inflation in a fixed price marketplace

The Bank of England forecasts that inflation will peak at 11% in October and there will be a lengthy recession unless there’s further intervention.

It’s a grim picture which will undoubtedly hit most industries hard, but for training providers there are some specific challenges to confront.

First and foremost is the issue of working in a fixed price marketplace while maintaining quality. It’s an understatement to say this is no easy ask.

Alongside this, funding is rapidly drying up. If the government doesn’t take steps, the total skills budget for England is estimated to be £370–850m lower in real terms.

The knock-on effect could see a ‘great resignation’ in quality trainers for providers who haven’t embraced a blended approach to learning. Trainers who travel a lot will be greatly affected by rising petrol costs, and many will find their expenses claim does not cover the actual cost, leaving them out of pocket.

This is a subject we explored in our recent article on the real cost of training delivery in 2022, where it became clear that a better system is needed for the future.

5. Inability to evidence business health to potential investors

Raising external investment is an increasingly popular route for ambitious training providers looking to grow. But can you prove you have a strong management system in place, that the business is running as efficiently as possible and that it can easily scale?

Investors will be looking into the finer details that influence the cost base. They’ll want to see evidence of how efficiently you operate – for example, how you manage your caseloads and the drop-off rate of apprentices through the programme.

The reason that digital transformation and end to end systems like Bud are important is that they enable you to manage this caseload efficiently.

But there are wider benefits to embracing digital transformation too. At its best, a well-implemented digital system will also enable you to transform the quality of your teaching. In our new post-Covid landscape, remote learning is no longer optional; it’s essential for many learners.

When training providers implement blended learning through a system like Bud, the learner can engage on their own terms in their preferred way. Delivering a combination of in-person and remote teaching also frees up tutor time, allowing them to provide higher quality engagement and intervention when learners need it.

The end result? A far more efficient use of the fixed cost model. And that is undoubtedly attractive to funders.

What are your main concerns when it comes to your business revenue? Are you doing anything to mitigate any of the risks covered here, or are other risks more important to you? Tag us on LinkedIn at @budsystemslimited and let us know.

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Bud’s industry-leading platform is built around compliance. We help training providers streamline their processes and improve efficiency – it’s exactly the kind of digital system that appeals to investors.

Find out more about how Bud can support you with your digital transformation or book a demo today.