Training providers are up against some tough financial challenges. We look at some of the main revenue risks and what you can do to avoid them.
What are the top five revenue risks for training providers?
Like many organisations, training providers are up against some tough financial challenges. We look at some of the main revenue risks for providers and what you can do to avoid 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 with, revenue streams for training providers are far from straightforward. This means that providers have a unique set of risks to overcome.
One of the biggest challenges is working in a marketplace where you can’t price for quality. Training providers mostly rely on fixed rates of government funding for income, and these caps can leave them in a difficult position. You can’t put prices up, but you have to offer high-quality provision to win clients, satisfy Ofsted and other inspections, and stay in business.
Studies show that the apprenticeship sector can’t escape the clutches of inflation either. As Gareth John, Director of training firm First Intuition, wrote in FE News:
“Training providers have seen significant inflation in delivery costs in recent years, much of which is inflation in payroll costs. At First Intuition, costs associated with employing staff tend to make up around 57% of our total cost base, and salary costs have increased by 35% to 40% since many current funding bands were set.”
Predicting potential revenue risks is not an exact science, but there are some clear challenges to be aware of. We spoke to former Group Managing Director at PeoplePlus Simon Rouse to get his views on risks for training providers – here’s what he said.
The top revenue risks for training providers
1. Failing to hard close (R14) and meet compliance needs
Failure to create and 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 Support (ALS) 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. Funding rules are updated at key points throughout the year, so it’s important to keep on top of these. If you’re not already using a platform with workflows set up to support compliance, take time to review your processes carefully.
2. Difficulties in onboarding a steady number of learners
Training providers operate with very high fixed costs. You need everything from skilled tutors to first-class curriculums in place before you can start enrolling learners and bringing in revenue.
Once the business is operational, you need to maintain a steady volume of apprentices. Failure to do so can present a revenue risk in a number of ways.
The biggest risk is a simple one – not replacing the apprentices completing 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 a reporting suite, enabling them to make early interventions to support learners who are at risk of withdrawal.
3. Struggling to build a resilient revenue flow
Being a resilient business is about making sure that you can deal with the inevitable ebbs and flows, like losing clients or difficulties within 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 that 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 even now. Building resilience into your business model doesn’t just enable providers to diversify their offerings – it provides a buffer when times are tough. And it means that, when certain revenue risks come up, you are open to opportunities to build your operations in different areas.
4. Being stung by rising inflation in a fixed-price marketplace
Inflation has been unpredictable in recent years and training providers are particularly vulnerable to fluctuations.
First and foremost is the issue of fixed funding. Apprenticeship funding has been stagnating for a number of years, while operational costs like energy bills and transport have hit new highs. Skills shortages also mean that providers are having to pay higher salaries to attract tutors with in-demand skills and experience.
While the Chancellor’s Autumn Budget shows a commitment to investing in skills and growth in the long term, inflation still poses an immediate revenue risk.
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 and how effectively you respond to revenue risks. They’ll want to see evidence that you’re operating efficiently and know how to get the most from your existing resources.
One of the biggest benefits of artificial intelligence tools is that they enable providers to manage their caseload efficiently. AI is already transforming the education landscape by streamlining delivery, reducing manual workloads and creating high-quality, personalised learning experiences.
The end result? A far more efficient use of the fixed cost model. And that is undoubtedly attractive to funders.
Build business resilience with Bud
The Bud platform helps training providers, universities, colleges and employers to deliver high-quality apprenticeships and skills training. Find out how you can minimise risk and drive revenue with Bud by booking a discovery call today.
