What Education Has in Common with Shrimp

The American restaurant chain Red Lobster and its parent company, Thai Union Group, are learning a fundamental business rule: In the end, you must bring in more money than you spend regardless of how much product (or service) you sell. Red Lobster launched an "endless shrimp" all-you-can-eat promotion that worked far too well to increase foot traffic during a slow time of year. Customers ordered the shrimp but didn't buy enough regular-price drinks and dishes to offset the loss leader discount. And the customers kept coming and ordering shrimp, contributing to a substantial loss for both entities in the latest quarter. Red Lobster discovered that there can indeed be too much of a good thing.

While somewhat comedic, other than for Thai Union's shareholders, the endless shrimp promotion reminds us of the dilemma schools face around financial aid. For many, perhaps most, schools, financial aid is basically discounting because the institution lacks a funding mechanism for the aid. It is tempting to build enrollment by offering aid to more students, but just like at Red Lobster, aided students rarely flip to become full-pay, and, in the interest of experiential equity, schools often feel pressure also to support students' participation in activities and athletics. This is the Achilles heel of net tuition discounting.

So, while nonprofit organizations like independent schools avoid the imperative to generate a profit to repay investors, they do not escape the imperative to operate at a surplus, at least over time, bringing in more cash than what goes out. That is what makes for a going concern; being not for profit does not mean being for loss.