The lecturer is the cheap part.
Tuition is usually compared to the cost of teaching: the lecturer, the contact hours, the direct cost of running a course. But the lecturer is the cheap part. The library the student uses, the lab they book, the facilities they occupy, the student services they call on, the admissions process that enrolled them and the central administration that supports all of it are consumed by every student and charged to none. True cost per student loads all of it, and the number that comes back is rarely the one the tuition was set against.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
True cost per student is direct teaching plus the facilities, library, IT, student services, admissions and central overhead each student actually consumes. In one illustrative analogue at a public university, a department's total cost per student was several times its direct teaching cost, and a campus dining operation that looked profitable ran a real deficit once fully costed. Traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is, and practical capacity, by the rule of thumb Kaplan and Anderson set out, is only 80 to 85 percent of theoretical. TDABC assigns the shared cost per program, course and student, so cross-subsidy becomes visible. We apply transversal evidence and the method, not an invented education benchmark.
Tuition covers teaching. Teaching is a fraction of the cost.
When a program is judged on tuition against direct teaching cost, it can look comfortably self-funding while quietly running a deficit. The reason is that the direct cost, the lecturer and the contact hours, is the small, visible part, and everything that makes a university expensive sits outside it: the shared services and central functions that every student consumes and no program is charged for. A direct-cost view does not just understate the cost a little; in the illustrative analogue it understated it several times over. Decisions made on that view, which programs to grow, which to cut, what to charge, are made against a number that is wrong by a multiple.
Facilities and space
Lecture halls, labs and buildings carry a capacity cost whether full or empty. Practical capacity is 80 to 85 percent of theoretical, and the empty slice is rarely costed.
Library, IT and learning support
Every student draws on shared learning infrastructure. Consumed by all, charged to none, it is a large part of the gap between direct and true cost.
Student services and admin
Advising, wellbeing, registry and administration are real time on real resources, varying by program and cohort, and invisible in a direct-cost view.
Admissions and central overhead
Recruiting and enrolling a student is a cost, and so is the central function that supports the whole institution. Both belong on the true cost per student.
THE LECTURER IS THE CHEAP PART
Illustrative analogue from a public university, not a sector benchmark. The direct teaching bar is a fraction of the total once shared and support cost is loaded.
Cost follows the student, service by service.
A student's cost is built from what they consume: direct teaching, the facilities and space hours they occupy, the library, IT and learning support they draw on, the student-services and administration time they take, the admissions cost that enrolled them, and a share of central overhead by activity consumed. Multiply by the capacity cost rate of each resource and the true cost lands on the program and student that drove it.
Cost per student = direct teaching cost + facilities and space (hours x capacity cost rate) + library, IT and learning-support consumption + student services and administration time per student + admissions and enrolment cost + share of central overhead by activity consumed
Illustrative structure, not a measured benchmark. Everything below direct teaching is the shared cost that turns a self-funding program into a cross-subsidised one.
Cross-subsidy, made deliberate.
Cross-subsidy between programs is not wrong; a university may well choose to fund a strategically important program out of the surplus of a popular one. What is wrong is doing it blind. Without a fully costed view, leadership cannot see which programs generate the surplus and which consume it, so the subsidy is accidental and the resource decisions are guesses. In the illustrative analogue, full costing turned a profitable-looking dining operation into a measured deficit and a department's cost per student into several times its direct cost, both facts that changed the decision. The transversal whale curve, drawn on true program surplus, maps who funds whom across the portfolio, so leadership can choose its cross-subsidies deliberately instead of discovering them by accident.
Frequently asked questions
- How do you measure true cost per student?
- Load direct teaching plus the facilities, library, IT, student services, admissions and central overhead each student consumes, using time equations. In one illustrative analogue, a department's total cost per student was several times its direct teaching cost.
- What is cross-subsidy between programs?
- Some programs run a surplus that funds others in deficit. A fully costed per-program view makes this visible so resource decisions are deliberate, not blind.
- Why do support services cost so much?
- Because every program consumes them and none is charged for them. Library, IT, facilities, admissions and administration are real capacity costs that a direct-cost view leaves out entirely.
Find the cost per student your tuition was never set against.
The Profit Check needs no data upload. It points to where your shared and support cost is most likely hiding a deficit, and what a fully costed view is worth.
- Duration
- 12 to 15 minutes
- You receive
- Score, 7 dimensions, sector benchmark
- Price
- Free, no email needed
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
Workshops20-21 Oct · Online, ZoomReserve a seat
Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published
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- 1Time-driven activity-based costing: ABC made simple and scalable
- 2Cost-to-Serve Analysis
- 3The Whale Curve
- 4TDABC vs ABC
- 5Make-or-Buy and Relevant Costs
- 6Cost-Volume-Profit (CVP) and Break-Even Analysis
- 7Customer Profitability Analysis
- 8Methods & Frameworks: how we cost, defensibly
- 9TDABC for Financial Services
- 10How to calculate cost to serve, step by step