How does school make profits, Industry Practices

In India, schools are primarily established for charitable purposes, focusing on providing quality education. However, many private institutions have found ways to generate profits, which can sometimes lead to questionable practices. Let’s explore how some schools manage to remain profitable while still adhering to the charitable intentions of their founding.

One prevalent method involves schools entering into contracts with third-party vendors for services like maintenance, construction, or educational materials. By inflating the costs of these contracts, schools can extract excess funds that are not directly tied to educational outcomes. For instance, if a school contracts a vendor for renovation work at a significantly inflated price, the surplus funds can be redirected to other areas, effectively increasing profitability. This practice, however, faced scrutiny and reductions post-demonetization, compelling many institutions to find alternative profit-generating methods.

Some schools establish affiliated education services companies that provide ancillary services such as teacher training, curriculum development, and workshops. While this arrangement can enhance educational quality, it often involves significant costs. With an 18% GST imposed on these services, the financial burden can lead to diminished profit margins. Schools need to carefully manage the balance between investing in quality education and the financial implications of these services, ensuring that they do not compromise their core mission.

Many schools have promoters or founders who also own the land and buildings from which the school operates. These schools often lease the property back from the promoters at market rates. While this generates some revenue, it typically adheres to prevailing market values, which limits potential profits. The challenge lies in ensuring that the lease arrangements do not lead to conflicts of interest, as excessive rents could divert funds away from educational resources. This practice must be transparent to ensure compliance with the school’s charitable status.

Outsourcing essential services such as transport, security, housekeeping, and canteen services to third-party providers is another common strategy. Schools may enter contracts with these service providers, allowing them to avoid certain taxes or manage costs effectively. For example, by subcontracting transportation services, a school may negotiate terms that exempt them from certain GST charges, retaining more revenue. However, the quality and accountability of these services must be monitored, as poor service can negatively impact the school’s reputation and student satisfaction.

While operating as non-profit entities, many schools actively seek donations and grants to supplement their income. By cultivating relationships with alumni, local businesses, and philanthropic organizations, schools can secure additional funding that can be used for infrastructure development, scholarships, or educational resources. The challenge here is to maintain transparency regarding how these funds are utilized, ensuring they contribute to the school’s educational mission rather than being absorbed into administrative costs.

One of the most straightforward ways to increase profitability is by expanding student enrollment and raising tuition fees. As demand for quality education continues to grow, schools often capitalize on this trend by enhancing their offerings—such as introducing extracurricular programs, advanced placement courses, or technology integration. However, schools must balance tuition increases with accessibility to ensure that they do not alienate lower-income families. This balance is crucial in maintaining a diverse student body and upholding the school’s educational goals.

Many institutions diversify their educational programs to attract more students. This can include introducing vocational training, online courses, or international collaborations. By offering a wider range of programs, schools can appeal to different segments of the population and enhance their revenue streams. For instance, partnering with international educational bodies can not only enhance the school’s reputation but also attract students willing to pay a premium for a globally recognized curriculum.

Some schools engage in real estate development, leveraging their land for commercial use. By constructing facilities such as shopping centers, office spaces, or residential complexes, schools can create significant revenue streams. This practice, while profitable, must be carefully managed to ensure it does not distract from the institution’s primary educational focus. Additionally, the ethics of using educational land for commercial purposes should be scrutinized to maintain public trust.

With the rise of technology in education, many schools are forming partnerships with EdTech companies. These partnerships can provide access to advanced educational tools, software, and training for teachers. While this enhances the quality of education, it can also lead to new revenue streams, such as charging for premium services or resources offered through these platforms. However, schools must be cautious about ensuring that these partnerships align with their educational values and do not prioritize profit over student learning.

While the primary goal of schools in India is to provide quality education, various market practices allow some institutions to generate profits. It’s essential for schools to navigate these practices ethically and transparently, ensuring that the primary mission of education remains at the forefront. As the educational landscape in India continues to evolve, striking a balance between profitability and charitable intentions will be critical for the future of educational institutions. The focus should always be on enhancing student outcomes and maintaining the integrity of the educational system. Erocon, as a leading school consultant in India, is dedicated to ensuring that school profits are directed towards meaningful purposes, enhancing the quality of education offered. Profits are utilized in accordance with compliance structures, without violating any norms.

This blog aims to provide an overview of various practices observed in the education sector in India, particularly concerning how some schools generate profit. It is important to note that we do not endorse or recommend any practices that fall outside compliance with legal and ethical standards. The practices discussed herein are documented solely for informational purposes and to highlight potential issues within the system. We encourage all educational institutions to operate transparently and ethically, adhering to regulations and prioritizing the educational mission above profit.