Why is Executive Education so Expensive?5 min readReading Time: 4 minutes
Executive education is undeniably very expensive. Thousands of dollars, sometimes tens of thousands are spent on short programs lasting no longer than a couple weeks. A lot of people question that pricing. Here we list the main reasons why it costs so much.
What is the true value of these programs and how do we derive it in a way objective to the buyer and seller?
The Buyer’s Perspective
Let’s take a closer look at the 5-Day Wharton Private Equity Program and see why it costs a whopping USD 11K. From the buyer’s perspective, imagine yourself alternatively pursuing an MBA program at a top school where tuition and cost of living can amount to USD 200K or even USD 350K if you include missed out income during full-time studies. A 2-year program would include about 16 to 24 semester-long courses. So we calculate that a single course makes anywhere between a 1/16th and 1/24th of the whole program. Dividing the total program cost into 16 to 24 parts would give you a range between USD 8,300 and USD 12,500. And unsurprisingly, that’s pretty close to the actual program cost.
Now, is it fair to compare a semester-long program with just a week-long class? Absolutely.
A typical graduate school level class meets once or twice a week for a total of about 2-3 hours. A semester has roughly 15 weeks, and one can take out a week for the finals, a week for the midterms and a week for spring break or Thanksgiving. 12 weeks by 3 hours leaves us with a total length of class just 36 hours. May not seem much at first, but to be fair, when you have four or five different classes per week, with all the reading and home assignments, that’s a lot of work for graduate students.
Okay, so one class can actually be covered by compressing it into 5 days with about 7 hours of study. Of course, you have to do all the readings ahead of the class, and you have to do your study groups in the evenings, but, yes, it turns out a 5-day executive level class is roughly equivalent to a graduate level semester-long class! Who would have thought, right?
Essentially you are just buying one building block of an MBA program instead of purchasing the whole construction. Okay, that seems fair for the buyer.
The School’s Perspective
We can also try to put a price on such a program from the school’s perspective. Before we start, there are few things to keep in mind. First, one cannot put too many executive level learners in the same room. Each of them deserves special attention. Second, different executive level courses at the same school would usually have the same per-day price. For example, the 4-day Harvard Business School class called “The business of entertainment, media and sports” is USD 10,000, while the 6-day “Authentic Leadership Development” class is USD 15,500. In each case it’s roughly USD 2,500 per day. This price point is maintained by 95% of leading executive education providers, with some minor exceptions, like special programs aimed at CEOs only. So why did schools pinpoint that number in the first place? Turns out, it is relatively easy to calculate when you put yourself into the shoes of a school leader launching a new program.
Step 1, figure out fixed costs. Most importantly, the cost of instruction. You can’t put inexperienced faculty that usually teach MBA students in a room full of executives. It has to be someone who’s been doing this for a while, has excellent reviews etc. A person like that costs roughly USD 10,000 per day of instruction. Oftentimes, even more. For a five day program, that is USD 50K.
It is also fair to include cost of the facility, since even if it’s owned by the school, there is an opportunity cost of not renting it out. Let’s say that a top level conference room costs us USD 2,000 per day, so USD 10,000 in total for a five-day program.
Program administration is also a cost. Even a single moderately paid administrator that arranges few programs a year, would add another USD 10,000 to the program cost.
Furthermore, a very significant investment of up to 15% of total revenues in executive education goes towards marketing and that calculation may not even include the marketing team’s salaries.
All of this combined can easily put a program’s base cost north of USD 120K at the lowest estimate.
There are also certain variable costs. For example, some top schools also include accommodation as part of the program cost. Five hotel nights and meals for fifteen participants would account for yet another USD 25K. Therefore, the bare minimum cost for a 15-people program runs to almost USD 150K, which is exactly what they are paying if the price is USD 10,000 per seat. Of course, most programs end up having more than 15 participants and earn schools some money, but with 15 people only making it to the breakeven point, it is completely understandable why schools have to price their programs that high.
We haven’t even mentioned additional cost factors like last minute cancelations, refunds, and more unpleasant surprises. So what do you think are these prices justified from the school’s perspective?
To conclude, we should not forget that prices are always in equilibrium. Turns out, executive education prices, although notably high, are in the end very reasonable for both sides. Customers get a chance to invest in new knowledge, skills, networks and certifications for a fraction of a degree program cost and schools get to experiment, launch new products and occasionally make some money.
What do you think of executive education prices, tell us in the comments below?