Gyan Shala: Building a financial model for scale in affordable private schools

Organisations that foray into the private sector must deal with building mechanisms for making adequate revenue from sales. When Gyan Shala decided to scale its solution through affordable private schools (APS), it grappled with several concerns. Unlike their higher-cost private school counterparts, affordable private schools charge low fees and often work with constrained budgets while delivering quality education to students. To cater to them, Gyan Shala needed to provide more support services beyond the curriculum design and daily lesson plans despite charging low fees. These services included teacher training and class supervision. All these come at a significant cost to Gyan Shala. This case study discusses 3 detailed steps that Gyan Shala explored to create a financial model that improved their chances of sustained impact.  

Process   

The Impact at Scale Labs used three approaches to support Gyan Shala through this journey:   

1. External Advisory support: FSG, a nonprofit consultancy firm, had prior success selling education solutions to affordable private schools in India. They advised Gyan Shala on their financial model after an initial analysis.   
2. In-house consultant support helped Gyan Shala distil learnings and templates from FSG and others into building a custom financial model that fits their context.  
3. In-house coaching support helped Gyan Shala develop conservative and optimistic financial models and growth projections. These models served as a strong foundation for Gyan Shala's financial strategy and sustainability plans. 

These steps are explained in detail below.  

Step 1: Financial Analysis: Learning from FSG    
 
FSG held valuable insights from scaling Program to Improve Private Early Education, comprising activity-based learning solutions, to more than 74,000 children in 2019. The program improved children's learning outcomes by 48%. Conversations with FSG helped Gyan Shala shape their thinking about their approach, costs and pricing regarding APS distribution and delivery.   

Some of the highlights of the consultation with FSG included:   

• Finding an appropriate revenue model is critical: FSG shared that organisations that serve low-income markets may need help to determine and operate business models that generate the required revenue to sustain their products due to the low margins and pricing constraints. The choice of revenue model can determine whether a solution achieves its desired impact. FSG reviewed Gyan Shala’s current pricing model and projections and made recommendations that could enhance its sustainability.  
• Develop strategies to reduce long-term costs: Although some of these strategies might have significant upfront costs, the costs often drop in subsequent years. For example, investing in an in-house sales team might incur high costs. Yet, it could provide long-term benefits such as helping Gyan Shala build stronger relationships with schools and allowing the time needed to close deals that often go through a long cycle. Gyan Shala examined various components that can save them money in the long run.   
• Build an efficient revenue collection mechanism to ensure cash flow: Low-fee private schools may face challenges paying their vendors on time. After developing a good revenue model, organisations serving low-fee private schools need to ensure that the cost of collecting their revenue is low and the channels are accessible. For example, taking post-dated cheques from the school administrator upon contract agreement reduces the travel costs of collecting cheques for each instalment. The service provider should also have a reliable system to reduce default rates and encourage prompt payment. Strategies can include getting schools to pay upfront. Solution providers may incentivise upfront payments through discounts. Some organisations also do this by partnering with the financial providers of schools to fund fees upfront. This approach can ensure steady cash flow for service providers. Other recommendations from FSG included:
  • Set up a fee structure around solution delivery milestones. See an example below  
    •  1st instalment at the time of sign-up 
    • 2nd instalment before delivery of material 
    • 3rd instalment before a follow-up training.   
  • Provide a payment card to help administrators know when payment is due and how much to pay.  
  • Making material delivery contingent on payment can make it more likely to get timely payments.  
• Reflect on Income Gaps: Gyan Shala needed to develop complementary income channels to maintain liquidity based on sales expectations in the medium term. When the first years of revenue are slow, organisations must find other means of income to complement sales revenue to survive till the break-even point.  
• A deep dive into the FSG Financial Modelling Template: FSG’s hypothetical financial model for solution providers planning to serve the APS market in India is a great resource that gives a contextual guide for this target audience. FSG recommended that Gyan Shala should use this to develop their financial model.  

This session provided Gyan Shala with more perspective on the business model of their innovation. They also explored the hypothetical financial model, which contains tools for financial modelling, business models, school economics, student economics, and output charts.  

 
Figure 1. A sample financial modelling table from FSG’s Hypothetical financial modelling tool for APS  

Step 2: Localize insights from consultation and build a custom financial model    
 
Gyan Shala kickstarted preparatory work on financial modelling with assigned worksheets. They worked closely with their Impact at Scale Labs coach to contextualise FSG’s financial modelling template to their context. Some of the adaptations they made are listed below.

• Gyan Shala filled out current data on their revenue, beneficiary schools and students, product costs, and training costs in the “Current Year” section. This data formed the basis of their projections.   
• Gyan Shala extended their projections over eight (8) years compared to the five (5) years in the template. This approach reflected the timeline Gyan Shala required to break even if they chose to serve APS charging very low fees, compared to APS charging more. They used this to examine whether serving these schools where they could only charge a small price was viable even if it took longer to achieve.   
• Gyan Shala calculated their revenue per student instead of per classroom since they charged for each student.  
• They added graphic design costs to their model as this component was vital. They included their biannual in-person training costs and detailed their overhead costs as they had enough data to share.   

In building their custom financial model, they benefitted from a series of workshops covering various aspects of operating model, pricing, cost structure, business development needs and externally facilitated workshops like Costing for Scale with Brookings. Organisations in a similar context may download FSG’s template and adapt it to their case. They should substitute the sample data with data from their operations. This exercise is easy with a financial expert as a guide.  

Figure 2. A sample financial modelling output chart from FSG’s Hypothetical financial modelling tool for APS  

Step 3: Develop the conservative and optimistic growth models    
When investing in the private sector, organisations must plan their break-even points. This approach gives sight of the possibility for sustainability. Gyan Shala worked with our in-house coach to develop conservative and optimistic growth projections for breaking even and determine how much investment they needed for each plan. This process presented Gyan Shala with break-even possibilities in six (6) years and eight (8) years. The projections considered key revenue determinants such as the number of new schools per year, renewal schools per year, and the size of marketing budgets. The template also showed how these affected their product costs, annual revenue, and implementation costs. While the conservative option had lower costs, revenue was lower, and it would take longer to break even. 

This exercise provided clarity for Gyan Shala on:   

• Sustainability of the solution: The innovation can be self-sustainable in the long term but with patient capital to support them until then.   
• Funding requirements: How much Gyan Shala needed to source in capital to exceed their break-even projections.   
• Main operational variables needed to achieve the plan: These include growth rate, retention rate, acquisition costs per school, and number of schools served per supervisor.   
• Reflections on the main costs and potential operational bottlenecks when delivering at scale: For example, Gyan Shala identified printing as a significant cost driver in their solution delivery. This process encouraged them to find a cheaper printing solution. They also reflected on their capacity to deliver quality teacher training to their growing list of schools.   

Outcome    

Gyan Shala developed a financial plan which reviewed their budget, unit economics, and growth projections. The plan provided a basis for defining the roles and expectations of the salespeople and determining their funding gaps in the context of their break-even point. This process changed how they looked at costs and prepared their budget sheet. They separated their operational costs from fixed costs and are now working on lowering the cost of our operations.    

Next Steps    

• Continued Support - FSG has agreed to support Gyan Shala’s expansion in the APS market with their expertise in sales and distribution over two years.     
• Implementation of the financial plan.     

Related Tool in Scale Toolkit

• Cost Structure