Top 10 Mistakes in Working with Third-Party Vendors for Online Programs

While some vendor-heavy revenue splits may be justified by a comprehensive service package, our research suggests that many institutions are sacrificing too much revenue to vendors for two reasons: an overvaluing of vendor services that could have been provided in-house for similar or lower cost, and an undervaluing of the institution’s brand power.

Vendors are typically unwilling to support individual online courses, certificate programs, or undergraduate programs. Instead, they’re overwhelmingly focused on online graduate degree programs, particularly high-growth, mass-market professional master’s degrees. Institutions seeking help from an enablement vendor outside those areas rarely receive it, or pay a higher premium.

With the addition of several new competitors in the market, vendors have begun to offer more tailored service packages. Institutions often have their own established capacities in instructional design, student retention, strategic investment funds, and other areas, reducing the need for vendor support and increasing the revenue share they’re able to retain from the vendor.

With an array of services to choose from, and major revenue implications depending on which are included in a vendor contract, deans and administrators should carefully consider which services their school or campus needs most.

A completely decentralized decision process can lead to suboptimal revenue splits, duplicated services, and legal and financial risks for which individual deans may not be prepared. Institutions with a more centralized process for considering a partnership and vetting candidates benefit in several ways, from reduced risk to increased market power.

The proliferation in recent years of vendors with largely similar service offerings means that price competition has increased significantly. Use a formal RFP to solicit multiple bids (ideally three or four) and encourage competitive offers. One particularly effective method is to use a points system whereby the vendor offering the best price scores additional points in the RFP process.

While it is critical to push for a good deal initially, later renegotiations can be equally important. The most client-friendly contracts include a formal mechanism that automatically improves revenue share over time based on enrollments, number of programs, and any changes in service needs, guaranteeing a more equitable revenue split while removing the need to actively renegotiate.

Institutions possess powerful negotiating levers that give vendors what they want most—increased enrollments. These include raising section caps, reducing selectivity, and increasing number of online programs. The critical questions to ask before entering a vendor partnership are, “What are we willing to do to grow, and what tradeoffs are we willing to make within our instructional model?”

Some institutions have had to terminate contracts early for reasons including poor service quality, questionable recruiting tactics, and unmet enrollment goals. Institutions should ensure their ability to leave a contract in advance by avoiding premature contract termination penalties, intellectual property co-ownership, and LMS inflexibility.

Since partnerships may last ten years or more, it’s critical to consider not just revenue splits but overall cultural fit and faculty approval. Faculty at some client institutions report how important it has been to work with a vendor that has previously partnered with similar institutions. Others report needing a dedicated point-person to handle day-to-day questions from the vendor and to instill accountability.