The Other Revenue Share

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Over the past few years, revenue sharing with for-profit Online Program Managers (OPMs) has sparked plenty of controversy. But a related topic that rarely gets the same attention, yet is crucial to online success, is internal revenue sharing: the choices and processes that determine how tuition and fee revenue from online courses are distributed across units within an institution.

The recent CHLOE report from Quality Matters, Eduventures, and Educause surfaced this issue, showing the practice is widespread and that many online-learning leaders are dissatisfied with current arrangements. The survey drew welcome attention to the issue, but by design it couldn’t explore the full complexity.

Internal revenue sharing is part of the hidden plumbing that can accelerate online growth or, if designed poorly, fuel low-quality, unsustainable expansion through perverse incentives. Good models align incentives across units; bad ones create opacity, mistrust, and mis-allocated costs.

In this post, I take a closer look at internal revenue-sharing agreements and argue that they pose a core leadership tension, a damned if you do, damned if you don’t dilemma. They’re powerful tools for incentivizing online growth, but they can also produce serious unintended consequences. Guardrails can mitigate some risks, yet in an environment that demands speed and agility, applying those safeguards consistently is difficult.

What is an internal revenue share?

In simple terms, an internal revenue share describes how tuition or fee revenue, usually from online offerings, is divided among organizations within a university. Typically this includes central administration and colleges/departments, but other units may also receive a share.

Dividing revenue internally isn’t new. Many institutions have long used revenue shares for summer terms or continuing education. What makes it confusing is the variety of contexts in which it’s used and the range of models for splitting the revenue.

Common variations include:

• Tuition split versus a fee split - For example some institutions base share on student credit hours whereas others split specific fees such as a distance education fee.

• Gross vs. net models - Some institutions cover direct and indirect costs first, then split the remainder, sometimes with sliding scales)

• RCM-style allocations - The revenue follows student credit hours, with a central “tax” or assessment.

• Degree vs. non-credit - Some institutions share revenue from degree programs while others only split income from continuing education, micro-credentials, or executive education).

The recipient list can also be complex. Reviewing close to 100 arrangements, I’ve seen revenue directed to:

• Central administration;

• Provost’s office;

• Colleges/deans;

• Individual academic units;

• Central marketing;

• IT;

• Centers for teaching excellence; and

• Online learning support units.

Some institutions even route online learning revenue to facilities and athletics. Interestingly, I’ve seen libraries named as a recipient only once.

CHLOE survey data suggest that a substantial share of institutions divide revenue among multiple units—particularly in the private sector, reinforcing how common multi-party splits have become.

How widespread is internal revenue share?

The CHLOE data aren’t as clear as I’d like, but they indicate that 57% of online-learning leaders report revenue being split among multiple recipients, while 40% say a single entity receives all online tuition and fee revenue. That seems low to me. Anecdotally, I see internal revenue sharing as the norm.

Some institutions that choose not to use revenue sharing instead rely on faculty stipends to incentivize new course and program creation. Many use both stipends and revenue sharing.

Why use internal revenue sharing?

The primary reason is to incentivize online program creation and maintenance where the work happens, within departments and among faculty. For example, SUNY New Paltz explicitly designed a revenue-sharing model to spur new program development.

An external review of the Continuing Education unit at McMaster University recommended adopting a revenue-sharing model to encourage the development of new microcredentials.

The University of Nebraska Omaha uses a more personal appeal.

While there are no data showing the relationship between revenue share and online growth, from my work with higher education institutions that are looking to grow online programs, they are a critical incentive tool.

This is especially so at institutions and in areas that are already seeing high enrollment. Doing online well is difficult, time consuming, and expensive. Units and faculty need a carrot to prompt them to do the work of building new online programs, and without the carrot of revenue share, that work often does not happen or happens at a far slower rate.

Internal revenue sharing is also used, though less frequently and often at a lower rate, to sustain the central infrastructure required for online learning, including admissions, marketing, advising, compliance, and IT. This is especially important because programs often underestimate both the necessity and the cost of these services.

Perverse incentives, and other dangers

Unfortunately, routing revenue directly to colleges, departments, and other units through internal revenue-sharing can create perverse incentives that ultimately weaken online learning and undo the very progress the incentive of revenue share was designed to create.

The biggest risk, especially when payouts are overly generous, is that unit leaders pursue rapid program growth at the expense of quality. This dynamic fueled parts of the Deans Gone Wild era of OPM-driven expansion: enticed by a share of online revenue, some deans partnered with OPMs promising speed and upfront capital. In some cases it worked; in others, rapid scale eroded standards.

Other incentives tend to be variations on under-investment:

• Starving central services - If central administration retains too small a share, core functions (admissions, compliance, advising, IT, marketing) are underfunded.

• Shifting costs to support units - When units like the online learning office receive a revenue share, central leaders may reduce their base funding on the assumption “they’ll cover it with their share,” leaving these units scrambling for resources before new revenue actually materializes.

• Creating a two-tier experience - Under-investment in online student supports can produce weaker services than those provided on campus. One example is from the University of California, Berkeley Deans’ Working Group for Remote and Hybrid Education report.

• Unit level leverage - Uncapped revenue sharing can give individual units or colleges outsized power relative to central administration, creating strategic misalignment across the institution. It can also drive inequities, particularly in salaries. I’ve seen heads of online learning in high-share units command very high pay, in part because it’s tied to the “revenue they bring in.”

• Mistrust - Internal revenue share can also breed mistrust among units, instructors, and central administration, especially when the distribution is ad hoc or opaque.

• Undermining the sustainability of online - Finally, while internal revenue sharing may spur online growth, it can undermine long-term sustainability by diverting funds away from core online operations. For example, consider the list of allowable expenditures for online revenue-share funds at University of Massachusetts Dartmouth.

Some of these feed in to creating new and better programs, but many of these purposes are more about general support of departments and faculty. Indeed faculty development seems to be a popular way to spend these funds.

How have institutions sought to manage internal revenue share?

The CHLOE report notes that most online learning leaders are dissatisfied with how revenue shares are structured at their institutions, though they often still prefer their current model over the alternatives. That said, many institutions apply guardrails to offset some of the risks of internal revenue share described above.

• Prohibiting revenue shares on for-credit programs - Even if revenue sharing is allowed for contract, executive, or continuing education.

• Using sliding scales - As revenue grows, a larger percentage flows to central administration, as illustrated at Montclair State University.

• Different rates for on-campus students taking an online course - For example, Indiana University Online ordinarily allocates 30% of revenue to the online unit for fully asynchronous online programs. For hybrid or on-campus programs, students enrolled in asynchronous courses trigger only a 2% share.

• Geographic eligibility limits - Some institutions restrict revenue sharing to learners who live beyond a set radius (e.g., 50 miles) or who are out of state.

• Standardized splits across offerings - A number of institutions use uniform percentages for specific modalities or across modalities, for instance, an 85:15 unit-to-central split applied to degree programs, continuing education, and executive education alike.

• Reviewing - Revenue share arrangements regularly in the light of changed circumstances.

• Transparency - Many institutions aim to standardize and make revenue sharing more transparent. The University of New Mexico for example, shares a detailed breakdown of its revenue share.

And the University of Washington’s Continuum College lists the share it assesses units among its services.

But ad hoc practices persist. Despite these efforts, internal revenue sharing often remains opaque and negotiated case by case, frequently shaped by a dean or provost eager to launch a program and unit leaders who recognize their leverage

Parting thoughts

Over time, my view of internal revenue sharing has shifted from deep skepticism to recognizing its necessity as a lever to grow online programs. Institutions without standardized internal revenue shares often struggle to launch new programs.

In an effort to mitigate the long list of perverse incentives and dangers institutions (though probably not enough of them) have tried a variety of methods or guardrails. But part of the problem with revenue shares is that, like any incentive system, it is context dependent and requires flexibility, as the McMaster review cited above explains (emphasis mine).

While guardrails can mitigate some risks, the need for flexibility, and the nature of incentives, creates real dangers for institutions. Internal revenue shares are, in many cases, a necessary Faustian bargain for institutions seeking to grow online learning. But leaders need to tread carefully.

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