Traditional contracting ensures most institutions pay too much, can’t get enough load, or are non-diverse.
Do you know your average commission spend?
A marketised, responsive approach to commission terms is required [4 min read]
It wouldn’t be accurate to suggest that all institutions overpay for the acquisition of their agent-supplied international students. Low fixed costs can be helpful, as can the undoubted reach provided by a properly managed and supported agent network. There’s fantastic value to be had when agents are deployed well.
It’s very likely, however, that most institutions are overpaying for agent-supplied students. Perhaps not to the margin-busting, eye-watering extent of universities like Greenwich in the UK, but likely in amounts considered by CFOs in today’s constrained times to be material.
If you’re a reader who thinks “naha, not us”, ask yourself if you know the answers to these questions:
- What was your institution’s average commission cost, to one decimal place, in the last full recruitment cycle?
- Approx. what proportion of that intake did your top performing 10% of agents provide?
- Approx. what percentage of your agent pool contributed the final one third of that intake?
If you are in a decision-making or executive role in an institution’s agent management space and do not know the answer to any of these three questions, you very likely cannot have an optimised agent commission structure and this is eroding your margin. What would a c.3-5% reduction in direct commission spend mean for your institution? What about the often larger indirect spends?
If you know the answer to question 1 because your institution has only a single rate of commission (e.g. 12% across the board), your institution too is failing to retain maximum tuition revenues. A flat commission structure is as sterile a competitive landscape as is possible to manufacture. Some Executive members love it (“hey it’s equitable!”) but it can be a good example of pennywise, dollar poor. It’s often these institutions that will need to overcompensate with larger indirect spends like scholarships, offshore presences, marketing, and Faculty recruitment trips so large a chartered aircraft could work out cheaper than commercial flights. Single in-country events for larger institutions can cost well into six figures, and I have myself created a supplementary international scholarship scheme that still costs a former employer about A$8M a year on top of their existing, already generous offerings (and it’s a package that was imitated by multiple competitor universities soon after). Taken together, ancillary downstream efforts can be more costly than more generously tiered commission upfront.
If your answer to question 2 is greater than 30% you have a significant opportunity to introduce competitive commission pricing. If it’s above 50% you have great potential. One university in ANZ recruits 90% of its agent-supplied intake from <5% of its agents (of which it has 200+). This is a precarious situation to find yourself overseeing if yours is the accountable role. It means haemorrhaging operating spend and returning relatively little from most agents, whilst being at the mercy of a handful of your good-performing partners (‘suppliers’ in any other procurement discussion).
It’s in the agent tail (question 3) where so many potential wins can be found. These agents sending your institution small numbers of students, and potentially no students in a cycle or year, are sometimes described by international recruitment staff as niche or vital. They can find sources of high quality students others can’t, they just don’t find many. Ask yourself, what is the likelihood they are performing this same way for all their partners? The answer for most, though not all, is not likely. Instead, they are incentivised to do better elsewhere, and so they deliver more, because they can. Just not for you. A long tail is expensive to run, carries increased compliance risk, and should be optimised.
So what to do instead?
These are complex issues for sure, and the complexity is in part a result of the way agents and institutions have come to rely on one another over three decades - i.e. organically rather than planned. For years I’ve been hearing (and, for a long time, saying) that it all comes down to the way relationships are managed. This is true in today’s dynamic, but it should not be the case. Better to say instead: let’s change the dynamic slightly so it delivers greater benefit to both institutions and agents. After all, agents also have costs to manage and margins to protect.
We built Feezy because there’s a fundamental lack of competition around agent commission. Agents receive locked-in terms in traditional agreements, with no way to directly compete with other agents for either:
- the right to fill places on specific programs, or
- the specific commission terms for those places
Instead, institutions set a percentage in ink for two or three years then send their dozens or hundreds of partner agents off to recruit for any or all of their programs. And agents dutifully try.
And throughout the lifetimes of these contracts, whilst the relative value and cost of our groceries and diesel fluctuate on a weekly or monthly basis, agents are left with fixed, one-dimensional earning potential. No sane farmer locks in a price for their crops for this period of time, so why does the sector compel agents to fix a price for their services? Why is there no outlet for the global sector's constantly shifting supply and demand conditions?
A marketised commission mechanism can deliver better value for institutions and agents. It ends the bloated average commission cost so many institutions carry, allows spend to be focused on the niche programs / rarer student types, and incentivises agents to deliver optimally for partners. It also brings agility and responsiveness the traditional 1990s agreement model denies us all.
Til now there hasn’t been a way to easily administer this approach. We’ve built a way for both sides of the market to do it seamlessly, and we encourage readers to join the waitlist.