Perverse incentives ensure perpetual challenge [4 min read]
The Ancient Commission Pyramids
A tool that reduces commission bloat is overdue, and not just for financial reasons [3 min read]
Most institutions offer some tiering of agent commission. Even those with a single flat rate usually offer a bonus scheme which lifts the average above the standard percentage. One very large Australian agent at least is usually an outlier in flat commission structures, ahead of the rest of the pack by one or two or five percent thanks in part to sometimes years-long contract negotiation processes (I tapped-out after resisting their pleas for an extra 1% for 18 months but their persistence negotiators have run other institution quarry further and longer). This again lifts the average spend by an institution.
Where an institution runs a tiered or ramping commission structure, the gap between bottom and top can be large. Several Australian institutions offer ten or twelve point ranges, with steadily fewer agents enjoying each increment over the base. Simplified, this creates a commission pyramid in which a high proportion of an institution’s agents amass nearer the base, tapering up to, often, the largest and in several cases most powerful agents.
When attributable load is mapped to the pyramid, you’ll usually see an inverse correlation between commission level and proportion of intake supplied. More than a third of supply coming from 5-10% of agents is not uncommon. [Note: do you know yours? You should.] This is due to a mix of capability (the largest agents can deliver more by dint of reach & heft) and incentive - the lowest-paid agents are not as motivated to work for this institution versus those at which they’ve climbed to a higher base commission. This is not to characterise agents as primarily money-driven. They do, after all, have overheads to bear and so must direct their finite resources to top-of-mind partners, and finding the right leads for the right partners is not a cheap or simple exercise. Potential revenue helps segment partners in their minds.
This results in many institutions running high average commission costs, or ACC. And it’s this figure that dynamic commission agreements can most rapidly reduce (the other, indirect acquisition costs, offers even larger savings potential).
How do you reduce ACC whilst recruiting the same or greater numbers of students?
The theory on this part’s easy: you conduct a greater proportion of your business with agents for commission values below your ACC. Any load you can shift to being acquired by commission earners below that ACC line equates to a measurable improvement in margin. Do this enough times, and bring the new ACC line down sufficiently, and for an average university the direct savings can be six figures. If your annual commission bill is like Greenwich or De Montfort’s it could easily be seven-figures. And if you are smart in how you agree these variable rates, you can also diversify both program spread and source markets at the same time.
But, none of this is being done today because the institution-agent market has remained stubbornly siloed and B2B, with no conduit enabling flow or load control except for institutions with constraining admissions processes like pooling & ranking, though even they must sort through all that comes their way (another analogous example is on the agent side - aggregators - but this is not the kind of supply control institutions should be pursuing). This article explores how an all-for-one and one-for-all agent approach means institutions will continue to pay higher recruitment premiums than necessary if they continue to put 100% of their chips on this analogue mid-90s dynamic.
With a platform like Feezy that lets you granularly agree these rates of commission at a program level, however, suddenly you can absolutely reduce your spend. And you can track and attribute those savings to the level of an individual prospect, potentially a scary thought for operational teams (and filling what is today a critical data gap today for exec leaders).
And more than that, you can preference the places on programs that you most need to fill, so now you have greater load and flow control, or can stem the oversupply of non-converting applications for some programs or from some agents or markets (or regions of elevated risk within otherwise attractive markets).
Ultimately, you can do as Alan Preece urges and flex to shifting market conditions in ways impossible today; what would some UK Business Schools have done to inexpensively offset their China load shortfalls, or which universities may have been comforted in securing alternative PGT load once Braverman had decided to curtail dependants' visas? If you're a university executive reading this, you'll know the mitigatory spends and increased human effort being expended against these or similar challenges. Is there an RuOK campaign sufficiently effective to keep the treadmill running so fast so much of the time without burnout? Isn't it better just to tweak the way terms are agreed?
And what of institutions with the flat commission structures, how do they improve direct acquisition cost with the Feezy approach? By allowing market dynamics to improve their ACC versus what’s done now, i.e. a guaranteed commission rate that is literally impossible to improve upon, short of an agent having a moment of weakness and writing in to request to be paid less for recruiting students. Perhaps about as likely as applicants asking for higher tuition fees.
Finally, it will be obvious how agents win in this scenario as - suddenly - the 80% of agents earning below an institution’s ACC can agree more commission per student and empower their sales teams to source leads and convert them to quality applicants.
It’s probably time your institution began responsively agreeing its commission.