A marketised, responsive approach to commission terms is required [4 min read]
The contracts are the problem, not agents
Until commission terms become digitised and responsive, almost all institutions & agents will continue to lose out [6 min read]
A 2021 Inside Higher Ed article titled Agents Are The Problem portrays education agents as financially-driven actors that "do not necessarily have the best interests of the student in mind".
It offers no balanced examination as to whether universities’ often multi-million-dollar in-house sales and marketing operations were created to provide only honest and impartial brokerage, rather than (also) to hit harder KPIs.
Nor does the article make clear that it is institutions (i.e. clients), not agents (i.e. service providers), that choose to persist with today’s static traditional agreement model despite institutions worldwide running transformational digitisation programs elsewhere in their estates.
So why do most providers choose to work this way, and what’s the cost?
♦ ♦ ♦
A leading NZ university today offers as standard a 10 year contract for its education agents.
Perhaps it sees this as a sign of its commitment to the partnership. It’s likely to believe it will be easier to administer (renewing contracts indeed can be a challenge), though the constant flexing of the required bonus structure and the diminished agent experience may undo most gains here; think years of agents repeatedly campaigning for revisions to commission terms with no certainty these will be granted.
Whilst ten years is an extreme example versus the more common 2-3 year durations, it helps illustrate why fixed commission arrangements are damaging to organisations.
And, for avoidance of doubt, I mean damaging for both the institution and the agent.
Traditional agreements offer zero flex to market forces
It’s mid-2014. The iPhone 5 is the latest iteration, Germany haven’t quite yet put 7 goals past Brazil, and a NZ university has signed an imaginary 10 year agreement with an agent operating across six or seven key territories. Between then and now the institution will have experienced this and more:
- Record Chinese enrolments in the US
- Trump’s election and the acceleration of agent use in the US
- The UK’s reverse of PSW restrictions
- Australia's record growth and Canada rocketing 31% in a single year
- Global pandemic & NZ border closure
- Efforts to attract students back to NZ
And after all this the contract will be sitting today, still current, on a shared drive showing the original 9.5 year old terms, though likely reactively amended multiple times.
Whether ten years or two, global events like these all happen around an institution and they happen all the time. But use of multi-year agreements means they’re also happening to an institution, which cannot easily flex to changing market demand or agent supply. An organisation deploying these contract types diminishes its agency and agility, and so can’t readily capitalise on opportunity (e.g. winning a bigger share of record student flows ~2019) or respond to challenge (such as post-pandemic recovery).
Many UK universities will be experiencing this today as they rush to mitigate India & Nigeria cliff-edge drops precipitated by government policy announced just six months ago, and compounded by Russell Group members now over-fishing in the same ponds after China’s contraction. It's a safe bet that some institutions - probably a majority - will be offering agents additional bonuses to try to win more share, and that many hundreds of university employees will be limping exhausted to the Christmas break after hastily establishing December intakes.
Because today, when faced with these positive or negative market conditions, increasing i) spend and ii) effort to capitalise or mitigate are two of the very few levers available to institutions. More and richer scholarships; more travel to market and the placement of in-country staff in them; additional intakes; bigger agent fam attendances; bigger marketing spends; more and larger agent bonuses for sourcing in-demand students. One Group of Eight institution upped its base commission by a (relatively-speaking) whopping 5% in response to the pandemic - what has this type of practice done to the sector as a whole?
None of this is long-term sustainable. Eventually there’s no ‘more’.
Siloed commission terms make everything more expensive
Institutions running traditional agreements pay more than is needed for both abundant students and scarce students, for reasons explained here. At a medium-sized university this can potentially mean millions in unnecessary payments each year. And, at some, this can be felt in redundancies and closed courses or departments. Institutions also pay more for downstream operations – note: downstream of these contracts equates to everything an institution does to recruit a student – since traditional agreements shift onus to (and reward) presence, relationship management, and related spends.
All of which can cost many millions per year. I wrote here of an Australian university committing $90M in additional international scholarships over 3 years (‘23-’25) and still estimating it won’t help it hit its recovery target by 2027. It will not be alone in spends of this type and size.
Nor is it just institutions that pay greater sums than needed. In what is surely one of the more transparent demonstrations that money talks in the as-is dynamic, the government of Western Australia invested $10M into agent commission bumps from late 2022 to try to reinvigorate the sector there after one of the harshest border closures anywhere.
And the vast majority of agents also lose out in this traditional contract dynamic. There may be comfort in securing another agreement with another provider but, unless an agency is already multi-national or venture-backed, the odds are long on progressing from current-state to a sector leader. Why? Because agents cannot outmanoeuvre their competitors on price today; commission terms are locked down and kept hermetically separate from all other agents’ view. An agent on 12% with one institution won’t know some others are on 18%, and, even if it did know, it couldn’t offer to place students (that would otherwise be placed by the highest earners) for say 14.5%, thus creating a win-win scenario for itself and its partner institution. The mechanism simply hasn’t existed (til now).
For agents today the only two meaningful routes to increased revenues are either to place more students or to barter for increased bonuses (which disadvantage the provider and should be phased out). And since today almost any agent can recruit to any program or course at an institution, most are likely to continue to lose out to the largest competitors with broader reach and bigger machinery. This is because those larger agents can generate more leads, process more applications, and therefore win more business (and all for a higher cost to the institution). And so the cycle repeats and the gap widens; we read more earnings reports or re-up news for the biggest agents, whilst a great majority of the world’s agents make do with 7% or 8% in kick-back commission when acting as sub-agents, since only a relatively small proportion can hold contracts with the universities they want to recruit to.
The last big digital procurement opportunity?
The potential wins to be found in real-time digital deal terms for most agents are clear: more earnings per student, more business won, a chance to compete.
For institutions the benefits are many, and not least financial. Of all procurement areas of any institution that recruits meaningful numbers of international students, agent contracting is surely one of the largest unrealised opportunities. And for change to occur in an institution the following should be recognised:
- commission in the amounts paid today are the result of static traditional contracting and can be optimised; and,
- greater executive visibility of agent acquisition, cost of sales, and pipeline are prerequisites for optimisation.
With many universities having reduced use of corporate cards, digitised procurement, and introduced greater scrutiny of purchasing, it seems a decent number may be primed to tackle this area of potential overspend and inefficiency.
The biggest question remains one of appetite. Do some institutions truly know they have a problem that will only worsen? Do executive staff feel sufficiently motivated to fix this? Time will tell. A decade should do.