FeezyBlog

What's the cost of staying old-school?

Written by John @ Feezy | Jul 22, 2024 1:24:52 AM

In a 2022 article in The PIE, a number of UK universities’ commission spends were discussed.

Many HEIs shared some data or at least replied.

The University of Warwick gave the most insightful response despite opting not to share any numbers:

“Commission rates can take months, if not years to negotiate and they vary between our agents, in the same way agents will vary rates for different higher education clients.”

The first part is worth reading twice.

These protracted negotiations only happen because one or both sides dislike what's offered, and they are a common story at universities globally. The time cost for staff who should instead be selling is monumental. It simply cannot be afforded today.

I’ve been part of an 18 month negotiation process with one agent over just 2%. In the end, worn down, we partially relented. And that was a world top 30 institution; what’s being requested further down the ladder at colleges or recruiting universities? (At NAFSA I met plenty of US institutions that had just been asked with straight faces for 25% and 30% commission terms to sign with some of the largest agents in the room… most had no notion if this was competitive or not.)

 

What’s the cost of this old-school approach?

In the past month you'll have used multiple apps and websites to purchase services and products at values that were decided that day or that week.

  • Uber hadn’t decided your trip cost during a protracted negotiation with its driver 2 years prior. You paid based on rider demand, driver availability and - maybe - your battery percentage at that moment. And other cabs were available - you had options; a market existed. (You may even have experienced a licensed cabbie declining to take your fare because the pre-agreed, metered rates weren't worth their while for your desired journey... there's an agent-provider analogy here.)

  • The hotel you booked using a popular .com aggregator was priced based on occupancy & multiple demand indicators.

  • If you’ve booked a flight for next year, you’ll have expected to pay less than you would the week prior, save for the occasional last minute deal.

Many other sectors have managed to digitise the way terms are agreed. They’ve done it because individual organisations stand to gain huge competitive advantage from working this way - not least by winning more customers.

Spare a thought for any UK institution that, like Warwick, spent months or years agreeing commission rates and bonuses for the supply of Masters students from Nigerian or Indian agents prior to the end of dependent visas. Failure to operate commercial terms nearer to the realities of the present-day seriously restricts options to de-risk & pivot when the world changes around us - which it does constantly whilst commission terms sit for years on shared drives.

 

Will international education adapt & thrive?

So why hasn’t international education modernised the way terms are agreed when at least $10B AUD is spent each year on agent commission? This question is especially important since some universities stand on the brink because they can't capture sufficient market share via the 30-year-old established way of agreeing terms.

And if A$10B seems outlandishly large, it bears noting that just 9 universities with published commission spends account for more than 4% of that figure:

That’s >$400M spent by fewer than 10 institutions out of tens of thousands of variously sized providers - from K-12 to universities - engaging agents worldwide. The figures exclude associated operating expenses such as staffing, travel, and events which can easily match commission for some providers.

This is too large a sub-sector to be thrashing out terms over months and years, then locking those terms in for years. The wastage - margins depleted and target student numbers missed through lack of leverage -  in such an outdated process is colossal.

And it's not simply intangible 'sector' wastage, it's  bloat experienced by every university, college, and school thanks to the structural inefficiencies created by this approach to agreeing terms. Not to mention those excellent small and mid-sized agents that can't ask for 30% commission terms at a costly global trade show, and instead make do with 7% or 8% when routing their prospects through master agent channels.

 

Macro vs. micro

The question individual providers should be asking is “how do we gain advantage by pricing terms closer to the need to fulfil?”

In a few important ways, it turns out:

    • Capture student supply that would otherwise be routed to competitors; i.e. the uber versus the cab with its fixed fare terms.

    • Precious, finite budget can be shifted to secure the students most needed; for example when battling to shore-up a struggling school or college (see #1 here).

    • Less can be spent per-head on sourcing the most abundant prospect types; today providers overpay for all prospect types.

    • Global source market variation can lead to wildly different commission requests across agent territories; providers can’t shop around today as terms are locked-in à la the Warwick approach above.

    • Student acquisition can be granularly priced to evidence cost-per-acquisition down to a course level; it’s one thing to work in a financially sustainable way, quite another to measure & improve upon it.

Then the next question becomes "can we afford not to change?"

The answer for most today is unambiguous.

 

 

[Thanks for reading. If your organisation wants to gain advantage over competitors, read here and get in touch.]