Perverse incentives ensure perpetual challenge [4 min read]
When did we all convince ourselves this was reasonable?
Where are the exec leaders questioning the sanity of all this? [<2 min read]
I’ve written about Greenwich and De Montfort elsewhere, but hadn’t remarked on perhaps the most interesting part of their disclosures: that they were voluntary. That is to say they must find it reasonably ‘ok’ that they’re spending £28.7M & £17.1M each year respectively on agent commission, or very high proportions of first year international tuition fees (for non-sequitur context, when combined this is £6M more than the annual wage bill of Leeds Utd FC).
This is in no way to criticise or judge colleagues there or elsewhere. In fact it's reasonable to say that they should find it ok to be spending these amounts, since the sector has made increased commission payments an almost irresistible tactic for most universities; in some cases and for most universities outside an exalted few, paying more is now table stakes. Failure to do it means fewer students. This for me is the curious part, a bit like how tipping culture in the US seems to be reaching ever-more unreasonable and unsustainable heights.
This week several universities here in NSW declared their own recent agent commission spends (more did not than did). UNSW tops the list at AUD$59M (>£30M today), a smidgen above Greenwich’s bill and based on loads and fees higher than Greenwich’s. Put another way, both institutions pay over a million dollars a week in pro rated commissions. USyd pays slightly less, with a total of $50M.
These are astronomical sums of money and their disclosure and discussion often is accompanied by commentary about increased acquisition costs, the need to be competitive, etc. UUK’s response to The Guardian that the increase is a result of more students being helped by agents failed to reflect on the reported per-head averages uplifting in DMU’s case by 60% in five years, and comments re: ‘base commission’ not changing neatly sidestep discussion on bonuses. If it’s in a LinkedIn thread, cue agent managing directors & CEOs leaping in extolling the importance of agent-institution relationships; this is not doubted, but the traditional agreements that underpin all these relationships most definitely are.
So when does this end?
What’s the circuit breaker?
Institutions like Greenwich must surely be sailing very close to bottom quartile margin for some of their PG cohort once other acquisition costs are accounted for (plus their advertised ‘discount’ of £3,000). Does the deliberate, industrious recruitment of international students cease to be worthwhile when margin dips under 25%? 20%? Or is the spectre of empty accommodation and cafes gruesome enough for VCs and CFOs as to make neutral or even net negative margin cohorts a reasonable compromise whilst UK funding conditions stagnate and institutions brace for even worse?
Most of all I’m left wondering when we all drank the flavor aid on agent commission and decided these acquisition costs were reasonable and sustainable. The $50M+ at USyd and UNSW needs to be accounted for alongside scholarships, salaries, travel, events, and marketing - combined these can be many tens of millions extra. Is $100M a year in acquisition costs reasonable for a place of study? ($83M a year gets you a Premier League Club’s wage bill paid if you’ll barrack for Wolverhampton Wanderers).
Perhaps institutions are undergoing a sort of lifestyle inflation many of us fall into in our lives. I’ve heard many of the defences for the way agent commissions are headed, and a few times I’ve advocated for these myself (‘if we want more from these agents, we need to sufficiently incentivise’).
It’s very clear to me now that the issue is the way deals are structured. An institution cannot possibly hope to have healthy margins if the way its greatest single acquisition cost is decided is in siloed, static, agreements on which no other supplier (agent) can compete. Some commentators talk of international education as a marketplace, but a marketplace is exactly what it's been lacking - til Feezy - and it's why commission bills for most are only heading up and to the right.
With some confidence I'll bet that until institutions’ executive teams start to ask questions about whether these amounts are reasonable, and whether they should be deploying digitised agreements, margin erosion for some will continue til there’s nothing left to erode.