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Commission creep: ELT sector concerns rise over agent costs

Several stakeholders representing English language teaching businesses have voiced concerns that the rates of commission that education agents are charging is rising to a point that is becoming unsustainable for schools to pay and remain profitable.

Agent commission - is it too high for ELT schools to stay afloat?A "war" between agents and schools could see commission reach 50%, some say. Photo: Twenty20

One agent explained the rate rises are a normal business practice

Given a commoditised marketplace and many students demanding a general English language program – which all ELT schools offer – agents are seen to be expecting higher commission rates, and are offering to look elsewhere if the schools don’t pay.

“35% commission is common… it will end up being 50%”

The result is a squeeze on a market still emerging from a challenging couple of years.

Speaking with The PIE News during events in the UK in September, a number of schools spoke anonymously about a commission creep they have witnessed over several years, which is now putting a strain on profitability.

“The dictating is very one way,” said one source, suggesting agents strongly opposed any efforts for schools to build a direct-to-consumer route.

Another stakeholder said: “If you are a stand-alone school or if you are a small organisation, those commission levels are only going one way and it’s unsustainable as a business to make any sort of margin.”

“You’re not going to make anywhere near 10% if you’re paying… 35% commission [on course price] is common, 40% you get asked for, plus marketing contributions, plus this and that. It will end up being 50% if you add in going to their workshop… something for the brochure.”

When asked why schools felt this was happening, one responded: “There’s still too many of us, I would say, there will be more consolidation, so [people] are desperate.

“It’s not good news for agents, it’s not good news for the schools”

“If somebody says yes, you have no choice. The big agents do it but then the bigger chains agree to it. Or you may not match [the commission rate] but then you don’t get the volume. It’s often volume-related.”

Igor Mishurov is deputy director of Students International, one of the largest education agencies in Russia. He acknowledged that over the last decade, there has been much more flex around varying commission rates, but he pushed back on the notion that agents were to blame.

“We didn’t start this war … it is not from our side … I think schools were starting to chase more clients,” he said.

Underlining that a focus on quality should always dictate business relationships first and foremost, he explained it was a normal business practice to incentivise staff with higher rates.

“If commission will be increased a little bit, it will help me stimulate my sales managers to produce more students for this school… I think it is normal.”

He added, “With almost the same level of quality and one [school] offering 30% and and another one 20%, what do you think what kind of choice should I make?”

“The big agents do it but then the bigger chains agree to it”

Mark Lindsay, director of St Giles International, agreed that commission rates have got steadily higher over many years.

“I’ve been in business 30 years and when I started, the rates were 15-20%,” he told The PIE News. “I think possibly it’s now topped out. It’s difficult for the schools to keep on working on lower margins, so the only way they can offer higher rates is either they work on lower margins or they push up their gross prices.

“We’ve done a little bit of both but we want to remain competitive in terms of pricing.”

Lindsay said he felt that the international market for English language courses had been slightly depressed, and “obviously that’s going to affect both the suppliers and the sellers. It’s not good news for agents, it’s not good news for the schools.”

But, in Edinburgh, Chris Moonie of Mackenzie School of English said he decided not to move on his commission rates.

“We need to take back control of what commission we pay,” he said. “It’s dangerous ground; if you’re confident in your product, stick with it.”

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6 Responses to Commission creep: ELT sector concerns rise over agent costs

  1. The loss of margin is not only a matter of schools but also something that is currently happening to the agents. In the case of Latin America, the more a school discounts the more the agency loses on profitability and investment capacity. In my opinion, this is a clear sign that the business is changing and the industry needs to quickly adapt. A shared-value strategy could be something to be considered between agents and schools for improving B2B processes in order to reduce costs and improve profitability. Virtual sales channels created by schools and agents together so that the purchase experience be better for the students and the joint exploration of new business opportunities such as market research, student-loan financial vehicles at a competitive interest rate, shared admissions centres, among other; could be another ways to find new profitability horizons.

  2. Commissions, Marketing Contributions, Bonuses, Enrollment Fee waivers to counsellors, Promotion Discounts, agent dedicated fairs and now in {Saudi Arabia} to incentivise counsellors … gift vouchers to the tune of $10/ week redeemable at Amazon/Souk.com. Where does it stop? Add up all these costs and your in a business model with wafer thin margins.

    • Further to my post I don’t believe these rising costs were initiated by agents and therefore wholly agree with Igor Mishurov comment in the main article. In 16 years of recruitment, i have noticed a seismic shift in how we do business in the ELT sector. It has indeed spiralled out control. It should always be about the”Student First” as we are in Education. The very best partners I (we) work with focus on quality and students best interest and not whats in it for them.

      • your comment regarding “student first” commands respect; as you will undoubtedly note most treat this as commercial activity for making financial gain regardless of “quality”

  3. I blame “Non-Exclusive Agreements”. I’ve been working in international business for 16 years dealing in different products and ending with international education for the last 12 years.
    Typically, in international business, providers assign one agent per region, country or area. In such case, provider gives all support to one well-chosen agent keeping reasonable profit for both provider and agent. The agent in such case is protected with all sales from its territory going through its company. The agent invests in marketing with assurance that its investments will not benefit another agent who offers extra discount from its margin to win the student. The agent will be loyal to the provider’s brand as the more fame the brand gets the bigger business volume comes to the agent.
    However, in the process of seeking more business volume, schools chose to partner with several agents in the same area. Imagine 20 agents in the same city selling the same schools! This created a big competition between agents investing huge amounts in marketing and events, offering extra discounts to students from agents’ commission, and rewarding staff for selling the school. More even, schools started to do their own digital marketing reaching their agent’s area to recruit students directly to the school without agents involved! As a result, both schools and agents are losing their profit margins to either marketing or the student.
    For example, for years, our agency – Sindibad Holidays Co. – was one of 3 agents only in Saudi Arabia having contract with a big chain of English schools. All students who check the school website found the 3 assigned agents to choose from. All other agents who are in the country had to forward their clients – who ask for this school – to one of the assigned 3 agents. This chain school offered much lower commission than other schools. However, we were happy with the deal. On the first drop in the market, the school decided to open doors for more agent agreements to bring more business, and of course this led to smaller business volume for this school through our agency. Then we had to ask for commission increase similar to what other schools offer to cover our cost and marketing investments.
    The current version of business is unhealthy one and hard to continue. Schools need to unite with the agents they trust and offer enough protection to agent’s business by offering exclusive regional agreements. In that version of business, both school and agent will grow the school’s brand and increase profit margin.

  4. This is not limited to EFL; regrettably other areas such as sub-degrees; and degree programmes too . the sector is not regulated. pressure of ” multi-centre costs and number crunching ” managers” affected quality in favour of returns in some cases to keep afloat. a number of schools changed hand over the last two years or so this needs further discussion

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