Commission creep: ELT sector concerns rise over agent costs
Published 05/10/2018
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.
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 effect 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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