How Much is Too Much?
How do you feel about a 50% referral fee due to an outside source? I have recently come across a couple of companies offering leads to real estate brokers for a 50% referral fee. Now mind you, they are not relocation companies offering company-sponsored move referrals. They are not coming from RMCs or corporations that provide the services needed to relocate people for a job. These are national entities generating local leads.
When did we lose control?
It's similar in concept to what the online lead aggregators have figured out how to do, which all comes down to selling you back your local prospects. But in the online portal’s defense, they have spent millions in SEO, marketing, AI, and website design to achieve consumer traction when brokers could not figure out how to do it. While many brokers were paralyzed in fear of the internet years ago, others saw the opportunity. But even they aren’t charging exorbitant referral fees for those types of models, and it is certainly a broker’s choice if they want to participate in the ‘pay to play’ internet lead models. As everyone fights for exclusivity in their own market, the cost is going higher and higher to claim your own market area if it is even available.
Like many other sources, these new 50% model entities are basically selling your local clients back to you. I want you to think about that for a minute. These national companies asking for a 50% referral fee have figured out a way to step in between the real estate company, relocation department, and the local agent and get the local customer’s attention. They are spending millions to try and become the middleman. They offer promises of exclusivity to the broker and a hand-selected network to the consumer. But in actuality, it is just those that are willing to pay that get in. They may be offering something of value back to the customer such as a gift or a rebate, but I assure you it doesn’t equate to what the 50% referral fee comes out to. Not even close.
How can we take back the control?
So as referral fees continue to creep up, it is important to think about whether you could have access to that customer without that source. Many times you could not, such as with relocation referrals and a reasonable referral fee is smart business. It builds long-term relationships with organizations that have access to business that drives new customers into your market and listings to your business. I’m all for it.
But when sources pop up that want to charge those kinds of fees, think about what you might do to combat it. Could you spend more to make your website more user-friendly? Amp up your SEO for your market? Or maybe create a local affinity program to tap into those that are enticed by rebates? Create local partnerships to keep the money in your local economy. By taking back control of how you present your company to your local consumer, then you control the program and the narrative.
The price of customer acquisition
Now is the time to strategizes how you are going to combat the national companies that offer no real value to the consumer other than some sort of rebate that you are paying for. Their goal is to get between you, the local expert, and the consumer. Once the 50% dam is broken others will surely follow. If they see brokers not only paying those referral fees, but are happily doing it, that will set the bar for the perceived tolerance level. When an outside source makes more on the transaction that the entity who provides the actual service and bears all of the risk, then something is backwards.
I think we are all painfully aware that customer acquisition costs are high. Everyone is fighting for the same eyeballs. But what if you spent more money focusing on local customer acquisition instead of sitting back and paying others an exorbitant amount to do if for you at a national level? You are the local expert. You provide the services needed to buy and sell real estate. If we don’t put an end to rising referral fees, profit margins will continue to diminish and at some point, the business will no longer be profitable which means the programs and staff needed to service it will be cut. Take the time to run the numbers before you accept these referrals and then just say no.
“Profit is not something to add on at the end, it is something to plan for in the beginning.” ~Megan Auman, jewelry designer, profit mentor to artists
