Subscribe by RSS
Coming this October LendingTree is set to implement their new pricing. In the title I use a couple of exclamation marks. Not because its rare that LendingTree is raising prices or the timing of the price increase but because the increase is almost triple what the price currently is now!
Some of you may or may not be aware how LendingTree prices their leads so really quickly I will explain. LendingTree charges both a front end fee and a back end fee, when the lead funds. With this price increase LendingTree will be raising their “Match Fee” (their front end fee) prices by almost 600% in some cases. Example the current match fee for a price for a lead with loan amounts $350,000 and higher is $27. Coming October it will go up to$65. Then you have the closed loan fee. This fee looks to have an average increase of about $200. This means a closed loan fee with the same loan parameters will go from about $700 to $875. (This implies a credit score of 620 t0 679.) For the people not familiar with LT pricing, prices differ based on credit score too.
Currently without the price increase LendingTree buyers must CONSISTENTLY convert their leads at 6% minimum to sustain some king of profitability. With this price increase you will now need to convert the leads CONSISTENTLY at 8% or higher to remain profitable.
Here is a little comparison:
LendingTree
cost per lead $65
success fee $850
conversion rate 6%
cost per fund $1,933
Monthly Volume 1,000.00
Number of Loans 60.00
Avg. Loan Size $360,000
Avg Points per loan 2%
Avg. Fee Income $7,200
Gross $432,000
LT Fees $116,000
Net $316,000
ROI % 272.41%Typical Provider
cost per lead $30
success fee $0
conversion rate 3%
cost per fund $1,000
Monthly Volume 1,000.00
Number of Loans 30.00
Avg. Loan Size $360,000
Avg Points per loan 2%
Avg. Fee Income $7,200
Gross $216,000
LT Fees $30,000
Net $186,000
ROI % 620.00%
Buying LendingTree leads after the October price increase seem to be a risky bet, in my opinion. Don’t forget these leads are sold 4 and sometimes 5 times.
The question that needs to be answered is what the hell is LendingTree thinking?? Are they trying to loose their client base on purpose. By the looks of these price increases I would have to say YES! I can understand a marginal price increase but with this increase you would think they are trying to drive away business rather than attract it.
Why would they do this? Is LendingTree trying to decrease their network so they can back out of the mortgage vertical? Maybe they are decreasing their network so they can funnel more leads to their direct lending channels so they can pocket a bigger paycheck? It’s also known that LT has been loosing upwards of 1 million dollars a month over the last 9 months too.
What do you think is going on?
.
.
.
15 Comments
I feel like I may have made this call in my blog entry back in May. I talked about how 3 key things were going to have to happen for lead generators to be able to sustain themselves after the implosion.
1) Increase prices to compensate for diminishing add buying power
2) Buy fewer placements or poorer quality placements
3) Or divert funds from other sources (i.e. reduced payroll)
While LT already did #3 back in May, they are now exercising option #1 as well.
For many shops, the LT long form lead has become an indispensable source of marketing. Loan officers prefer it because – to be blunt – they don’t have to work very hard to close them. As a result, for many shops, it has generated a virtually inelastic demand. Like gasoline, people will always need to drive and will pay virtually any price for gasoline. Many shops actually have a near inelastic demand for LT leads because they have built their entire business around the lead. This price increase will absolutely test just how inelastic the demand is for LendingTree leads because if the shops can’t convert the leads profitably, then LendingTree will effectively be putting their own clients out of business. On the positive side, it is obviously in LendingTree’s best interest to make their clients successful, so the risk is at least shared in that respect.
[Reply]
John,
Good point, but you missed something. LendingTree acted on point #2 in Q2 by cutting their advertising by 40%. So they hit the Trifecta (or Hat Trick depending on your interests).
[Reply]
But what are your thoughts on LARGE price increase. I understand a marginal increase but this is quite substantial.
Do you think they are trying to decrease their network and why??
[Reply]
Lending is facing huge issues. Buyers are learning that have credit scores has less impact on the closing ratio than they previously thought. Prices have to go up when the sales are down and your advertising costs still have two comma’s in the number. It is the smaller companies that are going to be able to provide the best data at the most reasonable prices. The problem that will be faced is the uncertainty of the true credit grade and lead flow will be low which will require several sources for larger companies. The best ROI will come from the smaller (legitimate, as hard as it may be to find them) companies.
[Reply]
I’d love to take credit for the tri-fecta, but I learned some time ago that the source that reported the 40% reduction was not accurate. I don’t know what they sourced, but I don’t believe it to be true.
My opinion is that LendingTree is trying to weed out their less effective partners as their volume contracts. When you have a business model based on a success fee, you naturally want to make sure your clients are as successful as possible. In this way, everyone actually wins in the end. Wierd to think that a 3x price increase is a good move, but I am acutally coming around on this a little bit. It may be a very good move for them.
[Reply]
I guess you don’t see anything funny about raising prices by almost triple? I know 2 out 3 of you work for lead providers, but you still don’t think there is more going on.
I think it is clear they pushing people off their network to close the leads themselves.
I agree with you John, because of the closed loan fee it makes some sense to push weaker lenders off the network, but with this pricing and you have to agree with me on this, only the very strong can be profitable.
[Reply]
I absolutley agree with you, Lead Critic. It is a bold move. It may be yet another over-correction in an industry wrought right now with over-corrections. But for a model whose success is based directly on the succes of it’s clients, there is at least some shared risk in the move, as bold as it may be.
[Reply]
I think it is interesting that the bulk of the price increase is on the upfront payments. If they said, we want to be more of your partner and raised the success fee substantially at least they would be further aligning their interests with customers. But what they are saying is, pay us a huge upfront, risk free amount or go away and we’ll close them ourselves.
[Reply]
Interestingly enough I am attending the LendingTree Summit and the price increase was a direct question to C.D. Davis (CEO) during the Executive Q&A. I thought his answer was interesting and logical in the larger context of the Internet consumer.
Here was his answer:
The price increase was a reflection of the marketing cost in bps relative to what a lender should be making on the loan, consistent with current market conditions. He further stated that LendingTree was not inclined to reconsider the price increase.
I am paraphrasing, so if I got anything wrong I would encourage LendingTree to directly comment here.
Now, here is where the sound logic comes into play. At least in my mind. LendingTree, unlike most lead providers, considers the customer a direct client in cooperation with the lender–not a lead to be handed out and abandoned. Consequently, the only time client satisfaction occurs is when a loan closes (they had compelling stats to prove this). Therefore, I think Lead Critic may have hit on part of the strategy and it was reinforced by the answer to another question, “Is LendingTree looking to continue growing the network?” This was fielded by Keith Moore (GM of LT and GetSmart). He said, we are looking for the “right lenders to be in the network.” The “right lenders” were often referred to as “closers.”
So, I think it was clear that LendingTree is conveying that if you do not have an effective “closing” operation, are not appropriately managing the “joint” client, then this pricing is not going to work for you.
BTW, I was also told by a LendingTree representative (that thought I was Lead Critic, which is a rumor that I would like to categorically deny) that the pricing posted by Lead Critic was a mish-mash of several concepts in the new pricing and is not entirely accurate.
I would encourage LendingTree to join the discussion. There is a lot of clarity of purpose that could be communicated in this and other related forums.
[Reply]
This question is not so much related to Lending Tree itself as the cost breakdowns LeadCritic posted.
How many closed loans do you expect from a loan officer working exclusively leads (assume decent leads)? Obviously this is a function of the number of leads they get and the quality of these, but I am curious about the “ideal” workload level.
I can say that we shoot for about 8 a month, working off of a combo of (fairly) highly converting leads generated on our own site and pretty typical decent purchased leads converting around 3%.
Also, what kinds of compensation plans are used for loan officers, again assuming they are provided all their leads? This is something we have tried a number of ways and are trying to hit the right level.
[Reply]
Ajiny,
I suggest you post this question in the forum.
Thank you
[Reply]
Thanks, I will. The forums seems to be down right now. I get a message, “you found a hole in the site”
[Reply]
Thank you I will fix the issue this evening. In the meantime go to http://www.forum.leadcritic.com
[Reply]
[...] week I posted an article about the upcoming price increase by LendingTree and now there are some questions with regards to the posts accuracy. In fact there does need to be [...]
After reading the above from September, it’s very easy to agree with John. Being from a large lender, it’s about payback. LT consistently has performed if processed correctly. Although it’s not a “have-to-have” lead source for some, volume can make up for smaller margins. And when the volume of leads are diminishing, LT has to do something to satisfy the lenders that are closing 80% of their loans. It’s all about the 80/20 rule.
[Reply]
[...] can now have a little more insight to last months changes. Commenting on results, IAC Chairman and CEO Barry Diller said, “With the exception of [...]
I think lending tree is pricing themselves out of the market. They are having difficulty making money as there were fewer loans in 2007, increase in cost structure, lower close ratios due to the increased pricing structure, and mortgage brokers switching to alternative lead generation sources. In Q3 this year Lending Tree lost $5.3M. It’s going to be difficult for them to stay in the mortgage lead business if they keep loosing money.
[Reply]