LendingTree Set to Raise Prices!!

By Lead Critic on Sunday, September 9, 2007
Filed Under: LendingTree, Pricing, Mortgage & Real Estate, Lead Providers, LEAD Management
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15 Comment(s)

1. John Challis | Sep 10, 2007 | Reply

   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.

2. Mike | Sep 10, 2007 | 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).

3. Lead Critic | Sep 10, 2007 | 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??

4. webstertm | Sep 10, 2007 | 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.

5. John Challis | Sep 10, 2007 | 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.

6. Lead Critic | Sep 10, 2007 | 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.

7. John Challis | Sep 11, 2007 | 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.

8. ajiny | Sep 11, 2007 | 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.

9. Bill Rice | Sep 11, 2007 | 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.

10. ajiny | Sep 11, 2007 | 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.

11. Lead Critic | Sep 11, 2007 | Reply

    Ajiny,
    I suggest you post this question in the forum.
    Thank you

12. ajiny | Sep 11, 2007 | Reply

    Thanks, I will. The forums seems to be down right now. I get a message, “you found a hole in the site”

13. Lead Critic | Sep 11, 2007 | Reply

    Thank you I will fix the issue this evening. In the meantime go to www.forum.leadcritic.com

14. EJ Harank | Oct 30, 2007 | Reply

    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.

15. Jason | Dec 9, 2007 | Reply

    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.

2 Trackback(s)

1. From LEAD CRITIC : Blog Archive : LendingTree Pricing Clarification | Sep 24, 2007
2. From LEAD CRITIC : Blog Archive : LendingTree Revenue Tanks. | Oct 31, 2007

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