In January, co-founders Matt Burkinshaw and Mike Symonds attended the 2023 Lead Generation World conference in San Diego, California to meet, network and speak to partners and clients in the industry. One topic that was hot on everybody’s mind was the “revshare” or the revenue share model for buying and selling home services leads.
The most common example of a revshare relationship is where a lead provider sends leads to a contractor with no up-front payment in return for a share of any sales revenue produced by those leads. Percentages of revenue shared can vary as well as the trigger for payment, such as when the contract is signed, when the work is performed or when final payment is received by the contractor on the project.
In its purest form, this model (at least to Matt and Mike), doesn’t set the relationship up for a win-win because the contractors and lead generator are not both investing in the leads. When a lead generator pays to generate a lead and the contractor then pays for the lead, both parties have skin in the game and are equally motivated to maximize the potential for each lead.
However, when the contractor has no investment associated with a lead there is no negative consequence for handling leads inconsistently or even wasting leads by not making a sincere effort. Yes, if a lead generator doesn’t make any money they will eventually stop sending free leads – but there are a lot of lead generators out there looking for new clients.
And yes, if leads don’t turn into sales, the contractor is not making any money so they are not winning either. But maximizing effort on each lead is not tied to sales in this mode. Rather than work each lead through a comprehensive, multi-step follow-up process, a contractor may feel incentivized to quickly process leads in volume while cherry-picking the easiest and best sales opportunities. There is a potential downside here for the contractor: their call centers can become overworked and morale will suffer when focusing on volume rather than quality.
Matt sat down with Ruben Ugarte the National Director of Home Services with Active Prospect as well as Brian Hafe SVP of Client and Sales Services with BuyerLink and Alex Knight CRO at Best Company for the panel discussion: The Evolution of Lead Selling Within Home Services to talk more about this hot topic and the economic state of the industry:
Question to the panel:
The term revenue share has become more and more popular in our industry – what are your thoughts on that?
At Home Appointments, we have discussed this with several prospective clients. We would consider it under the right circumstances, though it’s not something that we currently offer. A contractor who asks for a pure revshare model (one with no upfront cost to them) is not asking us to be their vendor. They are asking us to invest money in their company with no guarantee of return.
Here are some thoughts on where revshare might be attractive for us:
First, excellent history of a sales team performance. Sales performance metrics vary greatly between companies and even within a sales team. A revshare client would need to have a well-trained, high-performing sales staff. And they would need to be willing to share information with us so we could monitor that performance. We’re not just looking at the performance of our leads results, but also how our leads are doing versus all other lead sources. The contractor would need to be transparent about their call center and sales process – how leads are contacted and set, how appointments are distributed among the sales team and what scripts and sales systems they use. Bottom line, we’d want to know how our leads are being handled by the call center and sales team.
Second, operational performance. The client would need to have industry-standard credit facilities and programs in place to get sales through financing. They would also need to have efficient project management/installation processes in place to do the work quickly with a minimum amount of slippage that may get passed on in the form of reduced revshare payments.
Third, the time from lead delivery to payment would need to be reasonable under the circumstances. Some trades close a sale, install and collect final payment in the same week as the lead is delivered. Others have an 8-12+ week average sales to project completion cycle.
For us, it’s purely financial analysis. Will the revshare client’s team perform well enough to match the ROI on our lead investment? And can we sell to a cost-per-lead (CPL) client in the same market?
On the other hand, there are some circumstances where revshare can work even without all the assurances I talked about earlier:
The fact is, revshare was more attractive in the high demand/high supply market of 2020 through the second quarter of last year. Leads were cheaper, more abundant, and sales were easier with lower interest rates and soaring home values. In a tighter economy with credit turndowns rising and consumer demand leveling off or falling in some markets, CPLs are going up while there is downward pressure on contractor pricing.
Good contractors with good sales teams will still sell jobs. But it’s going to be harder. We want our contractors to win with good leads at a good value. And we want to win by making a profit. Everyone wins if everyone plays by the same rules. And if everyone has skin in the game, we are all incentivized to do our best work generating and working every lead.
Were you at the conference? Do you agree with our take on rev share? We’d love to hear from you. Contact us today and let’s chat!