Grow Your Business with Additional Revenue Streams
Keep More Revenue in House
By Joseph D’Urso
All of us in the industry could use more revenue per transaction and many have already began pursuing that goal. A trend in the lending and real estate space over the past few years has been how do we obtain ancillary revenues to our core business and “keep more revenue in house.”
Adding new revenue streams is a way to grow your business in a difficult environment where transaction volume is down significantly, and margins and ROI have followed downward. One great way to increase ROI and/or margin is to introduce a tangential but closely related vertical business line. There are some terrific offerings out there that can help industry participants do just that.
The post-COVID real estate and mortgage boom of 2020 & 2021 was spectacular with record transaction volumes and margins per transaction. During those boom times, many industry participants held off from adding ancillary business lines and revenue streams and did so with some justification.
Specifically, they would ask themselves, “how can I justify taking my eye (and resources) off of the ball and risk execution on the current revenue opportunities I have in front of me today in order to add future revenue opportunities?” However, some of our peers in the industry did both — execute on all the current volume while also adding on additional ancillary services and revenue streams — and they are beginning to reap the benefits today.
Prepare for an Improved Third Quarter
While we are coming off a difficult 2022, today is a perfect time to reimagine our businesses and consider those future ancillary revenue streams. For those that have the capacity, the resources, and the wherewithal to focus and capitalize on these opportunities, the rewards can be substantial. While we are not yet in a fully stable and well-functioning environment, the signs exist that we may be well on our way there. We can debate the inflation outlook, interest rates and the health of the overall economy, but what most economists and industry participants believe is that we should be in a much better environment by the third or fourth quarter of 2023.
Are you ready to take advantage and hit the ground running? Are you adding as much ancillary revenue capability today to boost the profitability of each of your deals while being prepared to benefit in an even bigger way when the markets regain balance and stability? Especially if those ancillary revenues/services also serve to give your customers a better overall experience and make for a more efficient overall transaction? Here are just a few examples:
If you are a property investor, some of the most significant fees that you pay in your business are real estate brokerage and title fees. They are part of every real estate purchase. Wouldn’t it make the business a more robust business with better ROI per deal if you were able to recapture at least some of those fees? Wouldn’t it also potentially make the transaction faster or more efficient if you could have better control over those aspects of the transaction? And finally, wouldn’t these ancillary revenues make even more sense to pursue if it were not too difficult to obtain them in a legal and compliant manner?
If you are a private capital lender, you are familiar with the cost of valuations and title policies. And while you may pass these costs through to your borrower, they are not insignificant to them. And, if you were able to capture some of these fees, you could be more profitable per loan and have some flexibility in what gets passed through to your borrower and thus be more competitive. You could also potentially shave some time off the lending timeline by having direct insight and input into the valuation and title process. If you could accomplish all those things, why wouldn’t you take some time to evaluate these potential ancillary revenues?
In 2019, a Harris Poll commissioned by the National Association of Realtors questioned consumers regarding homebuyer preferences. That poll found several positive, pertinent items in relation to the “One Stop Shopping” model (OSS). Overall, a vast majority of homebuyers would consider an OSS model, and of those that did use an OSS model, homebuyer satisfaction was higher. Also, 79% said that it makes the process more efficient and manageable.
While I am not advocating either way regarding the OSS model for real estate, what I do believe is that simplifying the process for ourselves and our customers has some of the very same and clear benefits that the Harris Poll highlighted. It just makes business sense to streamline your business and your customers’ experience by offering some of the ancillary services discussed earlier. A better and more efficient customer experience inevitably leads to better customer retention and a more efficient process also leads to better margins and ROI for your core business.
A New Way of Looking at Alternative Investments
While we normally think about “alternative investments” in the context of hedge fund and private equity fund investing, shouldn’t we also consider alternative investments in the context of our own businesses? If investing in alternative but closely related revenue streams can enhance our existing businesses in some of the ways articulated above, then don’t we have a fiduciary responsibility to ourselves, our employees, our investors, and our companies to evaluate and consider those?
At TitleEase, we have seen our partners and franchisees use this opportunity to increase their revenue and margin per transaction and better control their customer experience while also adding enterprise value to their existing business all with one easy transaction.
We believe that the environment we find ourselves in today is an excellent opportunity to re-assess, stabilize, and expand our existing businesses in some relatively easy ways and thus make them better both for today and for the better days to come.
Have you considered some “alternative investments” into your business? We think you should.
You will be better for it.
