Overview
LendingTree.com is a souped-up, glorified affiliate site. Ironically, they did not start by lending money (although they do currently offer this). I'm not sure what the "tree" is about, either. But, when you've got as big of a marketing budget as LendingTree, you pretty much name your company whatever you want, and people will accept it… Traditionally, their main business was making money for every qualified lead they referred a to a partner lending company. For our purposes, I'm going to focus on this "affiliate model" of collecting leads and receiving a referral fee.
According to their latest press release "LendingTree has facilitated more than 16 million loan requests." The revenue generated by LendingTree is amazing – $101 million in Q4 2005 (versus $45 million in Q4 2004). We'll talk more about the math in a minute – but my calculator may melt!
When someone comes to LendingTree, they fill out a series of web forms for the type of loan they desire, and are presented with a couple of offers from qualified lenders. You choose one you want, and LT gets paid! And how… From their terms of use: "For its services, LendingTree receives a real estate brokerage referral fee of up to 35% of the local broker's commission. Your use of this Web site constitutes your agreement with this compensation arrangement."
Where's the beef?
The numbers speak for themselves. This is a highly lucrative business, in the "my yacht should be more than 200 feet long, with a helicopter pad" sense of the word.
Working backwards here since I have the numbers of a public company:
- $101 million revenue in Q4 2005 = $1,122,222/day
- Approx 30,000 visitors per day = $37.40 per site visitor!
- $37.40 / ~5% loan closing rate (Total guess – I'm being generous because of the nature of the service) = $748 per loan closed
Reasons for success
- Big market, free service – They've found a way to offer a free service, which is of value, to a very large market, and get paid for it. This is a no-brainer.
- Aggressive advertising – national commercial campaigns ensure plenty of site visitors.
- Customer Service – they offer their 800 number for live customer support very clearly on every page. They want you to call because their call center reps are trained to close close close.
How to steal this idea
This one seems pretty obvious to me. Find a large market looking for an expensive product (see Legalzoom), service related industry, and offer them a free service, which you in turn get paid for. Duh! There aren't too many of these types of markets to start with, and there's probably very few left that aren't already exploited. But, one of the best ways to make dinero on the net seems to be to find something someone has already done, and figure out a way to do it a little different/better. Be creative!
Some possibilities might be:
- Autos – I've looked into this model for motorcycles (scheduling test rides in exchange for a referral fee), but the dealers are very resistant to change their current offline mode of operations.
- Landscaping/Home Improvement – Big market, big ticket item, contractors willing to pay.
- Accountants – in the spirit of tax season!
- Computer services – how many people do you think have problems with their home computers? How many private consultants are out there looking for a little extra work?
Standard disclaimer
The data and analysis in this blog are complete guesses, researched very little, and should not be taken seriously. This is meant only to show the basic business model of the site, and why I think it rocks. If I've royally screwed the pooch, feel free to let me know, and I'll acknowledge my stupidity in a future post.