How does consulting business impact the bottom line?

This is a question we're asked a lot...often by managing brokers. Their concern often is that, if they begin offering "reduced fees" of any kind, consumers will simply stop opting for "full commissions" (however you happen to define "full commission").

There are several things that happen with consumers. I happen to love a story that Mollie tells called A Tale of Two Seafood Shops - and I invite you to read it. It very clearly puts the challenge of offering only a single option to the consumer versus offering choices into perspective. On the one hand, if you only offer "full service full commission" to the consumer, yes, you're guaranteed that IF they hire you and IF their property sells (or IF they purchase a property through you) you'll receive that commission.

However, there are certainly other consequences to offering the consumer only one way of working with you. For example, if a consumer "believes" that they either don't want (or can't afford) a full service, full commission transaction, and if that's all you offer, they simply take their business elsewhere. You never have the opportunity to talk with them in the first place. And there certainly is a certain percentage of people who would never, under any circumstances agree to "full service, full commission". However, what often happens is that consumers who think they want an alternative to "full service, full commission" ... and that alternative could be any of a number of options, like MLS-only, or fee for service, or a limited bundle of services for a particular fee, etc. ... when they are truly informed as to why commissions are what they are, in great part because of deferred risk, and they are given the opportunity to reduce that risk by sharing in the up front fees, they often decide the commission approach may in fact be best for them.

In the past they've had very few options that have afforded them the potential of avoiding that commission ... and for the most part those options have fallen gravely short of what's in the consumer's best interest. You and I both know that what a consumer "pays" is not necessarily what it "costs" them!

Does it happen sometimes that, by offering choices to someone, they opt for a fee for service alternative rather than full commission, when they would, if they had no choice, have paid that commission? Of course it does - sometimes! But think about this ... the agent is BEING PAID FOR SERVICES PROVIDED more or less as they are providing them! As long as you've priced your services to cover your costs and provide a good profit, how can that be a bad thing for anyone?

I hope this helped to answer your question. From what we've heard from our ACRE agents, being able to provide additional services for a fee does bring in some additional income. Being able to OFFER alternatives to consumers also brings in consumer's that likely would have never contacted them in the first place. Both of these are good for their business.

Hi AP,
Good question. In my experience, using the Consulting approach versus the one size fits all approach, you accomplish a few things:
1.) Multiple avenues of income
2.) You offer more choice, flexibility and value than your competitors
3.) You have the ability, if you choose, to be paid for actual work performed vs being paid based on an outcome.
For example, many of my clients opt to pay me either up front (I provide a discount if they choose this option) or in installments (I charge a slight premium over the up front payment plan but in BOTH scenarios, they save more than they would if they chose a traditional commission approach)

I always show them the cost of services provided compared to typical commission rates. Some clients don't have the ability to pay up front or in installments. That's fine, we can do a traditional commission plan. Some don't have enough equity to use a traditional approach. That's fine too, we puruse the options mentioned above. However, the majority of my clients prefer to pay up front in exchange for the savings they achieve.

Now, to your question about bottom line impact. I typically get paid up front or in installments for my services. My client in return receives a discount over typical commission rates. Would my bottom line be higher if I only used a traditional approach? I don't think so, because I have a larger client pool due to my flexibility. Ex. One recent client in foreclosure needed assistance finding a rental property. I charged a fair price to assist with the search. She then asked me to assist with the sale of her home in foreclosure. She then referred me to other clients because of my flexibility. This couldn't have happened if I was a traditional, commission only agent.

You have to also consider the time value of money. (A dollar today is worth more than a dollar tomorrow) I'm fine receiving less than the typical commission when I'm paid up front or in installments.

Bottom line, again, I have a larger potential client pool. I have the ability to help those who can't or don't want to use a traditional approach. I have the ability to use a commission only approach. This creates a strong USP. All of this has a positive impact on the bottom line.

If we think long term, how long can the traditional approach survive as it looks now? We're already seeing a demand for reduced commissions. In addition, public perception of Realtors is low. (A recent Harris Online Interactive Poll of the publics perception of prestigue of 23 professions and occupations showed that Realtors ranked last under actors, business executives and stock brokers, dead last) Combine this with stagnating or declining home values and the consumer's demand for change, and the need to rethink our approach is obvious. Our bottom line will certainly be impacted if we don't find new ways of doing business.

All the best,
Brent