Flat fee per lead versus a cut at closing for bird dogs, and which structure teaches more

Question

Some investors pay scouts two ways and let them pick. Either $500 flat on any lead taken to contract, or 5 percent of net profit when the deal closes. Same pipeline, same investor, two different incentive structures. The flat fee pays sooner and it pays even when the deal falls apart at inspection, which happens often on distressed buys. It also caps you. Take a rehab where 5 percent would have been nearly four grand, and the scout who found it took the $500 instead. The percentage version pays maybe once out of every eight leads handed over, and the scout is waiting on a close they have no control over. They also have to trust the investor's numbers on what net profit means, and that definition has a way of moving. For someone with no deals yet and no read on which investors actually close, the honest answer cuts both ways. The flat fee teaches volume. The percentage teaches what a good deal actually looks like.

devon_pierce · Answer

Flat fee, and the reason is the definition problem named above. Net profit is whatever the investor's spreadsheet says on closing day, and a new scout has no standing to argue about holding costs or the labor the investor paid himself. $500 can be counted on. The smaller number that arrives on a predictable date usually wins, at least until it's clear which contacts actually get deals to the closing table.

jessreyes12 · Answer

Question I would have been too embarrassed to ask before: does the flat fee pay on contract or on closing? You wrote contract, which changes the whole thing. If he pays $500 when he signs a purchase agreement, that is a real advantage over percentage, because the 40 percent of his deals that die in inspection still pay me. If it's actually on closing then the flat fee loses most of its edge and I'd think harder about the 5 percent.

megan_doyle15 · Answer

The eight-to-one ratio is the part I keep rereading. Eight leads for one close means the percentage option pays me nothing for weeks at a time while I'm still burning gas. Voted flat.

Flat fee per lead versus a cut at closing for bird dogs, and which structure teaches more

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