New utilities comparison site looks to create an even split
Tim Andrew and David Ingram both tossed aside comfortable corporate jobs to launch utilities comparison site SplitIt.com.au.
With several other players already in the comparison marketplace, this may seem like a risk, but SplitIt comes with a twist – commission is divided 50-50 between the business and customers that take on new providers.
Having started with the health insurance industry, SplitIt is looking to expand to other sectors.
Andrew spoke to StartupSmart about how the venture came about.
What’s the idea behind SplitIt?
It’s an online marketplace for essential household services, where we split the commission we get from providers 50-50 with the customer.
We have health insurance on the site now and there are probably another half a dozen industry verticals coming up in the next 18 months, such as energy, mobiles, credit cards and other insurance.
People are spending an average of $20,000 a year, per household, on all the things they’ve got to have, such as energy, credit cards and so on. This cost is increasing and it’s causing people to shop around, which are being talked about a lot in the media at the moment.
We’ve tried to find a solution with the commission split that is rewarding for all parties. We act as the sales fulfilment part, not just the lead generation part, so amounts are reconciled at the end of the month.
What kinds of savings are we talking about here?
The site performs as broad a comparison as possible so that customers can get the best deal. It’s different from the likes of iSelect, which will just compare two or three providers that will pay a commission.
The savings are around $200, but can be as much as $600 on some policies. For energy, which will be coming up next, it’ll be around $50 to $100.
For consumers, it’s a bit like getting a birthday card with $50 in it from grandma. It’s guilt-free money, which has a very strong emotional pull for people.
What is the industry reaction to this?
The industry is used to having a broker, but this system allows them to see exactly what competitors are paying. This can help them gravitate towards a market segment or geographic area that they want to focus upon.
It’s an acquisition roll for companies. The industry is actually nudging us towards this model as it gives the industry control over commission and their cost per acquisition. It’s much more industry-aligned.
The energy industry actually wants to shake up the order of things. They don’t want money to be churned and the only beneficiary is the broker.
Why did you decide to do this?
David came from a health management background and when he moved here from the UK, he was expecting to find the same comparison sites as he did back home.
He couldn’t work out why these sites didn’t exist and thought that there was an opportunity here, compared to the more mature UK market.
I was at NAB and it struck me how in the mortgage industry there was a dislike for using intermediaries. I thought there must be a way to benefit customers but also the industry.
We were talking about this over a beer, as many of these things start, and we thought there was an opportunity that we should have a crack at.
We put the idea out there while we were still at our jobs and got a strong positive reaction to it from the industries, especially health insurers that have been shut out from the likes of iSelect and feel that the commission model was unsustainable.
So we decided to go ahead and work on this new business.
How have you funded the business?
We went out to get investment. We were pitching a model that was simple to understand as we ended up getting $800,000 from private high net worth and seed investors, such as Lord James Blyth, the former chairman of Diageo Worldwide.
We ended up getting five investors, all of whom understood what we were trying to do because they’ve seen the problem of having your margins destroyed by the current model.
How did you convince them to back an untried start-up?
The Australian business market is quite small, so we approached people we knew or people who we’d been approached by.
I think they liked the fact that in this comparison market, there are a lot of ‘me toos’, but not many actually looking to shake things up a bit. The model of giving control over the cost per acquisition resonated.
Also, we both have strong corporate backgrounds in several different areas and I had a start-up from some time back. We know the industries well, which gives investors confidence.
It took about eight weeks from go to woe. It’s sales 101 really – we targeted people who would understand the pain point we were trying to solve.
We’ve spent the money on developing the site and recruiting some whizz bang technical people. We’ve kept a bit on board for the move into energy comparison.
Aren’t the margins a bit skinny for you, given the 50-50 commission split?
There are actually good, sustainable margins in there for us. There’s around $100 million a year spent in hidden commissions in the health insurance industry, so there’s plenty of money around.
What are your goals for the business?
In the short term we want to perfect the health insurance element and then get energy launched, along with other verticals.
We are looking at the US, UK and Asia. We’ve already had some people in Singapore who’ve been in touch asking about this idea, but we’re focusing on Australia first.
Within 12 months we want 50,000 customers and then keep doubling year on year.
We see the market growing in Australia before we’re eating competitors’ lunches, but ultimately there will be two or three main players. In the US and UK, it’s more of a disruptive model for others.