Enerex - The Broker’s Crossroad: Making Sense of Energy Broker Solutions

The Broker’s Crossroad: Making Sense of Energy Broker Solutions

The Energy Brokerage Industry has recently started to see advancements within technology. This is a trend that continues to sweep across virtually all industries in different shapes and forms. Gone are the days when successful energy brokers worked solely based off of excel spreadsheets. There are many software solutions that have introduced an unmatched level or integration, automation, control, optimization, growth, and profitability. Every broker or prospective broker looking to conduct their business in the modern age faces a common problem: Choosing between a Broker of Brokers Solution (BoB) or a Software as a Service (SaaS) model. Though some fail to appreciate the inherent differences and the long term implication of either choice, such due diligence is a necessary ingredient in any success formula. So let’s go through the two options with a fine-tooth comb.

What is BoB or Saas?

Before we can delve into the core differences between BoB and SaaS solutions, lets further define what they are. BoB is an online software platform that is run by a master broker who gives other sub-brokers access to use the platform for a predetermined share of the profits. SaaS is a software designed specifically around each individual broker and their needs, allowing access to a cloud based solution for a fixed monthly fee based on the number of relationships. Although the functionality around CRMs, document generation, matrix comparisons and commissions may be similar, the core differences lie in structure. Now let’s break down the pros and cons of the two solutions.

Broker of Broker model

Advantages

  • The solution is uniquely suited for startup brokers or individual agents that seek to operate in the short term. You can essentially ‘hit the ground running’ as there is no need to start building supplier relationships and engaging in other typical groundwork (I.e. broker licensing)

Disadvantages

  • You have no personal relationship with suppliers. This may prevent from full transparency on margins/adders.
  • You are not the broker of record for each customer you sign up. The supplier likely does not have a record of you as the sub-broker.
  • You have to share your profits
  • Your competitiveness and profitability can be compromised as you often have to pass on deals due to the extra margin you have to put on
  • The dollars that you have to surrender to the master broker grows significantly as your business grows.
  • You have zero control over important aspects of your business – most importantly what is done with the data you are placing on the platform
  • No opportunity to build your own unique brand

SaaS model

Advantages

  • Ideally suited for the long term – full management of all business aspects within a single platform
  • Fixed license fee for every user
  • The fixed fee means that your profitability is not compromised as it only increases with every additional user and not in response to an increase in your volume of business
  • Gives you an opportunity to brand yourself
  • You have full business data control and security
  • Allows you to build relationships with suppliers and consumers
  • Your competitiveness and profitability are not compromised as you can negotiate directly with suppliers for the best deals

Disadvantages

  • You obviously can’t hit the ground running as you have to build relationships and grow from scratch – most suppliers requires brokers to be licensed, and getting licenses takes around 30 days for most states.

Illustration

Let’s say a broker has two options:
  1. BoB Solution charging 20% on deals. Typically 1 mil.
  2. Saas Solution subscription costing $650 / month. sparkplug example – 3 users, 10 suppliers and 3 referral partners
  • Broker has Average Margin of $3/MWh
  • Average Deal Size is 500 MWH annually
  • If the broker has 50 deals and later grows to 150 deals/3 users, the following indicates the differences between the two solutions. At 50 deals, difference a SaaS model would save is $7,200 annually, and at 150 deals – SaaS model saves $37,200
Deal SizeRevenueCost of PlatformResidual Profit
BoB500x50x3$75,000$15,000$60,000
SaaS500x50x3$75,000$7,800$67,200
Deal SizeRevenueCost of PlatformResidual Profit
BoB500x150x3$225,000$45,000$180,000
SaaS500x150x3$225,000$7,800$217,200

In Conclusion

In the increasingly competitive energy brokering industry, almost every decision is instrumental to the success of your business. Given the light of the comparisons we have made, it would be safe to say that the SaaS model translates into much greater profitability for brokers, compared to BoB solutions. By investing in a robust SaaS solution such as sparkplug, brokers can not only optimize their operating efficiency but also rule out the possibility of human errors that can have a notable impact on the bottom-line. Should you wish to learn more about sparkplug and how it can help optimize your business operations and increase profitability, speak with one of our product consultants, today! If you wish to learn more, simply fill out our contact form and we will get back with you, shortly.

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