July 22, 2020

Brokerage platform develops agent reward program with Stratus Data model

This is an abbreviated case study.

Avenue8 is a residential real-estate brokerage based in San Francisco. The company hired its first agent a week before the U.S. went into lockdown, yet by 2021, was flourishing, with nearly 100 agents. That year, they raised $14 million in funding to expand to Miami and New York.

Avenue8 wanted to build a program that rewards agents for making sales. While the program would be a cost for Avenue8, it would incentivize users to refer new agents to join, generating more revenue in the long-run. Co-Founder Michael Martin hired Stratus Data to determine a policy which optimizes the cost/revenue ratio.

“Brokerages of the future will have a much more integrated suite of offerings and support for both agents and consumers.”
– Michael Martin, Co-Founder of Avenue8

To solve the problem, Stratus ran Monte Carlo simulations, which model different realities using statistics. The team ran thousands of simulations varying different parameters like number of agents, referral rates, incentive structures, and more to determine which policies were feasible to use. Normally, the cost/revenue ratio would be calculated using the average of agent sales: a fixed single value. Monte Carlo simulations are more sophisticated, drawing values from probability distributions to mimic various realistic scenarios, where nothing is fixed. 

Ultimately, Stratus Data’s Monte Carlo simulation gave Avenue8 the power to evaluate various possible scenarios by considering their potentials and risks, and use them to make the best decision possible.