The most common question we hear in coaching is “how do I get more business?” But there are always multiple layers to consider before answering. The simple answer is get more leads and convert better, but often that is easier said than done. Beyond that, what if you have a capacity problem?, In reality, we have found it better to ask first, “Are you ready for more business?” Think about this for a moment, what is the role of a loan originator in your organization? We find in most organizations, that originators wear three separate hats: Lead generation, that's the creation phase; sales, which is a function of lead capture and conversion; and then the third phase is completion, but do you really have the capacity for more business? To find out, we need to dig a bit deeper, and that is exactly what we intend to do in this series over the next three issues …
You see, the mortgage industry is no different than any other professional practice, there's really only three critical focus areas that impact production growth. We call them the Three Cs of Success: Create, Capture and Completion.
1) Create is about Getting more leads;
2) Capture is about converting more leads; and
3) Completion is about your ability (or capacity) to handle the volume you create and capture, with the desired level of service quality.
This last one is probably the most subtle and difficult one to manage, as it is often the silent killer. Think about the last time you received poor service? How many people did you tell? The critical failure often is, if you don’t make sure you have the capacity to service the deals that you generate, the first two Cs are totally wasted effort.
The other big challenge to effective growth planning and training implementation is not knowing in what order to work on these three areas. For example, in our coaching often what happens is that we work from three back to one. If an originator, branch or region is seeing significant volatility to their production, with widely ranging peaks and valleys month by month, then most often we first have to expand capacity. Before we then can improve conversion, and all this must happen before it is even prudent to invest time or money on creating more leads. So the fundamentals of any good sales development program should focus on these three critical focus areas and one must first assess the needs of the organization and individuals before offering any training. Then, once it is clear what the real needs of the organization are, develop programming organized into the proper sequence for the organization. For the purpose of this series, we are going to address these three areas on the order they most often need to be addressed which is Completion, Conversion and Creation.
Completion is about capacity
Often in our coaching and training work, we find that marketing and sales, though needing attention, are not the most urgent issue limiting an organizations growth. If your originators are focused and professional then they likely have the skill and ability to generate more lead volume than your support teams can handle, you most certainly will reach a capacity ceiling. Think about this for a moment, why is it that the average loan officer in the United States closes four loans a month or less? Now this may be counterintuitive to a lot of managers, and I'm probably irritating some of you right now, but the practical reality is that the primary reason most originators in the U.S. average less than four loans per month is because they're doing three jobs, and most of the time, not doing them very well. In essence, they have a lead creation job; they have a lead capture job, and they have a lead completion job—the last of these three consuming the majority of their time.
Think about it from this perspective … in terms of the highest paid extremely skilled processors, what do they typically earn per year in your market? I'm not going to go into specifics here, but think about it, what do the rock star processors in your area make a month? For most areas of the country, including the high index markets, you're talking probably an income scale that tops out at $45 or $50 an hour for an exceptional processor. Now compare that to the value of the originators 10 or so hours over six to eight weeks to solidify a real estate agent or financial planner partnership that is worth six or more deals annually. How much revenue does your company make on six deals a year? For most of our coaching clients, it is in excess of $4,000 per loan (company gross revenue). So, every hour an originator spends chasing conditions and massaging loans through underwriting, is an hour they are not spending creating new business, which carries a heavy opportunity cost. How much money does that hour potentially cost the company? Just look at this rough comparison: If the company average is $4,000 in gross profit per loan, and it takes 10 or so hours for that originator to create a relationship worth six deals a year, that's $24,000 annually in revenue or $2,400 per hour activity, and an opportunity cost of over $2,300 per hour.
Armed with this information, how fast should we be working to effectively create additional support capacity that grows at the same pace (or even faster than) the growth pace of our Creation and Capture programs?
If we truly understand this issue, then our job as leadership coaches, trainers and originators is to keep a constant eye on capacity and build for it before it arrives. To do this, there are two primary solutions we must implement:
1) Help the originators get consistent focused and efficient; and
2) Build capacity by building the right team at the right time.
Through our coaching work, we have identified that the first part of creating capacity is to build the focus and efficiency skills of the originator. This includes both basic time management training, as well as sales discipline through business planning and performance metrics. By training and reinforcing success habits with your team, you will improve capacity by helping the originator recognize that their highest and best use is lead creation and conversion, and that you will get them producing more results in less time, by being more focused on those activities.
The second part of creating capacity is to build the right support team. By the way, I'm not just saying go out and hire a bunch of entry-level processors and throw bodies at the problem, because that simply does not work. Throwing people into a system-less environment just creates the 3 Cs you don’t want “Confusion, Chaos and Crisis.” The first step is systemize. Get your originators efficient and consistent with the amount of time and energy they're spending on capacity creation and conversion; efficiently pushing loans through. And then work to recognize the warning signs of pushing the capacity ceiling, and move proactively to hedge against service failures and lost volume.
Once the systems are in place and the originator is operating at maximum efficiency, eventually, the volume of business increases beyond the man hours available by any one originator. Think about it from this perspective, how many actual man hours does it take from start to finish on a viable, well-structured, well-documented loan? Opinions range on this issue, but in our experiences, the typical sales cycle, from first contact through to 30 days after closing, is consistently around 50 to 60 man hours per loan. Another way to recognize this in your own organization is do the math. At what level does your team begin to experience burnout from being overworked and massive peaks and valleys begin to appear?
If your average originator, with a shared processor, is maxing out at about five loans per month, this indicates that, based on five files, which equals 40 hours per file. Add to that the time a processor spends on each file and it is a bit easier to see why your growth is volatile. In most organizations, top originators will reach their first ceiling of capacity somewhere around what will average out to six or seven loans per month. With the support of a shared processor who is handling a pipeline of 80-100 loans and the processor's job is mostly just pushing that file through underwriting efficiently. Unfortunately, most originators won't be doing seven or eight loans per month consistently. They're going to be doing 10- 12 loans one month and two or three the following month. So the primary first indicator that you have a capacity problem is watching for volatility in the pipeline. If you have originators on your team doing massive peaks and valleys, that's probably one of the single best indicators that you have a capacity challenge in your organization.
The next thing that we spend the majority of our time working on with our coaching members is helping them grow and build their businesses, taking loan officers from five or six deals each month to 10-12, 18-20, and 20-plus to whatever level they want. Capacity management becomes every bit as important, if not more important, in some cases than creation or conversion. Skill development training, staffing, recruiting and integrated team communication training systems all become a vital part of an effective and efficiently-growing practice, company or organization.
So there you have it. If you're considering sales training or a structured development program, or are considering a rapid growth and development process, first start by assessing which of the three areas is your biggest need. Are you generating plenty of leads, but your conversion rate shows limited lead pull-through? Then you need sales training. If your originators can convert like mad, but are complaining about lead volume, then you need marketing and business development training first. If your marketing is generating plenty of leads and your originators are converting effectively, but you're still not at the volume that you think you should be, or you're starting to see massive peaks and valleys in your organization with individual originators, then start looking at the systems and processes that those originators are using. You need to see what their support staff and teams would like to build and if they have the capacity to efficiently pull that volume through all the way to closing. Once you have your capacity issues fixed, you can circle back around to marketing and sales training.
At all three levels, Creation, Capture & Completion, identifying where the biggest opportunities for growth are, then strategically resolving those challenges is your best bet for creating effective and efficient growth. Through coaching, we have refined this model with the thousands of originators, managers and sales teams that have grown through our training programs.
The single most important lesson we have learned through the years is that we must always follow a solutions-oriented strategic planning and growth model. We are most effective by starting with objective assessment, moving on to action planning, and finally, implementation.
Looking at your organization’s growth, follow the model of studying what are the challenges, and then determine the best practices and strategies to apply at each phase of the process that will yield the greatest amount of growth in the least amount of time. Stay tuned to next month’s issue of this series where we will go deeper into the best methods for Capturing leads.
Erik Janeczko is head coach/speak with Maximum Acceleration, and is also president of the Missouri Association of Mortgage Professionals (MAMP), a state affiliate of NAMB—The Association of Mortgage Professionals. He may be reached by phone at (573) 298-4237, ext. 101 or e-mail [email protected]