Whether you’re just opening up a mortgage branch, or you already have a high-level branch, who doesn’t want to maximize their profits?
I’ve been running a branch for years and years and have one of the largest branches in the nation. I should know everything by now, right? Not even close. I recently sat down with my friend and partner, Kevin Gillespie, who runs the Loan Officer Branch Manager Academy. It’s an incredible group of smart and kind individuals, some of whom are managing $3.5 billion operations and bringing in millions of dollars in personal W2 income.
Kevin shared some things with me that have definitely helped maximize the profits in our already successful branch.
The Importance of Sharing Your Secrets to Success
What I love about Kevin is his generosity and openness in sharing these phenomenal strategies that have worked so well for him. And these high-level producers in the Loan Officer Branch Manager Academy are the very same way. On the one hand, it’s amazing that they’re willing to openly share exactly what they’re doing to get the great results they’re getting.
On the other hand, Kevin and I agree that their openness is one of the reasons they’re so successful. They’re not successful despite sharing their secrets; they’re successful because of it. And to make sure it’s safe to share, we have a rule in the Academy that branch managers don’t recruit from each other, i.e., steal each other’s employees, because that’s just uncool.
A lot of us loan officers grow our branches because we’re great producers and marketers, but we’ve never really trained on running the financials. Some managers stick their head in the sand, don’t even look at their P and L, and just take a deep breath and hope it all turns out okay. You’re never going to maximize profits that way or achieve your big loan officer goals.
We recently had two branch managers in our academy share stories with us. One branch had profited a lot the previous month, and one had lost money. By making some of the changes I’m going to share, that second branch manager went from about $40k in the red to $40k in profits after expenses. And he closed the same amount of loans! It’s not unusual for a branch manager to pick up $10k to $20k a month in their P and L when they try some of these strategies.
Profit Maximizer #1: Block Out 30 Minutes to Review Your Financials
Do you have a monthly review set up where you look at your financials and run through a list of questions? Maybe you’ve been successful this year, but the market is shifting a little, and you need to know what’s going on with your P and L. Kevin says to go ahead and block out 30 minutes a month for the next 12 months. If you don’t schedule it, you’ll get busy and won’t do it. So, block out 30 minutes to review the next 6 profit maximizers I’m about to share.
Profit Maximizer #2: Are Your Financials Set Up On a Cash Flow Basis or an Accrual Basis?
What does this mean? There are different types of accounting structures, but a lot of small companies set it up on a cash flow basis. There’s nothing wrong with that, Kevin says. You’re still paying the bills, but you’re trying to determine your costs and whether or not they’re in line. You close loans one month and fund the loan that month, but pay the commissions, the bonuses and other costs related to that month’s production the next month. So, with an accrual, what you’re doing is bringing those costs back into the proper month.
If you close loans in January, you want all the commissions and bonuses and everything to line up. You want to see that your expenses are in line, and your income is in line with the production. One loan officer, who does about 80 loans a month, said this was a game changer for him. He’d been running it the other way previously, and now he can see where all his costs are in line and where they’re not. So, get with your accounting department and make sure your financials are set up on an accrual basis. It’s a small change that can make a big difference.
At one time, I was guilty of closing a lot of loans and assuming I was making a lot of money, but I wasn’t. I’ve seen loan officers closing 20 loans a month who aren’t making any more money than the person closing 6 loans a month. It doesn’t do any good to close more loans if you aren’t making more money. They had all these extra moving pieces they didn’t really need, but they couldn’t see it, because they didn’t have their financials lined up.
Profit Maximizer #3: Have You Broken Down Your Monthly P and L?
Have you broken down your P and L into cost per unit and basis points? Do this, and then do the same thing by breaking it down into dollars per unit for any given area. Someone taught Kevin this years ago. You may have 80 things listed in your P and L, but there are about 5-6 areas that drive 80% of the results of it.
When you align everything into cost per unit (and this takes three minutes to do in an Excel spreadsheet), you can see how much you’re averaging for commission, marketing, etc. per unit. What happens is that the costs that are out of line will start to jump out at you, much like when you’re mowing the lawn and miss a spot.
When you look at things in basis points, it puts everything in perspective. Do you really need that fancy office? Do you realize what it’s costing you in basis points every unit? There are different ways to do this, but I really like it based on the basis points. What if you moved into a more modest office and could save 20 basis points on every unit?
For me, it helps me make sure that everything I do is bringing in money and is worth my investment. I don’t want to just do things that make me feel good but cost me basis points. When you can easily see what everything is costing you per loan, it’s super helpful.
Every 90 days, I sit down with my accountant and study the current month’s expenses. I have to defend every single expense. Recently there was this widget that was costing us $250/month and nobody was even using it. The first time I sat down with the accountant, I was so embarrassed. I didn’t even know what some of that stuff was that we were mindlessly spending money on.
Profit Maximizer #4: What Is Your Revenue Per Unit?
You’re trying to bring in so many dollars per unit. If you’re bringing in less than $5000 per unit, it’s hard to make money. When I first met my friend, Jen Conley, a branch manager in Ohio, her average loan amount was around $80,000. She’s up to around $250,000 now, just by targeting different agents in different parts of town. One way to make more money is just to write loans on bigger houses. It’s not any harder, and you’re bringing in a lot more cash.
Profit Maximizer #5: What Is the Percentage of Variable Cost to Income Per Unit?
This is something Kevin calls the 50% rule. The challenge with variable costs (commissions, bonuses) is that you want to pay 50% or less than what your average income per unit is. On top of that cost, you’re paying taxes and social security and all of that. So, by keeping it under 50%, it’s leaving the other 50% for scale. You can only scale your fixed costs. Which leads us to number six.
Profit Maximizer #6: Are Your Fixed Costs Calculated to be Over 50% of Your Revenue?
You want 50% for variable costs, 50% or less for fixed costs, then you’re going to try to get scale on your fixed costs. Let’s say my rent is $2000/month. Whether I’m closing 1 loan a month or 80 loans a month, my rent stays the same. It’s really expensive when I’m only closing 1 loan, and it’s really cheap if I’m closing 80. No matter what we make, we write that same check for fixed costs.
Profit Maximizer #7: How Many Units Are You Closing Per Full-time Employee?
The rule of thumb is that your cost for people will be about 70% of your costs. Close at least a minimum of 4-5 units per full-time employee. Kevin can tell us, after looking at the P and L for thousands of mortgage branches, that, if you’re closing just 2-3 per employee, you’re breaking even or losing money. He knows of branches where people are closing 7-10 loans per full-time employee, but he cautions you to be careful here. Watch your customer service levels. Are customers happy? And are the employees overworked and in danger of burnout? You’ve got to find the right balance.
We did 700 loans in my branch last month. When you divide that by 6, that comes out to 116, and that’s about how many full-time employees we have. So, that simple little number works out well, and this is the one I see being off-kilter for people most often. It’s a game-changer.
If you’re a branch manager, ask yourself these seven questions, find some answers, make the necessary adjustments, and go maximize your profits!
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