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I was taught by a manager very early on, to run a business you need to know your numbers. Whether it is sales, pipeline, book size or profitability. You need to be across the numbers as it helps drive the direction of your business and where you should focus your resources.
For brokers whether a single operator or larger organisation it should be the same. Whilst day-to-day you should know where your business is positioned, as part of your planning cycle you need to set some targets/goals. For many the primary goal is income or commission.
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Too often when I sit down with a broker and discuss income the feedback is I earn the commission. Whilst this is technically correct it needs to be remembered that even an individual broker is running a business. Any business needs to produce a profit to reinvest in the business to help it grow.
Income for the broker should be a salary cost, just like mobile phone, vehicle expenses, rent and marketing, that way it can be budgeted for and used to determine how many loans need to be written, lodgements submitted, clients visited and leads generated.
So when I sit down with a broker we may start with the question of how much do you want to earn this year. This is the outcome, not the target. For a broker starting out it may be something like below;
Salary $80,000
Other Costs $22,000
Profit $30,000 $25,000 to be invested in part time assistant year two
Total needed $132,000
If we now look at the commission to be earned, based on an average loan size of $500,000 and an upfront commission rate of 0.54% (after aggregator fees etc.), a single loan would generate $2,700. So in the first year the broker would have to settle 49 loans , or based on a 60% conversion ratio lodge 82 deals. Then depending on lead sources it may mean upwards of 270 leads (based on a 30% conversion rate).
These numbers then become the basis of your business plan. How will you go about generating the 270 leads? If you need three appointments per loan settlement how will you fit in the 150 client visits, along with appointments with referral partners and still set aside time to manage the loan applications through to settlement and beyond.
It then means you can start setting shorter term targets. Is it realistic to have five settlements in the first month, probably not! However, making sure you have 15 referral appointments, which have generated 20 leads and generated 6 lodgements may be.
For more mature businesses, you can add in trail commission to the numbers, remembering to factor in present value. You can also look at seasonality, when are the busier times of the year when you can generate a greater percentage of your business. Do you calculate your targets over 10 months instead of 12, allowing for Christmas, public holidays etc.
Like your business plan, the budgeting and forecasting is flexible, but without understanding the numbers it can be hard to look at the activity required to make your business a success.
