ReverseIQ – Managing Costs in a Competitive Environment

Garrett, Watts & Co pointed out in a recent newsletter that mortgage banking is a commodity business, and its the low-cost provider that wins. We’ll take it a step further and say that its the low-cost producers that survive. With essentially one product in our industry, this rings especially true.

One of the easiest places in your business where you can manage costs is in your marketing and sales followup. If you are spending too much money for each funded loan (or application, wherever your end game is), you are not going to survive in this business for very long.

Many of our customers say that they “just need more leads”. Their conversion rates are down, so they want to keep bringing in more and more. The end result is they get more leads, close a smaller percentage, and increase their overall cost of funding each loan. Its a vicious cycle, and one that we think should be broken. Instead of just bringing in more, lower quality leads, we think lenders/brokers should put some extra focus on the leads they have, perhaps do some more followup phone calls. In this industry, the borrower needs to feel educated and comfortable that they are making the right decision, and this can take some time to nurture.

Doing this should be one of the easiest ways to bring your cost per funded loan or cost per app down.

So the big question is “How do I measure this?” Its quite simple:

1: If you have a campaign, or purchase leads, enter the full cost of the program.
2: Count the total number of leads you get from the campaign. This can be a bit tricky if you don’t have a way to associate a lead with a specific campaign – if you can’t track it specifically, estimate how many of your leads came from a particular campaign. We recommend using a CRM tool of some sort, whether its ACT or Goldmine, or Highrise, or REMO, or Excel and tagging each lead with a campaign. (We have put together our own handy-dandy Excel Spreadsheet for you to use — For Free! — if you don’t have your own CRM tool)
3: As leads progress or fall off, keep track of it. Keep following up with your leads: call them, use a drip mail campaign, something. Ensure that each lead has a current status (dead, app, funded, etc). You may also visit our friends over at to learn more techniques for following up with and tracking leads.
4: At the end of each month, count your total leads by source, total apps/fundings by source, total dead apps by source, and total unresolved/live apps by source.
5: The formulas for tracking your efficiency are:

(Total apps or fundings)/Total Leads = Pullthrough
(Total dead apps)/Total Leads = Spoilage
(Total Unresolved)/Total Leads = Pipeline

Now that you know your results, compare it against the industry (or against the company averages). This is an important benchmark that will tell you how efficient your business is, and lead you in your quest to identify areas that need improvement.

If your pullthrough rate is high, and you feel you could do more, then its worth your while to go out and get more leads. However, if you have a large pipeline or spoilage percentage, then perhaps you should focus on your pipeline and/or improve the quality of the leads you are getting.