Many years ago, I attended a seminar where the presenter put forward the idea that in any business - whatever sector it’s in - there are five ways you can grow your profits.
In this article, I’m going to explain what those five ways are and, most importantly, explain how they relate specifically to mortgage brokers.
1. Increase leads
Leads or enquiries are the lifeblood of any business, and especially in financial services. Pretty much every mortgage broker or financial adviser I speak to will say that the thing they want most is to get more leads.
And, if you know what you’re doing, generating more leads is one of the easiest of the five ways to grow your profits and increase your earnings as a mortgage broker.
The first thing to do is to stop relying solely on referrals and word-of-mouth enquiries. These are unpredictable and mean your business is 100% dependent on other people.
If you want more ideas on new ways to generate leads, talk to me.
2. Increase your conversion rate
The conversion rate is the percentage of your leads that turn into clients. And there are several things you can do to improve this area of your business as a mortgage broker.
One way is to work with better quality leads - ones who are more likely to choose you over other mortgage advisers. Focusing on a specific niche can help with this, as can having a well-defined value proposition that sets you apart from your competitors.
Then think about where you get your leads from. Ones that you generate yourself are likely to be better quality and convert more easily than ones that you buy from lead generation companies.
Finally, look at your lead follow-up and your sales processes.
Are you giving up too soon when contacting people who make enquiries via your website?
Are there things you could do using email or video before your first meeting with a new prospect to get them to know like and trust you better?
And are there things you could do differently in that first meeting to convey the value of the service you provide and to handle objections the prospect may have?
3. Increase average order value
When we talk about average order value, we’re talking about the average amount you earn from a single client transaction - taking into account proc fees, broker fees, commissions on protection sales, etc.
One obvious way to increase your average order value is to start charging broker fees if you don’t already or to increase your broker fees if they are currently too low.
You should also maximise cross-sell opportunities - for example by doing things to ensure that as many of your mortgage clients as possible buy other products from you such as life insurance or income protection.
Also, think about whether there are opportunities to increase the average income per client by referring them elsewhere for other complimentary services such as will-writing where you can earn additional commissions or referral fees.
4. Increase number of transactions per customer
Every client you work with will have what we call a lifetime value. This is the total amount you will earn from them over the entire time they are a client.
So, for example, a client who does a mortgage with you today that earns you £500 and then a product transfer in 3 years’ time that earns you another £250 would have a lifetime value of £750.
Very often, mortgage brokers miss out on this kind of repeat business, and hence lose out on lifetime value, simply by not having efficient systems in place.
That can mean that the client’s mortgage lender gets to them before you do, for example, when their original mortgage deal is coming to an end.
But a situation like this can be avoided if you invest in a decent CRM (customer relationship management) system that will automatically contact clients six or seven months before their mortgage is up for renewal.
Of course, you shouldn’t just wait until renewal time to keep in touch with existing clients. If you make good use of email marketing and encourage existing clients to follow you on social media, they are less likely to forget about you. And they’ll then come back to you as and when they need other help - e.g. if they decide to buy a holiday home or if the arrival of a new child means they want to increase their life insurance cover.
5. Increase profit margins
Generally speaking, there are two ways to increase your profit margins - raise prices or reduce costs.
Raising prices as a mortgage broker is tricky as the only aspect of your income you can directly control is your broker fee. You can’t dictate what proc fees or commissions the lenders and insurance companies pay you.
However, you could change your marketing strategy to target the kind of clients who are likely to need larger mortgages that earn you higher fees.
And you could look at reducing costs.
For example, do you really need a fancy office in this day and age when everything is done on Zoom?
Are you paying for software that you don’t need?
Could you reduce staffing costs by outsourcing some of your admin work to a VA rather than taking on an additional employee?
Boosting your bottom line
So, now that we’ve looked at the five things that can impact the profitability of your mortgage business, let me ask you something.
What do you think would happen if you could work on all five of these areas and get even just a small improvement - let’s say 10% - in each one?
What would that mean to the overall profits of your mortgage brokerage?
Would you see a 10% growth in profits?
Or would it be more than that?
Let’s work through an example and find out...
Suppose your starting point is as follows:
- You have 500 leads coming into your business
- Your conversion rate is 10% - in other words, 10% of these leads turn into clients
- The average amount you earn from a single case is £750
- When you look at lifetime value, you find that each client typically completes three mortgages via you during the time they are a client
- And you operate on a profit margin of 10%
Well, that means your total profit from those 500 leads is as follows:
10% conversion rate
£750 average earnings per transaction
3 transactions per client
10% profit margin
So let’s see what happens if we improve each of those five factors by 10%.
The numbers now look like this:
11% conversion rate
£825 average earnings per transaction
3.3 transactions per client
11% profit margin
That means that the overall profit in your business has increased by over 61%.
So you can see from that how it really is worth focusing on all five of the above areas of your business, especially as it is generally easier to get a small improvement in each of them rather than trying to get a large improvement in just one of them.
If you’d like to know more about how I can help you do that, you can book a strategy call with me. It’s free of charge and I promise you’ll go away with at least one new idea for improving the profitability of your mortgage business.