Are you in the “no growth” trap?

Are you in the “no growth” trap

I’m sure you’ll remember when you first started as a broker, watching your trail book grow exponentially, re-affirming the reason you got into this business. The relief when your trail builds to a point it covers your expenses or you can take on some administrative assistance. A welcome relief to the financial stress of starting the business. But now, years later have you also noticed your trail income plateau? Even after some large settlement months, it just doesn’t seem to jump up like it used to.

We all know what “run off” refers to but most brokers couldn’t tell you what their own run off figures are. For those who don’t know run off is the rate at which a loan book is paid down. This primarily occurs as loans have their balances paid down over time either through amortisation due to scheduled principal repayments or because of extra repayments/offset use. Also included in this measure are discharges/pay outs for any one of a number of reasons. . Run off is one of the most important trail book KPIs as it will determine how hard you have to work to get new business in the door to keep your book growing and it will also be a determining factor with regards to the price you get for your book when you eventually sell.

The “no growth” trap referred to here is when your run off matches the number of new loans written, putting you into stagnant or backwards book growth and plateauing trail income. For example, let’s say you have a loan book of $80m and your run off is 18% (which is approximately industry average). You lose $14.4m a year through run off; principle pay downs and discharges. At an average deal size of $600K, you need to write 24 deals a year or $1.2m a month (fully drawn down!) just to keep your book at the original size of $80m.

If you can reduce your run off it will mean more of the new business you work your butt off to bring in the door will contribute to your book growing and your trail commission increasing.

You will have heard the expression that what can’t be measured can’t be managed, and it rings true. So, how do you work out what your run off is? If you are an excel guru, you can work it out yourself by laying some complex formulas over your last 12 – 24 months commission files, but if you aren’t, you will need the help of some software.

Providing these sort of trail book insights is one of the ways Hound can help you not only measure this metric, and many others but also manage your back book to improve it, this means you can keep your customers longer and increase profitability. This will also make a difference to your exit plans, right near the top of any potential book buyer’s questions will be ‘What’s your current run off?’ It’s too late to find out this figure when you go to sell your book as there is no time to effect the  change required to improve it and boost the value. You need to know these KPIs now so you can determine what you need to focus on and manage the improvement.

We know how hard mortgage brokers work and we want to make sure that they are rewarded for this work and not have it run out the back door. We’ve got your back!

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