The road trip to profitability: sales productivity and loan officer turnover are key challenges facing lenders as they seek to engineer sustained profitability.

AuthorWatson, Mark

There is familiar scenery along the mortgage industry's road to recovery. There are concerns about the general economy and how rates and unemployment will change and impact the market. [paragraph] There are shareholder demands for increased profits, forcing lenders to become not just engines of growth but also machines of efficiency. There is the constant need to balance long-term sustainability with near-term success. [paragraph] Lenders confront new challenges, too, that complicate their travels on this road to recovery. The changing face of the American homebuyer necessitates different products and new sales strategies. Tougher and tighter regulations require lenders to do more than just refine their current policies and strategies; they must spend significant human and financial resources to create structures and processes that meet the requirements of a more transparent and consumer-focused lending environment.

This road to recovery is one that lending organizations of varying sizes, types and lending models must travel--it is the only way we've made it through the muddy, messy landscape of the past eight years. Demands for increasing profitability despite stutters and sputters in market growth may give the impression that this a road to be traveled as quickly as possible.

But it's not just a race to profitability; it's an endurance test as well. It's one that requires lenders to plan ahead for the inevitable bumps, curves and obstacles that will always occur with uncertainty and change. It takes thoughtful navigation to avoid the pitfalls that lurk all along the road.

Dennis Hedlund, founder of forecasting and advisory firm iEmergent, often discusses with lenders how to improve profitability and sustainability.

"Loan officer productivity and retention have always been major drivers of profitability," says Hedlund. "They are challenges that are shared across the spectrum of lenders and markets, meaning even the most successful lenders and the markets with the most opportunity struggle with issues of productivity."

The sales productivity curve has been a common feature on the road most lenders have followed. The curve represents the productivity distribution across the sales force--within individual lending organizations and across markets. Because productivity drives profitability, it is important to investigate how and why the shape and design of the curve has remained relatively consistent, despite the volatility of the past 15 years.

What does the sales productivity curve look like today compared with how it looked a decade ago? How will it impact this road to recovery? Will it and should it change?

To answer these questions, the iEmergent team spoke with industry leaders to gain their perspectives. The conversations began as discussions of productivity, but they led to a broader dialogue about sales force turnover; recruiting and developing talent; and how planning ahead for a road trip--rather than a race--will help lenders achieve sustainable and more profitable futures.

The sales productivity curve

In 2005, iEmergent performed an analysis of loan officer (LO) productivity data from multiple lenders between the years of 2001-2005. The analysis revealed a very consistent 80/20 pattern: 80 percent of total loan originations were generated by the top 20 percent of loan officers.

Interestingly, the sales productivity curve did not vary greatly among lenders or markets, even though the five-year time period studied demonstrated considerable growth in total mortgage opportunity across nearly all markets.

Recent data from 2014-2015 demonstrates that the distribution of the curve has since shifted. While the shape of the curve remains similar, its overall balance has changed.

Within individual lending organizations, the average distribution of sales across the sales productivity curve has shifted to a 70/30 distribution: 70 percent of total originations are closed by the top 30 percent of the sales force.

This trend makes sense. In today's smaller-volume market, some less productive loan officers on the curve's right side don't make enough to survive, so they leave the industry (see Figure 1). Those remaining at the right side have enough sales skill to fight for a larger share of the bottom of the curve, which raises the right side.

At the same time, some of the elite LOs on the left side of the curve have left the market. They either assumed new roles in management or opted to retire early in today's more challenging market. This shift lowers the left side of the curve. Although the curve has flattened, it still retains the same essential characteristic: The majority of loans are originated by the minority of loan officers, and productivity continues to diminish the lower you go.

Many executive and sales managers intuitively confirm the existence of the curve, whether it be 80/20 or 70/30. Other sales-centered industries struggle with a similar issue; perhaps the curve and its challenges and benefits are simply inherent to sales.

"Doing commissioned sales is not easy," says Tom Gamache, retail sales executive at Providence, Rhode Island-based Citizens Bank. "Successful [loan officers] have to be self-motivated. This has not changed."

What ultimately causes the greatest impact from the sales productivity curve on a lender's profitability is not the split itself, but how successfully a lender can move its sales force up the curve. This move means increasing the productivity of its team, on an individual and a collective basis.

New challenges and...

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