Today I want to talk about the profit model and how there is not just one model that will turn a profit. I often here some people refer to profit like this ”The only way I can make a profit is I have to gouge the customer and my rate sheet becomes non-competitive. You will see here that that is simply not true. In this example I’m going to show you 3 different branches who did about the same volume, and all were profitable. Just as a refresher I will go across our 8 KPI’s Top Business Blood Pressure is all the revenue in basis points. Bottom Business Blood Pressure is all the expenses except for LO comp in basis points. CPI is Critical Profit Indicator, simple Top Minus Bottom. Remember If the CPI is 130 or above 92% of the time the branch is profitable. LO Comp is Basis Points. % of LO comp is simply the % of LO Comp when compared to revenue. Profit or Loss in Basis Points. Profit/Loss in Dollars, and Volume. Now lets compare. In our first pass you can see volume is within $35,000 of each other. They all made money. Now lets look at column by column and look at the disparity, starting with Top BBP. E101 had 221 bp, E102 had 29 bp, E103 had 336. That is a huge disparity between E101 and E103, 115 Basis Points. Remember All of these made money. Next column is Bottom BBP 101 had only 78 compared to 138 and 100. The CPI E101 had 143, E102 had 153 and E103 had a huge number of 236. Remember CPI is all of the money left over to pay the LO’s and for profit. Next column is LO Comp in BP 79 for E101, 98 for E102 and the highest of all was E103 it paid out 146. Lets skip over to BP in profit 101 had 64, 102 had 55, and 103 had 90. All profited somewhere between 25 and 41 thousand. As we take a look at the whole picture now let me comment on a few things E101 had the lowest top number but they ran very efficiently on the expense side having the lowest at 78. When we look at comp E103 had the highest number at 146 but if you recall they also had the highest top line revenue or top BBP at 336. So, I’m ok with that. Let me focus here on % of LO comp. you can see they range from 34 – 44%. When this number starts to exceed 50%, I start to get a little worried. Here all are in line. Now let’s talk about how each business model is different. Some of you will say if I only paid my Lo’s 79 basis points everyone of them would quit. Let me remind everyone about my philosophy on LO Comp I will pay you all the money, to do all the work, the way I want it done. Let’s look at E101 again. What if they were a call center, or the company was providing leads from radio ads that the company/branch was paying for. The branch can’t afford to do both… pay ads to provide LO’s leads, and pay the highest comp. Let’s talk about the skill set of each LO in the 3 models. Do you think that if your providing leads to the LO you could get by with a little less talent. During Refi-mania this disguised a weak LO because they didn’t need to leave their chair and make sales calls on Realtors, and boy has that changed.This LO might know guidelines etc, but they don’t need to know how to go out and make sales calls. When we compare this to the model where E103 is paying 143 basis points. Two things I want to point out here, one if I’m going to pay them this high number in LO comp, they must not only be good technically, but they need to be able to source their own business. The second part is referring to one of our lessons in the academy where the arrangement you make with the LO when they first sign up with your organization is this. Here at XYZ we have a couple of different options in comp plans Plan A is I will pay you 146 but your rate sheet is built with the 336-basis points rate sheet. In my example I’m referring to averages, but you get my drift. If the LO can’t get my margin on the rate sheet I have to reduce the comp plan. If you don’t you have a broken business model and that’s where things start to unravel. A refresher on % LO comp when the LO is discounting the rate sheet this was set up as the first indicator they are discounting, and it will reflect with a high percentage going to the LO.
When I was in my YPO forum some of the folks were in the food industry. Jimmy John was a maniac when it came down to keeping his food costs under control. The same goes for LO comp. If this is disproportionate with the revenue required, it won’t take long for the losses to pile up.
