Why settlements aren’t a leading indicator of success

Using the analogy of the health check, Mr Back said a lag indicator in a person’s health would be a heart attack, while a lead indicator would be their diet, exercise routine, and their drinking and smoking habits.

Similarly, brokers can measure their business performance through lead and lag indicators but have largely been focusing on lag indicators, Mr Back highlighted.

“When we talk about what brokers should be measuring, our industry has traditionally focused very heavily on settlements as one of the main indicators of a business’ performance. But that’s a lag indicator,” he pointed out.

Instead, he urged brokers to measure activities that “lead up” to a settlement, including recruitment, marketing, sales, the number of straight-through processing loans, client relationships and referrals, and referrals via business partners.

Other activities could include social media posts, meetings with business partners, and five-star testimonial reviews, he added.

“These are all the lead activities that factor into how well you can sell loans and increase settlement volumes,” he said.

“I like to break the health check down into both lead and lag indicators, and focus more heavily on the lead indicators because they’re the things that are going to influence how much you settle and how quickly or slowly you can grow and scale a brokerage.”

The number of approvals is another lead indicator of the number of settlements a broker may achieve in the following quarter, Mr Back outlined, while the conversion from appointment to application is a good lead indicator of the number of approvals a broker may achieve.

“It’s all the upstream stuff I’m concerned about but our industry has a very heavy focus on the lag indicator [settlements], which really should take care of itself if you do the lead indicators correctly,” he said.

Lead indicators now more important than ever

Mr Back’s advice preceded the Better Business Summit this year, where he will travel across five Australian capital cities to provide brokers with tools to redefine operational excellence and a game plan for optimising performance and profits.

The session will unpack the top 10 measures for brokers to increase profitability and loan writing efficiencies while pinpointing performance KPIs.

Focusing on lead indicators is critical at this juncture because the broking sector is going to shift from a capacity market to an activity market, Mr Back opined, and the activities are indeed going to be based around lead indicators.

“If you think about where all the focus for brokers has been over the last few years, they’ve very much focused on capturing what comes through their door. They’ve not been positioning themselves in the market,” Mr Back explained.

“There are fewer people borrowing less money than they were a year ago, two years ago, or five years ago. So, you can’t just rely on clients just rocking up at your door.”

He said that most brokers are operating on a 70:30 ratio, where 70 per cent of their business stems from existing clients while only 30 per cent originates from new clients.

“A lot of brokers are starting to see that ratio go up as high as 90:10, which means that nine out of 10 deals are coming from existing clients … because we haven’t actually been going out and getting new sales or new clients because we’ve been capturing our existing clients, which has been easier,” he said.

However, as brokers transition from a capacity to an activity market, proactively attracting new clients is going to become critical in 2023, Mr Back advised.

Transitioning to an activity market requires a focus on personal branding, marketing, and business culture to attract staff, especially as the market contracts, he concluded.

To hear more from Jason Back about how you can optimise the performance of your brokerage and boost profits while scaling up, come along to the Better Business Summit 2023.

It will be held in the following locations:

• Brisbane, 2 March 2023, Brisbane Showgrounds
• Perth, 9 March 2023, Crown Towers Perth
• Adelaide, 16 March 2023, Adelaide Convention Centre
• Sydney, 23 March 2023, The Star, Sydney
• Melbourne, 30 March 2023, Melbourne Pullman Albert Hotel

To buy tickets and secure your spot, click here.

Did you know The Adviser Premium members go for free? Become a Premium member here.

For more information, including agenda and speakers, click here.