Does your CEO love marketing? Does your CEO recognize that marketing is at the heart of every enterprise? Do they encourage marketing to improve the performance of your business as measured by key performance indicators?
You, like many marketers, will have to show and explain to your CEO how marketing can impact the business. The senior vice president of marketing for a large mortgage bank did exactly that. Here’s how.
The Case Study
The mortgage banking company’s marketing department, like many other business-to-business marketers responsible for supporting field sales functions, is there to help loan officers in their efforts to sell mortgages.
Cash flow is determined by margins (the spread between the cost of capital (cost of borrowing) and mortgage interest rates) and velocity (volume of mortgages). The firm targets the two “relationship-focused” customer segments. This includes “advice-seekers” (24%) and “people with more money than time” (13%). These two segments together represent more than one-third (37%) of the total mortgage market. These segments have the highest profit margins, as customers are willing to pay more for a loan officer who cares about their needs and ensures a smooth transaction.
Banks make more money when loan officers write more loans. Loan officers don’t spend much time marketing, but they want to build their businesses. They want to close sales, not develop communications that might or might not result in new business. It takes a lot of effort to establish a mortgage business, which leaves little time available for communication with customers.
The mortgage bank realized it could improve its cash flow and help loan officers grow their business by assisting them in identifying high-margin clients and completing transactions faster. The SVP of Marketing created a system that automates marketing for loan officers called Media Center. He argued that if the bank did the marketing, both the loan officers and the bank would gain.
The SVP also argued that the system would help recruit and retain bank loan officers because it was exclusive to bank loan officers. The SVP argued that most of the mortgage banks’ competitors offered signing bonuses in order to attract talented officers. However, unlike automated marketing services, the bonuses were only temporary and did not help lenders establish long-term relationships with their best producers.
The SVP, after identifying three cash-flow drivers by analyzing the business strategy of the company as defined by the CEO, identified the following:
- Loan Officer Acquisition
- Productivity of loan officers (velocity).
- Loan Officer Retention
He was required to show the business impact of his KPIs.
Marketing Solution
Media Center was the automated marketing function of Marketing, designed to promote each of these drivers. The marketing group, however, had never tracked their impact on these drivers. Top management asked the group to justify the investment they made in the new system. Marketing had been so focused on its growing list of activities that it didn’t pay attention to key metrics related to the business success of the company.
The marketing team has always enjoyed the creative side of their work. They have produced many brilliant programs that impressed loan officers and top management. The team’s members were highly experienced in creating compelling communication programs, including newsletters and postcards, as well as loan officer Web pages, gift mailings, and other forms of communication. The senior marketing team delivered orientation and training programs for loan officers across the country.
The marketing group recognized that Realtors are a major source of customers for the bank in its targeted market segments. In exchange for Realtors agreeing to refer only to the bank’s loan officers, they created the “Realtor in a Box” program.
The Realtor-in-a-Box program has generated impressive results in terms of the growth in participation by loan officers. The marketing staff was very happy to report these results to the top management. The marketing staff also shared with enthusiasm the stories and testimonials they received from loan officers.
Top management grew increasingly unsure of the impact that marketing had on business. The executives wanted to see proof that marketing innovations were producing measurable financial outcomes. This meant linking marketing metrics and activities to cash flow drivers.
The Impact of Marketing on Loan Officer Acquiring
Media Center was a top reason loan officers gave for joining a mortgage bank. Loan officers saw automated marketing as a competitive advantage, allowing them to concentrate on closing deals.
The marketing group was required to translate this competitive advantage into financial terms. How much less did it cost the bank to hire new loan officers compared to what rival companies charge? The marketing team quantified this advantage in two different ways. First, they determined that the average signing bonus paid by rival companies was $10,000 per officer. Second, they calculated the Center’s savings on executive recruiter fees, which amounted to about one-third of the average annual salary of an officer.
The Impact of Marketing on the Productivity of Loan Officers
Was the Media Center used by loan officers more productive than those who did not? Did they sell more mortgages than those who didn’t?
A study of the production based on Media Center usage confirms that “yes” is the answer. Loan officers who use the Media Center close, on average, one loan per month or 12 loans per year more than their non-member counterparts. The marketing group calculated its impact by taking the average loan officer’s profit.
Media Center members’ higher productivity generated another benefit: an increase in end-customer satisfaction. The impact of increased customer satisfaction was not reflected in terms of financial results. Marketing must link marketing metrics to economic metrics.
This increased customer satisfaction, according to the marketing team, led to an increase in repeat customers and referrals. The team was able to translate the increased referrals and repeat clients into profits. Wall Street took notice, as the marketing group was aware when the loan officer’s production (or velocity) was higher than the industry average.
The Impact of Marketing on Loan Officer Retention
Media Center members had a 25% higher retention rate than non-members. Marketing had clearly made a major impact on this important metric. The marketing team had to explain the financial implications of the increased retention rate.
The SVP calculated the Media Center cash flow value by multiplying the 25% of loans written by members over a year by 10% on each loan. This is the revenue contribution of increased loan officer retention.
The lifetime value of a loan officer was calculated by multiplying the retention rate across several years. This analysis was based on the assumption that the Media Center had improved retention rates. Alternative theories could be that the Media Center attracted more ambitious loan officers, who were more likely to remain with the company than those less ambitious.
If this was the case, the top management could have reasonably discounted some of what the marketing team had calculated. The SVP’s report did, however, provide valuable insight into the value of the marketing group.