Do You Know the Law of Large Numbers?

When speaking or consulting, I am often asked, “What is the number one activity that will turn around a sales force?” The right answer has three parts: Hiring right, which I discuss often in my weekly blog; having quality first-line managers and training them on how to manage and coach; and setting performance standards for prospecting and sales output. Today I want to talk about performance standards, especially prospecting.

Over and over I see sales organizations that are afraid to enforce production standards and required activities for originators. Senior managers rationalize that if they enforce standards, sales people will leave and the company won’t have any originators. In my view, if management is not serious about standards, what does that say to the good originators about your support by allowing poor originators in their territory?

Prospecting is the key driver of success in mortgage lending. Top producers are superior prospectors for new business because they do it consistently, regardless of marketplace conditions or whether their managers tell them to do it. What do the underperformers do? They work their pipeline. They reason that if they don’t work their pipeline, “deals won’t close because the back office is terrible.” No matter what mortgage company they work for, underperformers seem to blame the back office for their lack of prospecting.

If prospecting is essential for mortgage success, why aren’t more firms setting standards and enforcing them? The most effective strategy is setting appointments with new prospects or referral sources to meet them face-to-face or next best, by phone.

Social media can help set the appointment but a meaningful relationship starts faster with a personal meeting. Moreover, trust, knowledge and credibility are behaviors that can be conveyed much quicker through non-verbal communication during a face-to-face meeting.

So what is the Law of Large Numbers in prospecting? This is the number of contacts needed that will translate into meetings. Each originator has a specific number that will be needed depending on his or her experience and selling skill. It is true that prospecting is a numbers game as every successful originator knows.
Too often, when I ask originators what their ratio is they don’t know and frankly don’t track it. Most damning is that management doesn’t require them to do so. Why is this a mistake? When the time comes and originators are in a slump and don’t have enough business, they won’t know where to start to correct it.

I know some managers will say this is micromanaging your sales force. I say that it is a leadership trait and a best practice that all great sales organizations follow. It makes sense to copy what works in best-in-class companies. Why reinvent the wheel? You can bet Goldman Sachs sales people know their prospecting numbers. We should expect no less from originators.

If you are not sure how to establish performance standards, it is time for a sales audit. Call me to discuss what a three-day audit entails. It is money well spent as the industry moves into a more difficult origination environment.