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How To Use The 80/20 Rule In Your Mortgage Company
There are countless applications of the 80/20 rule. The allusions that can be made to the mortgage industry using this rule are similarly vast.
The 80/20 Rule, also known as Pareto's principle, was originally created in 1906 by Vilfredo Pareto, a famous economist from Italy. The original observation was that eighty percent of the wealth of his country belonged to only twenty percent of the population.
When applied to other various concepts in different areas, the rule basically means the following: the things of most importance are few while inconsequential items are a dime a dozen.
In the mortgage industry, one 80/20 observation that can be made pertains to marketing and lead generation. Eighty percent of the cold calls you make will fall flat, while only twenty percent of them will turn into a mortgage closing. This may be a depressing statistic to grapple with, but the information is useful nonetheless.
It might be a bit more encouraging to apply the principle at another angle. For one thing, if you know that it takes eighty percent failure to yield twenty percent success, you can take advantage of this. For instance, if you send out enough direct mailings so that the twenty percent equals your projected budget at any given time, you are nearly guaranteed to reach budget. You can also increase your budget above and beyond by multiplying these numbers incrementally.
You also know that twenty percent of your mortgage specialists are doing eighty percent of the work. That twenty percent is accounting for the success of your mortgage business. The solution is to spend eighty percent of your time re-training and nurturing the eighty percent who are not currently successful, until they are. You can greatly increase your bottom line using this mindset.
Another application of the rule is that twenty percent of your sales pitch is what constitutes eighty percent of customer motivation at closing. If you know this, perhaps you should trim your pitch down; streamline it, to the point where all that is left is the best part (the twenty percent). If you talk too much you could be saturating the customer with information they don't need anyway.
Knowing that only twenty percent of your customer base will yield eighty percent of your revenue, you can strategize your business plan accordingly. Take this knowledge and narrow down which customers you cater to. Cater to the small percentage of customers who are more likely to close on a mortgage.
Focus in on those who will shell out the highest amounts with the highest interest rates. This doesn't mean to choose the worst credit reports; but it does mean that you might not want to center all of your attention on those with perfect credit reports. Those with great scores have those scores because they are frugal or have a capable accountant at their disposal.
Hone in on the moderate credit scores. These middle-ground candidates are more likely to give in to a higher rate based on their scores being less than perfect.A general way to apply the Pareto principle is to understand what affects your overall success in life and business. It has been said that about 80% of what happens to you depends on you and only 20% is outside of your control. Keeping this wisdom in mind is incredibly empowering. You are in control of your own destiny! But only twenty percent of us will realize that and act on it, while the other eighty percent will squander the opportunity to succeed.
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