So let’s jump in and get to the heart of why more lenders don’t meet or exceed their annual sales goals.
The #1 Reason
The #1 reason a substantial percentage of your lenders don’t hit their sales goals is because they are overly reliant on third party referrals as the primary source of their deal flow. Said another way, they are too dependent on the actions of others for their new business opportunities. In any given year, if the quality and quantity of referrals is good, a lender likely will hit or come close to hitting their annual goals. If the flow or quality of referrals isn’t good that year, a lender likely will fall well short of their sales goals. At the end of the day, luck more than anything else often is the determining factor in sales goal attainment. Why would any lender WANT to rely on “luck” and the actions of others for something as important as hitting or exceeding their annual sales goal? That makes no sense!
Now, there are a minority of lenders who have established great relationships with great referrals sources. These relationships have been established over decades with referral sources that have a considerable transaction volume. And for these lenders, every year they get plopped into a steady stream of high quality deals and as a result, meet or exceed their annual sales goals. These lenders are the envy of every other lender in the bank and why wouldn’t they be? They didn’t have to invest the months and years “developing a relationship” with the company owner or executive. They didn’t have to establish their credibility or expertise with the company owner because they established that credibility and expertise with the referral source. As a result, the lender is able to leverage the relationship and credibility of the referral source and literally is dropped into an already underway transaction. And hear me, this is great!!!
But the scenario I described isn’t what a majority of lenders experience and it is the fundamental “strategy” most every lenders and relationship banker utilizes to source new deals. By and large, the referrals that lenders solicit come from two primary sources, commercial real estate brokers and CPAs. Certainly existing customers, attorneys and the occasional insurance broker provide lenders with referrals on occasion. However, the majority of referrals come from commercial real estate brokers and CPAs and every banker is soliciting the same brokers and CPAs for referrals.
The Consequences of Being Too Dependent
#1. No Control – Let’s start with the obvious. Your annual production rests in large part on the efforts of others, your referral sources. That should make you very uncomfortable because you have little if any control over your destiny.
#2. Poor Quality – You have little control over the quality of referrals you receive. How many dozens of times were you delighted to receive a referral from a referral source only to find out upon meeting with the company owner, they were un-bankable? Or maybe worse, you got their financials, found that they were “marginal” but because your pipeline was lite, you presented the credit and the deal was turned down. So not only did you waste three plus hours driving and meeting with the prospect, you wasted another six to ten hours of the bank’s resources spreading financials and having the deal worked on by your underwriters. Now imagine the drain on bank resources every week when lenders are working on low quality, marginal deals.
#3. Stiff Competition – Not that this happens all the time, but a lot of the time a lender is being referred into a deal that is being “shopped” where other institutions are also bidding on the deal. This happens frequently with real estate deals. Good news, you get a shot at a new piece of business. Bad news, you’re going to give up net interest and non-interest income.
#4. Margin Pressure – There are trade-offs for not having to invest the time necessary to develop and source your own deals and the trade-off is a loss of net and non-interest income. Bidding wars create margin pressure pure and simple.
#5. Limited Differentiation – Because no time was spent developing a relationship with the lender and your bank, no loyalty or “relationship capital” was created. Because you leveraged the relationship of your referral source, there was little if any time for you to get to know the vision, goals, and challenges of the customer. The by-product of being “dropped-into” an existing transaction is that you positioned yourself as a commodity. You had no time to differentiate yourself or your bank or to add value and because of that, typically pricing is the primary way we differentiate one supplier from another when all things are equal.
I’m going to reiterate what I said previously; there is nothing wrong or inherently bad about soliciting referrals from real estate brokers and CPAs as a strategy. However, there are many other highly effective and newer ways to “attract” high quality new business. AND, there are so many simple strategies lenders and relationship bankers can use to hone the quality of referrals they receive from their existing referral sources.
The only reason more of your lenders and relationship bankers aren’t meeting or exceeding their annual sales goals is their business development and sales strategies need honing! You have good people, smart people! They have the knowledge and experience, however, they’re using the same, tired one or two strategies to pursue business that every other banker is using. The entire psychology of selling has changed as a result of the internet and social media. Your lenders and relationship bankers haven’t changed…in two or three decades and that’s why more of them aren’t meeting or exceeding their annual sales goals.
This could change…
“By implementing the tools and coaching provided by Ray and Lisa, I have hit my annual sales goals by July with a disciplined strategy of working smarter, not harder.”
Kyle C. Maguire
Vice President & Relationship Manager
American Business Bank
Here’s to your sales honing success!