The Formula

by 18 Mar 2012
( -- I am in a recycle mode.  I have been writing this column for over four years and I know there are many out there that have not been subscribers that long and have missed out on many great TIPS over those years.  So, I am reprinting many older TIPS.  This was originally published in May, 2008.   I have received many emails and phone calls from across the country in response to this column over the last several months.

The general complexion of these communiqués is same: HELP!  So I decided to talk about the basics as I have in many training sessions, college classrooms and consulting gigs.   Early on in the sales process, the loan officer will have to talk to the client over the phone or in a face-to-face meeting.  The first moments of the first contact are vital to success.  The next few interactions are just as vital.  How does a loan officer develop a trusting relationship with a client that will lead to a closed loan and referrals?  Let me talk about the first step in doing so.  This is what I simply call ‘The Formula.’

Benefit – Cost = Value   This is not a unique concept; it is a basic marketing concept that is all too often overlooked.  I have taken this basic analytical equation and created a meaningful social tool to aid in relationship development.   This formula should be looked at like a battle line drawn in the sand straight through “cost.”  Cost is a constant.  Cost may fluctuate from company to company, broker to broker, but the actual cost of doing business is about the same across the board.  If we keep origination at a constant, say one percent, add processing, underwriting, title fees, government fees, and closing fees, the good faith estimate should be similar from company to company.

Sure, many companies add junk fees and higher origination, but that is another discussion.   Cost can also be measured in non-monetary terms such as the time involved, emotional elements, travel time to meet or to attend the closing, or the customer’s effort to gather necessary documents.  Regardless with whom the customer does business, the cost of doing business is a constant, which establishes the variables within this equation to be benefit and value.   What do you have control of as a loan officer? Benefit.  What is benefit?  It is anything the customer receives in an exchange as a result of the cost of doing business.  Control this variable, and you have the key to meaningful contact with customers.  If there is no benefit, there is no value. 

Look at the formula again:  If benefit is zero, then subtracting the cost of the transaction, there is a negative value.  If the benefit is equal to the cost, then there is zero value.  However, if the benefit is substantially greater than cost, then the value is great.   What is value?  It is the customer’s perceived benefit in the transaction.  The LO has no control over what the customer perceives as ‘of value.’  However, the LO does have control over gaining the necessary information from the customer to know what they hold dear in the transaction.  The customer’s goals for the transaction will define his or her baseline for value.  In other words, if they get what they want as a minimum, then that is zero value.  Anything they get beyond that is a value–added proposition.

The more benefit provided to the customer, the more perceived value they gain in the transaction, and the greater chance of getting them to sign an application.   Now that the basic formula is laid out, how do you glean information from the customer so you know what their unique definition of value would be?  This is where I always insist on meeting a client.  I would typically drive to their house after business hours to meet with them.  Many times this is not necessary, but for the busy professionals that have no other free time during the week, you just added a huge benefit by visiting them at their convenience.  Or perhaps it is just enclosing a cover sheet with a brief, easy to understand definition of the documents when you mail or email them to the customer.  Benefit can be a number of simple, easy to employ actions, based on customer needs.   The most important and best way to start growing benefit with a customer is to simply employ active listening techniques.  When you talk to a client for the first time, listen to them.  Establish what their motives are in the transaction.

A motive is an internal energizing force that orients a customer’s activities toward satisfying their needs or achieving their goals.  There may be multiple motives that will inspire a customer to act upon originating a mortgage.  By knowing as much as you can about the customer, you will be able to add maximum benefit to the transaction; therefore, adding maximum value to them.  In future articles, I will cover more detail on customer types, active listening techniques and non-verbal communications, all of which help to define a customer’s motives, or needs and goals.   Couple this with the “Two Minute MingleSM” (see Tip of the Month in the December 2007 issue of the Niche Report) and you have a powerful combination for developing an adaptive technique to interact with your clients.  Email or call to tell me how this technique works for you.

Stewart Mednick is a seasoned mortgage banker and published author.  His writing focuses on relationship development, personal empowerment, customer satisfaction, marketing and sales techniques. Stewart is available for marketing consulting, personal coaching and training sessions.  If you have a comment or a question for Stewart, contact him at 651-895-5122 or


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