Mortgage Brokers: Why Should You Focus on Net Profit?

When you discuss business performance with mortgage brokers you'll notice most of them keeping their own spreadsheet. It is efficient but they seem to keep a close eye only on gross commissions and revenue. The real health of their brokerage lies in the net profit (what's left after all the expenses) especially in a competitive industry of 19,000 brokers where margins are thin and compliance costs continue to rise.

Commissions don't account for overhead costs like staffing, compliance, marketing or technology and subscriptions

Case Study 1: A brokerage in Melbourne was generating $1.5 million in annual gross commissions but struggled with a net profit margin of just 5%. Upon closer analysis, they found high fixed costs in office rent and an underperforming marketing strategy that was generating unqualified leads.

By switching to a coworking space, refining their target market and creating content that speaks directly to them they were able to:

• Reduced office expenses by 25%.
• Improved lead conversion, which boosted their net profit margin from 5% to 12%.

This small shift in focus helped the brokerage retain more earnings.

Net profit provides the necessary insight into how well your brokerage is performing after accounting for all expenses including aggregator fees (often hidden), ACL, MFAA/FBAA memberships, outsourced staff, technology and subscriptions, training and development, payroll, bookkeeping/accounting and marketing costs.

Case Study 2: A growing brokerage in Sydney wanted to scale operations but was facing rising costs in lead acquisition. Their gross margin (after deducting the cost of goods sold (COGS) that includes aggregator fees and referral fees) was strong but their net profit (after deducting all other operationg expenses) was shrinking.

By adopting a digital compliance tool such as ApplyOnline (allows brokers to automate document collection, verification, submission and loan application processes):

• Reduced compliance costs by 15% removing the need to hire additional staff
• Cut down on processing times by 20% as there is less back and forth

These operational improvements have a direct impact on profitability.

As a mortgage broker, focusing on a healthy profit margin gives you the flexibility to reinvest in building out a team, adopting new technology and AI and venture out into new markets.

Case Study 3: A small mortgage brokerage in Brisbane was highly focused on ensuring that at least 15% of revenues went directly into their bottom line due to their lifestyle. This disciplined approach allowed them to build a financial buffer which they used to acquire a competing broker's loan book when the market softened. This acquisition doubled their client numbers and created more opportunities.

• 10% year-over-year consistent growth in total revenue.
• Continued profitability even when calls and emails go quiet

A focus on net profit enables brokers to acquire new trail books, invest in joint ventures or expanding their geographic footprint outside of their local postcode.

Conclusion:

As the above three case studies show improving efficiency, reducing unnecessary expenses and retaining earnings in the business for reinvestment can make a significant impact.

Therefore understand where your money goes, make small adjustments regularly to get rid of expenses that no longer serves you and these baby steps will slowly compound and fuel long-term growth.