- January 25, 2014
- Posted by: Phillip W. Duff
- Categories: Agencies, Buyers, Law Firms, Training
As a consultant to the ARM industry I see the lack of these things in almost every agency and law firm I visit. Most of the managers that I am ask to work with do not create a CLEAR structure for the staff to follow, and when there is a breakdown in the process there is no CLEAR accountability. Very few collection shops are built on a profit-based business model. They instead have the same old model that provides whatever profits it provides which is why so many operators are complaining about their reduced profit margins.
Many firms have multiple people responsible for the same things, so when something goes wrong there is no clear chain of responsibility and accountability, and therefore, no obvious way to isolate the person or persons accountable in order to implement and effective way to train better to avoid the problem again. If you run a shop of accountability then the fault clearly lands on someone’s plate and then solutions are more clearly defined and enacted. When the entire office misses goal; who do you blame? But if you have several KPI’s defined and the entire team misses goals, but 7 of the 10 KPI’s were hit, the contributing factors to missing the goals can be identified and isolated and the individuals or department responsible can be retrained to prevent a similar occurrence next month.
The truth is you can have whatever level of profit margins you desire if you build the right collection process and can locate the right type of business capable of delivering those profit margins. OK…if you don’t believe, me look at it this way. If you say I need a 20% profit margin and have a collection process that is accountable and traceable, all you need are placements that can provide that profit margin within your defined process. Now you say this 20% business does not exist, well maybe not much these days can provide a 20% profit margins after all costs are accounted for but you see the point.
The problem with the old process of collections is that it is not based on a profit quotient; it is merely a tradition that has been carried on from days when profit margins were 40%. This is the philosophy, “We’ve always done it this way, so we should always do it this way.” In the past, we incented the collectors to collect more, as that is what drove profits. Now we have more costs buckets to consider than years past. The cost of consumer lawyers, skiptracing, technology, asset location, licenses, dialers, marketing and more that has all changed over the years. Profits now come from controlling expenses!
If you want to focus various collectors groups on profits, then set them up as a small business within your business. Give the unit manager a budget for skip, letters and payroll and then determine the overall costs he faces with overhead. It’s a cost per seat equation;
Total costs divided by
Total number of FT revenue makers= Cost per seat
So if you have a group of 10 collectors and one manager, and the cost per seat is $5,000.00 monthly, and you desire 20% profits the group must collect $55,000 in gross fees to cover expenses and another $11,000 for the 20% profits. Once the group has reached the $66K mark the owner has his profits of 20% and is in bonus mode. Now the owner has taught the manager how to use costs and profits to run the company. The owner can reward that staff for overachieving by sharing the overage at a high percentage maybe even 50/50.
This not only teaches the staff to work based on budgets and a fixed cost but encourages profits not just production. If you need help creating a culture of accountability, purpose and profits call Lighthouse Consulting LLC.