Those were the days! The days when all you had to do to get and keep a client would show them a batch track of similar work and what your liquidation rates were. The client was interested in making money…PERIOD! Unfortunately, the days when clients judged you based upon your production have gone by the wayside and been replaced by compliance audits, standard operating procedure manuals, enhanced technology burdens to meet compliance and countless other ways to reduce our profits.
Remember the days of championship challenges when the winner received the majority of the markets share of the placements? Now placements equal 20% of what they were in 2007 so even the winner of the lion’s share of these placements is a loser. Remember when you didn’t have to record calls, when you didn’t have a compliance department, when YOU made the decisions about how you would run your business instead of the client? Once again those days are gone!
Well it was good remembering how it used to be, but what we have to except is how it is today. Issuer’s and large debt buyers are requiring agencies to be highly compliant, highly transparent, to spend tens of thousands on nonproductive employees, and to work the portfolio as the issuer or debt buyer demands.
The problem is that all of these factors are reducing the collection agency’s and law firm’s ability to make a profit and survive in the marketplace. As the industry consolidates, so will the industry profit margins.
I estimate profit margins will drop to 5% to 8% in 2014 and remain there for the next 48 months. At the end of that time there will be 50% fewer nationally licensed collection agencies and 70% fewer collection law firms. The industry will have consolidated like many other industries before; resulting in reduced profit margins and larger companies.
Are you prepared to survive the next 48 months? Will you be one of the companies that still exist 48 months from now? This is all up to you. The companies that come out the other side of this consolidation will own the marketplace but they will have to make many sacrifices to get to that position in the industry. Lighthouse Consulting has been helping its clients overcome the perilous seas of our industry since 2003 and can help you to survive into 2017 and beyond.