COGS - Cost of Goods Sold

"The direct costs attributable to the production of the goods sold by a company."



After a great secondary conference we noticed a few common themes seemingly discussed at every meal, meeting and happy hour. One of the most glaring topics was the cost of producing/originating a loan, or a bankers cost of goods sold. One after another, each counterparty (consultants, technology providers, warehousing providers etc) stressed the importance of knowing, monitoring, and managing this critical data point. What we found interesting is how few bankers actually had a firm grasp on this figure. When all third parties are honing in on an issue, they're usually on to something.


Don't know the cost to originate? Not sure how to even calculate it? Simply put bankers, or more specifically say correspondent bankers, are manufacturers - they manufacture loans. In this business it's all about quality, volume, and quality control. That being said, prices and costs cannot be forgotten.


Well with so much competition (both local and national), prices or in this case rates are always a hot topic in meetings, but what about costs? Aside from a CFO, not too many manufacturers in our industry like to dig deep here and determine a true cost of goods sold. But isn't this a key ingredient for any business owner? How important is gross income and high sales volume when costs are rising and net profit is falling? How can you ensure profits are being maximized and you're reaching optimal efficiency levels? How much wasteful spending is there in this manufacturing process?


How many lenders believe their underwriting staff produces 3-5 units/day when further investigation shows levels closer to 1-2 units/day? How will this play into possible expansion opportunities? Truly understanding your costs is an integral part of building any healthy, thriving firm. Costs come in many forms - marketing, funding, salaries, licensing, technology, I could go on and on here. Getting a handle on your cost of goods sold will not only help you plan for the future, but increase net profits and efficiencies along the way. It would be a shame to focus on the prices and volume without giving as much, if not more attention to costs.