The Small Realities of Economies of Scale

“Economies of scale.”

If I had a dollar for every time someone threw that phrase at me, well let’s just say the phrase wouldn’t apply anymore.

By definition: “economies of scale are the cost advantages that enterprises obanalysis-1010888_1920tain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.” (If you can’t trust Wikipedia, what can you trust?)

Uh huh…in layman terms, if your business is big your widget production costs are cheaper and you are in a stronger position in the sales pecking order. As a business owner, the ability to leverage your services is at your disposal.

In truth, “economies of scale” is the ability of the big guys (did I say banks?) to stomp out the smaller competition. Some might call that the laws of microeconomics and natural evolution of an industry. I call it bad for the consumer.

The sports metaphor would be akin to a small market team getting the first pick in a draft with visions of securing the franchise player, only to frustratingly discover your superstar is being pressured not to play in a small market. You invest time and money just to lose that star to a bigger franchise with more advertising and perhaps a more enticing nightlife scene.

How often do we hear about big market owners raising prices on everything without regard to the individual ticket holder (their customer)? Do they think relationships when they go home at night, or do they think profit? In our industry, when the $50,000 mortgage applicant hits the radar of the “too big to fails” and their layers of customer service teams, I wonder of they ever have meaningful and substantive contact with the person on the other end of the application? I know we do.

There are nights when I wonder if being part of a group of local small shops is worth it. If the big guys are truly better, why don’t I just fold in with them? This might sound like little guy sour grapes—maybe it is, or maybe just some tart fruit mixed with cold reality.

The reality is there is a need for both the large and the small in the mortgage industry. Both provide a service. There is a difference. The small guys like to stay away from bad press. I have read some of what has been written about the big guys…yeah, I’m okay not being a part of that reality.

So, next time you hear “economies of scale” also think service, relationships, and small.

(P.S.: Take a look at AFMSI.  We post industry news and related articles to our LinkedIn, Facebook, and Twitter pages.)

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