Customers are the lifeblood of any business. Without customers, a company doesn’t have anyone to buy its products and services.
Many companies focus on acquiring new customers. And while getting new customers is an integral part of growing a business, it’s not the only thing that matters.
Keeping current customers happy is just as important as getting new customers. In fact, some may argue that customer retention is more important than customer acquisition.
This article will explore why mortgage lending companies should care about customer retention and offer technological solutions that can help improve the client experience, leading to higher retention rates.
Why Customer Retention is Important
There are several reasons why businesses should care about customer retention.
1. It helps the bottom line.
To start with, keeping current customers happy costs less than getting new ones. The Harvard Business Review notes that acquiring a new customer can cost a company five to 25 times more than keeping an existing customer. Plus, boosting customer retention by just 5% can lead to a 25 – 95% profit gain.
2. Current customers are more likely to buy than new customers
Research has found that companies are 14 times more likely to sell to an existing customer than a new one. And when it comes to trying new products, existing customers are 50% more likely to say “yes” than new ones.
3. Keeping customers happy can lead to more customers
Happy customers will likely refer a business to their friends, family, and followers. Research from Bain & Company found that customers who had just one positive experience with an online retailer referred an average of three people to the company. In mortgage lending, customers who are happy with their lender are more likely to refer them to their friends and family looking to buy or refinance a home.
4. Repeat customers can improve a company’s reputation
Having more customers stick around can help boost a company’s reputation. Today’s consumers don’t have much tolerance for poor customer service. Research shows that 82% of consumers will avoid a company after one poor experience, and 47% would take their business to a competitor immediately following a bad experience with a company.
5. The Pareto rule is valid for existing customers
It’s essential to keep the Pareto rule in mind when it comes to customer retention. Studies have found that 80% of a company’s future profits come from just 20% of the company’s current customers. So, retaining customers now will pay off in the future.
How to Measure Customer Retention
When measuring customer retention rates, three metrics have to be taken into consideration.
1. Customer retention rate
This rate calculates the percentage of customers who have stayed with a business for a certain period. This can be calculated monthly, quarterly, and annually to track customer retention.
To calculate the customer retention rate, start with the total number of customers with a company at the end of a period. Then, subtract the number of new customers added during that same period. Divide this number by the total number of customers that were with the company at the beginning of the period. Multiply the final number 100 to get a customer retention rate.
2. Churn rate
This is sometimes also called the customer attrition rate. It refers to the number of lost customers during a given period.
This is calculated by dividing the number of lost customers by the total number of customers at the beginning of the period. Multiply this number by 100 to get the churn rate.
3. Customer lifetime value (CLV)
This final calculation measures how much revenue a company has generated from each customer. Calculating this number can help businesses determine how much money to put toward customer retention efforts.
This number is calculated by averaging the revenue all existing customers generated over a given period. It can also be segmented based on different types of customers, i.e., by initial loan amount or loan type (mortgage vs. refinance).
Challenges with Customer Retention in Today’s Environment
Mortgage retention rates have been slightly improving in recent years. In 2019, less than 20% of homeowners stayed with their lender after refinancing. Yet, by the end of 2021, overall retention rates were at an eight-year high.
However, there’s still work to be done. Unlike other consumer-driven industries where customers have repeated interactions with businesses (e.g., retail), the mortgage industry has limited interactions with customers. This can lead to some challenges.
Most people only buy or refinance a home a few times in their life. Once they buy a home, people tend to stay in it for 15 years, on average. After they close on their home, most homeowners only engage with their mortgage lender a handful of times.
Because they are not engaging with existing customers regularly, mortgage lenders tend to focus on customer acquisition more than retention. As a result, homeowners tend to ignore their mortgage lender and are more likely to turn to someone who can offer a better experience when they’re ready to refinance or buy a new home.
How Technology Can Improve the Client Experience and Customer Retention
Fortunately, several mortgage loan digital solutions can improve customer retention rates for mortgage lenders.
Integrate customer data from the tech stack
Often, consumer data is spread out among multiple silos, making it difficult for mortgage lenders to get a full 360-degree view of their customers.
Integrating customer data into one central database can help lenders keep track of their customers and assist with outreach efforts.
Advanced customer data analytics
To benefit from advanced data analytics, mortgage lenders don’t have to be tech-savvy. Many platforms can deliver the specific data points lenders need to know when and how to reach out to customers.
For example, analytics tools can share triggers that alert lenders to contact customers about applying for a HELOC, getting a new rate, or reaching equity milestones.
Marketing automation
Finally, marketing automation tools make outreach simple for busy mortgage lenders. Several solutions are powered by AI to automatically send personalized messages to customers when they trigger a particular action. This ensures that mortgage lenders remain top of mind for their current customers.
Ready to Boost Customer Retention? LendArch Can Help
Today’s mortgage lenders can’t afford not to care about customer retention. LendArch can help determine the best tech solutions for mortgage lenders who want to improve customer retention rates and reduce churn.
Contact us to learn more.
As Chief Executive Officer, Tammy Richards brings over 35 years experience in Mortgage Banking, EClose/EMortgage, Robotics/AI/OCR/ICR implementation and more. She has been an executive and has led Nationally at Bank of America, Caliber Home Loans and most recently served as Chief Operating Officer for Loan Depot. She is passionate about and is an expert in the mortgage industry's ongoing tech transformation.