Increasing Customer Retention for Mortgage Lenders

How to build an effective customer retention program to increase engagement, drive revenue and create loyal customers for life

What is customer retention?

Customer retention is pretty straightforward in most businesses: It’s the measure of how many customers continue to buy your products or services over a given time period. Businesses that provide subscription-based services or sell non-durable goods can generally track customer retention quite easily. But for other businesses — those whose customer transactions are fewer and further between — it can be trickier to get a handle on customer retention.

Why customer retention matters for every business

The basic rationale behind customer retention is the classic anecdote: It’s cheaper to retain an existing customer than to attract a new one. Research increasingly backs up this adage:

• Customer retention is cheaper than customer acquisition: According to the Harvard Business Review, acquiring a new customer can cost a company anywhere from 5x to 25x as much as just keeping an existing customer.
• Customer retention follows the 80/20 rule: Analysts at Gartner find that another Business 101 essential, the 80/20 rule, applies directly to customer retention. Just 20% of your existing customers will be responsible for 80% of your future revenue.
• It’s easier to sell to existing customers: Research shows the likelihood of making a future sale to an existing customer is at least 40% higher than selling to a completely new prospect.
• Boosting retention drives revenue: A study by Bain & Company found that increasing customer retention rates by just 5% could drive anywhere from a 25-95% revenue boost for most companies.

The unique challenges of customer retention in the mortgage industry

Mortgage lenders fall into that category where customer retention can be more difficult to measure and track. That’s because the average person only buys a home (or refinances) a handful of times in their entire life. According to 2021 research, the typical homebuyer expects to remain in their home for 15 years. However, younger generations of homebuyers are trending toward more frequent moves, skewing down into the 4- to 8-year range for home-buying frequency for Gen Z and millennials. Historically low interest rates over the better part of the last decade have also driven a higher volume of refinancing. Yet, compared to a monthly subscription — or even annual retail purchases — most mortgage customers go years without seriously engaging with a mortgage lender.

Most mortgage lenders fall short on customer retention

The relative infrequency of customer transactions makes a dedicated customer retention program particularly important for mortgage lenders. You need to stay fresh in customers’ minds, so that when it comes time for them to purchase their next house — or take advantage of low refi rates — they instinctively come to you. Yet, the typical mortgage lender falls short of effective ongoing customer engagement. One estimate put customer retention in the mortgage industry at the lowest point in two decades — with the typical lender retaining just 1 in 5 customers at the point of a refinance or next purchase.

The initial mortgage transaction tends to be very high-touch and high-engagement. After all, whether purchasing or refinancing, it’s generally one of the biggest and most important transactions of a person’s life. But communication and engagement typically falls off shortly after closing. This is increasingly true today, as fintech makes seamless digital autopayments easier and more common. The reality is that more and more borrowers are hardly thinking about their mortgage after closing — except perhaps once a year at tax time.

That low engagement directly translates to poor customer retention. If mortgage lenders aren’t staying in front of their customers and maintaining a relevant, meaningful relationship, those customers are much more easily lured away by refi offers from other lenders. And unengaged borrowers are much more likely to simply start from scratch in finding a mortgage lender when it comes time to buy or refi.

Benefits of increased customer retention for mortgage lenders

The basic value of improving customer retention is the same for mortgage lenders as every other business: get more revenue and value from every customer — with a much higher ROI than customer acquisition. Getting into the specifics, here’s how increased customer retention drives value for lenders:

• Customer retention retains original loan value: Retaining the full value of the original mortgage loan, instead of losing that value as customers refinance with other lenders.
• Customer retention helps capture future purchase or refi business: Earning your customers’ business when it comes time for their next home purchase or refinance.
• Customer retention creates other revenue-generating opportunities: Cross-selling other products or services offered by your organization (or affiliates) to your existing customer base is far more effective (and cost-effective) — with roughly a 40% higher conversion rate.
• Customer retention boosts referral business: Research suggests [JS1] better customer retention can help lenders boost referral traffic by 35%. Staying fresh in customers’ minds — and building satisfaction and loyalty — boosts the likelihood of your customers giving you referral business when an acquaintance is in the market to purchase or refinance a home.
• Customer retention drives operational efficiencies: Retention efforts are not only more cost-efficient than acquisition efforts. Effective retention also means not losing all the value you’ve already invested in existing customers. Done well, it can even free up resources (staff and budget) to focus on growing your business. Loyal customers are easier to maintain — but you have to put in the work to get that ball rolling.

How you increase customer retention: Focus on customer experience

Customer retention really boils down to customer loyalty. Research shows that more loyal customers are much “stickier” — less likely to be lured away by the competition and more likely to come to you for their next transaction. And what drives loyalty? Great experiences.

In a 2021 report from Zendesk, 77% of customers said they’re more loyal to companies that deliver great customer experiences. This shouldn’t be surprising. Most businesses today — across all segments — now compete primarily based on customer experience, not product, price or any other factor. Studies also show that consumers are willing to spend more with a company that delivers good experiences — and are more likely to refer others to the company. This global consumer trend is playing out quite clearly in the mortgage industry, where borrowers now rank customer experience higher than pricing as the main reason for choosing a mortgage lender.

Customer experience & loyalty in the post-pandemic environment

The 2020 COVID-19 pandemic accelerated several shifts in the business world. Key among them: Consumers are more willing to reconsider or change their loyalties to brands and retailers in the post-pandemic environment — and they have even higher expectations around customer experience. Research shows more than half of consumers say customer experience is more important to them than it was before the pandemic.

What is a dedicated customer retention program?

Companies group a range of activities and initiatives under the umbrella of a customer retention program. The most basic customer retention programs focus on ongoing customer engagement — maintaining regular communication and contact with customers in between transactions — to build loyalty and keep a brand fresh in customers’ minds. But customer retention programs also include strategies to drive more value from your existing customer base — from encouraging the next transaction, to relevant cross-selling and upselling, to cultivating referrals.

A dedicated customer retention program should be a central component of — and closely integrated with — your overall customer experience strategy. Both your customer retention program and customer experience strategy share the same core goal: Deliver hyperpersonalized messages that provide meaningful value and nurture genuine relationships.

5 keys to building a customer retention program

A robust customer retention program should focus on four things:

1. Understanding your customers: Getting the full picture of your customers’ interactions and behaviors — across all channels — so you can gain a better understanding of who they are, what they like and what they want (from the products they’re interested in, to the communication channels they prefer). The reality is that while most financial institutions are collecting huge volumes of data on their customers, most of that data sits in disparate systems (loan origination, CRM, website management, social media platforms, etc.) and remains unintegrated or siloed, meaning most mortgage lenders do not have a single source of truth or central 360° omnichannel visibility of their customers.
2. Identifying key behaviors and triggers: Homing in on the actions that signify your ideal opportunities to make relevant connections and provide meaningful value to your customers. These triggers can range from a rate inquiry or starting a loan application, to reaching an equity milestone or qualifying to remove PMI. Experienced mortgage lending professionals likely know many of these key behaviors. The challenge is that they typically remain buried in all that unintegrated customer data.
3. Acting in real time: Making that meaningful, personalized connection at the exact right time — when it’s hyper-relevant for the customer. The barrier here is often resources: Mortgage lending staff are simply managing too many customers to be able to reliably 1) see a customer behavior insight or trigger, and 2) create and deliver a personalized message that capitalizes on the opportunity.
4. Delivering relevant, empowering content: Connecting at the right time is half the equation; delivering the right message is the other half. That content needs to be engaging, useful and ultimately empower the customer with the information they need to confidently take the desired action. Mortgage lenders have all that empowering information stored up in the expertise of their veteran LOs and staff. But most don’t have time — or a dedicated team of writers and content creators — to turn all this expertise into engaging digital content like articles, guides and videos.
5. Measuring customer retention: This last key completes the cycle, bringing us back to customer visibility. Many mortgage lenders struggle to consistently and reliably track or measure customer retention because of siloed systems. For example, after closing, a customer might move from a loan origination system to a CRM system, while also being pulled into a marketing automation tool to drive ongoing engagement. But unless data from each of these systems is integrated, it’s often difficult to bridge the gaps to see which customers have actually left — or to connect the dots between your dedicated customer retention efforts and increased customer retention rates. This makes it difficult to get buy-in and budgets for customer retention initiatives and investments.

How do you measure customer retention rate?

There are three common customer retention metrics:

• Customer retention rate: The most common customer retention metric is the customer retention rate, which is the percentage of previous customers who remained loyal to your business over a period of time (typically calculated monthly or annually). To calculate the customer retention rate, you take the total number of customers at the end of the time period (T), subtract the number of new customers you added during period (N), and divide that by the number of customers you had at the beginning of the period (S). The formula looks like this:

Total Customers  –  Newly Added Customers   x   100 = Customer Retention Rate (%)

                      Starting Customers

• Customer churn or customer attrition rate: The flip side of customer retention rate is the customer churn rate or customer attrition rate — how many customers you lose during a given time period (again, monthly or annually).

       Lost Customers         x   100 = Customer Churn/Attrition Rate (%)

   Starting Customers

• Customer lifetime value: A more outcome-focused customer retention metric is customer lifetime value, which measures the total revenue your business has generated (or can expect to generate) from each customer. This metric is most useful in justifying the need or value for customer retention initiatives and investments. Customer lifetime value typically looks at an average of revenue or value generated from all existing customers over a given time period (10, 20, 30 years). Some mortgage lenders segment lifetime value according to customer characteristics (i.e., loan type or initial loan amount). Customer lifetime value metrics can also be used to target specific customer segments for high-ROI retention efforts.

Using technology to improve the customer experience and drive retention

With the traditional focus on customer acquisition and growth, it’s easy to see why customer retention efforts fall of the radar in the mortgage lending industry. Loan officers and marketing teams simply don’t’ have the time to manually follow-up with existing customers on a regular basis, much less carefully monitor each customer to identify the perfect time to connect with engaging content and relevant offers. The refi surge of 2020, combined with the booming purchase market of 2021, creates a double wave of new customers and prospects for mortage lenders to manage.

The good news is that digital customer experience technologies are transforming what’s possible and practical for mortgage lenders, particularly in the realm of customer retention and loyalty.

3 technology-powered customer experience strategies mortgage lenders should be using

• Integrating customer data for 360° visibility

Leading customer experience technologies, including comprehensive customer experience platforms, leverage pre-built integrations and robust APIs to break down the silos that typically exist between lead generation, loan origination, CRM, marketing automation, website management and other systems and tools in a mortgage lenders tech stack. A purpose-built customer experience platform can automatically pull in all of these data streams to create a centralized source of customer truth and give mortgage lenders 360° omnichannel customer visibility. This enables your marketing and sales teams to keep a finger on the pulse of every customer, in real time — so you don’t lose track of your customers after closing.

• Extracting actionable insights with advanced customer data analytics

So, you’ve integrated your systems and now you’ve got one huge pool of customer dat. What do you do with it? The actionable insights are buried in that data — and the typical mortage lender doesn’t have time to manually comb through it all, nor the in-house data science expertise to build an analytics solution. But the new generation of customer experience platforms feature built-in analytics tools that are easier than ever to put to use, without any background in data science. These sophisticated analytics tools automatically mine your centralized customer data, surfacing the insights your team can use: the key actions or triggers like rate inquiries, equity milestones, HELOC qualifications, etc. This enables you to know exactly when to reach out to customers — and exactly what to say — to provide meaningful value that builds trust and loyalty.

• Using intelligent marketing automation to accelerate meaningful connections

The other main barrier to effective, personalized customer retention: Staff just don’t have time to make the calls, send the emails or build the campaigns that capture those right-time-right-message opportunities. Leading marketing automation solutions are advancing AI-powered triggering and highly automated customer journeys that leverage actionable analytics and directly solve the “we don’t have time for customer retention” problem. These AI-powered marketing automation tools empower your LOs, marketing and sales teams to effectively deliver hyper-personalized messages and build genuine customer relationships based on providing meaningful value — while actually freeing up more of their time. For example, by automating regular customer engagement activities, you can give LOs more time to make the genuine human connections with customers that research shows more effectively builds trust and loyalty.

Putting technology-powered customer retention into action

What’s the end goal of technology-powered customer retention look like? Here’s just one quick real-world example:

You’ve got a borrower with an existing mortgage loan at 4.0%, who has built some equity. You know from her original mortgage loan application that she also has credit card debt. Your intelligent customer experience platform is constantly pulling in other relevant data streams, including current mortgage refinance rates and home value estimates. That smart system recognizes that this customer could qualify for a refi at 3.0% — and that the value of her home has increased by 15% from when she closed on her mortgage. This triggers a personalized message to your customer, giving her empowering information on how she can not only reduce her mortgage costs — but also address her credit card debt. Refinancing to the lower rate would free up monthly funds to be allocated to credit card payments. Or, she could take advantage of the increased home value to do a cash-out refinance — and use that cash to pay off her credit card debt, and use the balance toward a new mortgage loan at the lower rate. This interaction checks all the boxes for building trust and loyalty: It is hyper-personalized, making use of detailed information on the customer’s full financial situation. It is hyper-relevant, based on new and timely information on rates and home values. And it is ultimately empowering the customer, helping her improve her financial wellness and move toward her financial goals