Customer retention is the act of keeping existing clients your business has already spent money on requiring. But, why is it so important? Well, there a few reasons. Let’s take a look at what they are and how retention can be extremely profitable for your business.
How customer retention can be profitable for your mortgage business
If you own a business, you have likely spent money acquiring new customers. That, as we know can often be costly. For this reason alone, customer retention is key. Keeping existing customers can cut down on the costs of acquiring new ones since those costs are already taken care of.
There is a theory that states that if you increase retention by as little as 5%, you can see anywhere from a 25% to 95% increase in profits. That alone should say something about why customer retention is so important.
The key is to focus on maximising the value of previous clients which you have already invested in acquiring. For example, if you do 2 mortgages for the same client, the CAC (customer acquisition cost) has halved. That leaves more room for your business to profit in the long run.
Why you should focus on customer retention versus customer acquisition
Customer retention is actually highly undervalued. It seems that customer acquisition gets spoken about much more. In reality, there should be more focus on retention versus acquisition. Retaining customers makes for a much easier way to generate income that is recurring. It can be absolutely critical for the overall and long-term success of your mortgage business (or any business for that matter)!
The main reasons to focus on customer retention include:
Affordability - When set out to acquire new customers you are undoubtedly spending a decent amount of money on marketing. When you focus more on customer retention, your marketing strategy changes. The biggest change is simply that you will not need to spend nearly as much money as you did to initially acquire the customer.
This does not mean you won’t need marketing to retain your current customers. However, your marketing costs can run up to five times more (even as high as 25 times in some industries) to acquire new customers versus retain ones that already exist.
Better ROI - As discussed previously, just a 5% increase in customer retention can increase your profits by 25-95%. That is a quite large return on investment.
More referrals - Customer referrals can easily be one of the cheapest marketing tools. A customer is much more likely to refer a friend, family member or colleague to a service that they are satisfied with. By focusing on customer retention, you are also working to acquire new customers by word of mouth. Those who trust your business are likely to give a referral for your services. The best part is a referral often comes at absolutely no cost to you.
More sales due to customer loyalty - When your existing customers love your product or service, they are much more likely to continue using it. Bain & Company’s research shows that customers that are retained often spend more money and purchase more frequently than newer customers do, This is because they are happy with the value your service or product provides. Better customer retention thereby leads to more sales. Someone who is happy with the mortgage advice, or mortgage product your company helped them with is much more likely to come back to you should they need to refinance, or are in the market for another mortgage altogether.
Increase in customer lifetime value (CLV) - CLV is the profit you can expect from each of your customers. The better your customer retention is, the higher your customer loan to value will be. You should aim to spend as little money as necessary on customer acquisition and instead focus on customer lifetime values when it comes to making a profit.
More valuable customer feedback - A loyal customer feels like they are contributing something to your brand when you ask them to share their feedback. If given the opportunity, they will often be happy to provide feedback on your business’s level of service and products offered. This can be used as a way to continuously improve your business. It will also have a positive effect on your profits as customers who feel that they are listened to and their opinion is valued are likely to return.
The bottom line
The key is to keep your existing customers coming back. Customer retention can undoubtedly bring more profit to your business simply by cutting down on marketing costs. Retaining your existing customers should generally be more of a focus than acquiring new ones as customer loyalty, improved affordability and better ROI can all be affected positively by customer retention.