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The lifetime value (LTV) of a mortgage customer represents the present value of future commissions attributed to that customer during their relationship with a business.
While there are a number of ways to calculate LTV, incorporating a discount rate equivalent to the business’ internal rate of return or cost of capital, what is agreed is that the word ‘attributed’ brings into play the present value of future repeat and referral business.
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To this end, we need to make a number of educated assumptions around the repeat and referral behaviour of our customers, based on historical data and likely future needs.
Over time, as the analytics from our CRM systems improve, our assumptions can be replaced with actual historical information to create a more accurate and refined model.
For the time being though, I’m able to find out the LTV of a mortgage customer using industry averages, and I’m pretty certain that brokers would be shocked at the size of the number. Let’s just say it’s over $10,000!
Now, why is this so important?
Presently, the majority of mortgage brokers spend most of their time and financial resources trying to generate new customers. Regardless, this represents only a small portion of a customer’s LTV.
And while the greatest value lies in cultivating a long-term relationship, most brokers are failing to recognise the richness of their return on investment (ROI) in this area.
The importance of knowing your customer’s LTV will therefore better balance your focus between the short term and long term.
LTV also changes how we think about customer acquisition. While brokers tend to focus more on cost per acquisition (CPA) – which I agree is an important metric to report each month – I always tend to shift the discussion from one of cost to one of value. In my mind, CPA is not nearly as important as LTV when it comes to making informed business decisions around resource priorities.
Once you can easily calculate the LTV of your customers, the challenge becomes one of increasing the drivers that influence it – the percentage of repeat business, the percentage of referral business, and the percentage of diversified income.
Contact optimisation becomes key. While statistics show that customer response falls as communications rise, the clever mortgage broker invests time to develop an integrated marketing approach to existing customers to actually increase brand value and ROI.
During my upcoming November seminar, I will be sharing:
• how to calculate your customers' LTV
• what a lead is really worth (keeping in mind that once you know your customer LTV and lead/settlement conversion percentage, you know exactly the value of each lead)
• knowing how much a lead is worth, and how much you should spend on generating one
• examples of effective contact optimisation
• the LTV of an advocate or brand evangelist
• how to define an advocate
• how to transition customers to advocates and what this means for the profitability of your business
• and much, much more!
Click here to register.
Michael Russell, director, National Property Buyers and ALI Group
Michael Russell is currently a director of National Property Buyers and ALI Group which both work extensively with mortgage brokers. He has over 25 years’ experience in banking and finance, having been the former CEO of Mortgage Choice and Choice Aggregation Services, as well as holding management roles with ANZ and National Mutual Royal Bank.
