How to Calculate the Lifetime Value of a Mortgage Broking Client

It’s clear that keeping clients and developing client loyalty can bring significant returns to your mortgage broking or financial lending business.

Certainly, it is one of the primary reasons behind any firm’s success. If you look at any successful broker in Australia, they commonly cite referrals and repeat business as being the most important attribute of their business.

The following three points highlight the importance of thinking long-term when it comes to clients and business relationships:

• Retaining existing clients is cheaper than acquiring new ones.• 80% of your business comes from 20% of your client base.• The cheapest new business (and easiest to convert) is referral business.

Just how valuable are your clients? According to a 1994 Harvard Business Review study,  ‘the Service-Profit Chain to Work’,  an increase of 5% in client loyalty can increase profitability by 25-80%.

It’s possible to use a basic mathematical formula to work out the potential value of a real client or an average client of your business over their typical life-span.

This model is known as the ‘Lifetime Value of a Client’ or LVC.

This is an extract from Intellitrain’s Diploma of Finance and Mortgage Broking Management UPGRADE

 program. Find out more or ENROL NOW!

There are numerous ways to calculate the LVC to a company.  No matter the measure, producing a concrete dollar figure gives you a tangible point around which to design client retention strategies, promotional campaigns, and even bonus plans. (Note: The following calculation does not determine profit, rather the overall client value.)

Here’s a quick way to determine the LVC for your mortgage broking business:

What is your average sale or average amount of money a client generates in upfront commissions. In this example we have used $1800 as the average up front.

What is the average trail (assuming nothing for the first year). We have used $50 per month equating to $600 per year.

How long does a client stay on your books generating trail? We have chosen 4 years for this example.

How many people per year does your average client tell about your company? (You may have to guess at this one. It’s probably between 3 and 12. Generally, the better your customer service, the higher this number will be.) For this example we are allocating 3 referrals a year.

What percentage of these people actually become clients? (Usually between 20% and 70%.) We have used a 33% success rate (equals 1 client per year).

NOTE: given that the client referred to us has not required us to invest in marketing or business development activities, we have halved the cost of acquisition of gaining a new client from $1200 to $600.

What is my cost to acquire a client? The figure we have used in the table below is $1200 based on a number of surveys conducted by Intellitrain.

Let’s apply this calculation to a single operator mortgage broking business (Bob Broker) and outline the results in a simple table:

As you can see from this simple chart, the gross LVC for Bob is $7800, and that’s only if he keeps the client for four years! Considering that an average home loan is taken out over 25 years, there is plenty of chances to increase the lifetime value, if Bob can hold the client for longer.

This is an extract from Intellitrain’s Diploma of Finance and Mortgage Broking Management UPGRADE

 program. Find out more or ENROL NOW!

Intellitrain provides online and face-to-face training courses for the Certificate IV in Mortgage Broking, Diploma in Mortgage Broking, Diploma in Financial Planning as well as Cert IV in Bookkeeping and Sales Training Courses in Adelaide, Brisbane, Canberra, Melbourne and Sydney.