Magazine Feature: Building Customer Retention

*Building Customer Retention*
**By Jim Blatt**

customer-retention-story***Many lenders in the residential mortgage market underestimate the importance of maintaining long-term relationships with their customers. These relationships can be a company’s most profitable source of new business, and lenders who run successful organizations dedicate more company resources towards increasing their customer retention rates.

****Generating Higher Quality Leads

****According to a Gartner research study done last year, by 2015, marketing budgets allocated to retaining customers and increasing loyalty will double, indicating many organizations are already aware of this trend. These companies see consumers as brand advocates and understand the positive impact they can have on the bottom line. Nonetheless, many lenders still think short term, and this thinking often leads to a lack of competitiveness and eventually less profit. For example, a lender’s database may be filled with loan candidates who could be looking for a loan, but the lender may be completely unaware because the primary focus is on acquiring new customers.

****One short-term strategy lenders employ to increase revenues is buying leads from third parties. This produces revenue quickly but is also the least profitable strategy because it ignores existing customers. Marketers that focus only on acquiring new clients may be attracting a higher percentage of consumers who are only interested in seeking the lowest interest rates available in the marketplace. These customers will call multiple lenders just to get an eighth of a percent off their interest rates and have no loyalty to any particular lender. Existing customers, however, tend to be more willing to do business with a company they can trust rather than saving an extra $20 a month.

****Lenders who are not connected to their past clients may find themselves at a competitive disadvantage when selling against lenders who are more client centric and build mutually beneficial relationships with their most loyal and profitable customers.

****Improve Profitability

****Lenders with low customer retention are missing out on a large revenue source. Customers buy a new house every five years or so, meaning 20 percent of a lender’s customers are getting a new loan every year. If a lender is producing a billion dollars in loan volume every year, increasing customer retention rates by just 10 percent could equal an additional $100 million in loan revenue.

****Lenders with low customer retention rates require a higher investment in sales and marketing programs to sustain revenues. Lenders with higher retention rates can outperform competitors at a much lower cost. Acquiring new customers while losing a significant share of existing customers is like trying to fill a bathtub with water while the drain is open. Lenders have to pour more money into acquiring new customers in order to make up for revenue they miss by not staying connected to existing customers. With total originations projected to fall, consistently staying in contact with customers can make a major difference in the lender’s financial health, increasing customer retention rates and profitability.

****Competing With Servicers

****Many lenders are still selling most of their loans to the mega-servicers, many of whom are adept at marketing to homeowners. As a result, the relationship migrates from the originator to the servicer; who will benefit from the customer’s long-term value by receiving more loans and referrals. Many of these servicers are national players with deep pockets, strong brand names and very efficient ways of marketing to capture more business. Originators had the relationship first, and with a little focus, can be very successful in maintaining it.

****Delivering Better Customer Service

****Providing good customer service is not just about closing loans. Loan officers are often too busy to keep their promises to stay in contact with homeowners after the loan is closed, which creates a problem.

****Forward thinking lenders who run profitable operations know the value of staying connected to customers. These lenders monitor customer retention and build sales and marketing strategies to maximize those results. Whether they are helping homeowners get refinances or saving them money, these lenders provide excellent service to customers over the long term.

****The relationship between a lender and homeowner is at its peak when the loan closes. The level of trust is high and homeowners know that the lender is on their side – trying to help them find the best financial solution. The strength of this relationship will dissipate over time unless the lender clearly demonstrates a commitment to monitor the mortgage market for opportunities to save customers money. Traditional marketing, which includes holiday and birthday cards, are effective to a point but is not enough to sustain relationships.  Lenders need to do more.

****Lenders can employ the following six steps to build retention rates.

****1.     Set Expectations with Customers From the Start

****Lenders need to communicate to their borrowers how they will manage their loan over the long term. The lender should be sure the systems and tools are in place to deliver on that promise.  This proactive approach builds trust and reinforces that the lender will be a partner in the consumer’s finances.

****2.     Measure Results

****Peter Drucker was right when he said, “If you can’t measure it, than you can’t manage it.” The first step to increasing retention is determining your current customer retention rates. Lenders can measure retention by tracking how many new loans they are getting from their past customers, comparing those results against the industry average.

****3.     Develop Marketing Plans

****Lenders can than set retention goals and develop marketing plans specifically designed to achieve them.

****4.     Customize Marketing to Fit The Needs of Homeowners

****The first step to increasing customer retention is clearly demonstrating to consumers that you are managing their account. Showing customers that you are committed to putting them in the best financial position will result in greater loyalty from customers. The best way to do this is to have regular meetings with homeowners in person or over the phone. Since most originators are too busy to do this, they need their marketing to replace this meeting. Sending a “Happy Thanksgiving ” card is a nice sentiment but not as effective as showing customers that you are actively managing their financial situation. A study conducted by the direct mail industry showed that when marketers customized messages to consumers’ buying habits response rates increased tenfold. Many lenders find that they can reduce the number of marketing pieces they send and improve their customer retention by focusing on the content of the message, not just the quantity being sent.

****5.     Automate Marketing

****Another key component to building retention is consistency. You need to “touch” your homeowners regularly throughout the year. To build long-term relationships with customers, lenders use a variety of different tools, including direct mail, e-mail and social media. Lenders can employ many tools but the key factor is consistency.

****6.     Review Results and Adapt to Changing Market Conditions

****Lenders need to track the progress of their marketing programs to know what is working and what they need to change to achieve the desired goal. As the market changes, the message should change, as well.

****Lenders who thrive in 2013 and beyond will focus on increasing customer retention rates, turning customers into brand advocates.