Client lifetime value adds upfront, projected trail, repeat loans and referrals, then subtracts expected clawback and servicing costs. Use the result to set a client acquisition budget and decide where extra review time can earn its cost back.
A large settlement can produce less lifetime income than a smaller loan that stays with your brokerage for longer. The useful figure is the income you expect to keep after costs, expressed in today’s dollars.
How to Calculate a Mortgage Client’s Lifetime Value
Calculate lifetime value as upfront + projected trail + expected repeat-loan value + expected referral value - expected clawback - servicing costs.
Build the estimate in this order.
- Record the upfront your brokerage keeps after aggregator and broker splits.
- Project trail over the loan’s expected life, allowing for repayments and discharge.
- Add probability-weighted repeat loans and referrals from your own client records.
- Deduct expected clawback and the cost of settlement work and ongoing service.
- Convert future amounts to today’s dollars and check that each income stream appears once.
Start with commission statements, settlement records and discharge history. You also need staff time and costs, plus records that connect repeat settlements and referrals to the original client.
A generic customer lifetime value formula often multiplies an average purchase by purchase frequency and customer life. Mortgage broking needs separate cash flows. Upfront arrives around settlement, trail depends on the eligible balance and a later refinance can end one income stream while starting another.
Keep acquisition costs outside this calculation if you want to use lifetime value to set an acquisition limit. Deduct those costs separately when measuring the profit from a campaign.
Projecting Trail Over the Loan’s Life
Project each period’s trail from the expected eligible balance, the applicable trail rate and the chance the loan remains on your book. Apply the splits your brokerage pays before treating the result as income available to spend.
Use monthly balances where possible. Principal repayments reduce the balance through amortisation, while extra repayments and offsets can change the balance on which trail is paid. Follow the lender’s commission rules for the loan.
Expected loan life is the period before discharge or other loss of the trail stream. A 30-year repayment term does not establish 30 years of trail. Use your own discharge history, grouped by loan age where the records allow it.
A simple forecast can stop at an assumed discharge point. A more detailed forecast weights each month’s trail by the proportion of similar loans still active at that age. Avoid applying the same runoff loss twice. The runoff rate guide helps you separate balance reductions from loans leaving the book.
Discounting puts future trail into today’s dollars. Divide a payment expected in year one by 1 plus your annual discount rate. For year two, divide by that same factor twice. This gives a later payment less weight because you wait longer to receive it.
Use one stated discount rate across comparable clients, and test how a higher rate changes the result. The trail commission calculator can help with an individual loan’s trail estimate before you add the other lifetime value components.
Adding Repeat Loans and Referrals
Use your settled-business records to estimate repeat loans and referrals. Multiply the net contribution of each future settlement by its probability.
For repeat business, identify clients who return for another purchase, an investment loan or a refinance. Compare clients over the same observation period. A recently settled client has had less time to return than someone who joined years ago.
For referrals, count the new clients who actually settle, then calculate the contribution those settlements produce after their own servicing costs. An introduction that never settles contributes no commission. Where records are sparse, use a lower estimate or leave referrals out of the base case.
Keep the timing explicit and discount future contributions. If a repeat refinance ends the original loan’s trail, stop that original trail at the refinance point. Do not add a full replacement-loan value while also projecting the old loan’s trail beyond its discharge.
Use one attribution rule across the book. Counting a referred client’s contribution under both the referrer and the referred client inflates the total when you add client values together.
A Worked Example for One Client
This hypothetical client has a $600,000 loan that discharges after four years. Every rate, balance, probability and cost below is an assumption, not a lender schedule or industry average. Replace them with your own records.
The model assumes the brokerage retains all commission shown. Amounts exclude GST and income tax. Future amounts use a 5% annual discount rate and arrive at year-end for this simplified calculation.
| Input | Assumption and calculation | Value today |
|---|---|---|
| Upfront | $600,000 at an assumed 0.65%, received at settlement | $3,900 |
| Original loan trail | Assumed annual rate of 0.15% on average eligible balances of $600,000, $570,000, $540,000 and $510,000 | $2,962 |
| Repeat loan | 25% chance of a separate loan in year five, with $2,400 net contribution after its own costs | $470 |
| Referrals | 0.2 expected settled referrals in year three, each contributing $2,000 after its own costs | $346 |
| Expected clawback | Assumed 5% chance of losing the full $3,900 upfront, reserved at settlement for simplicity | -$195 |
| Original client servicing | $1,000 settlement cost plus $800 present value of ongoing service | -$1,800 |
| Client lifetime value | $3,900 + $2,962 + $470 + $346 - $195 - $1,800 | $5,683 |
The undiscounted annual trail amounts are $900, $855, $810 and $765. Discounting each payment back from its year of receipt produces $2,961.73 in total, rounded to $2,962.
The repeat-loan contribution is $600 before discounting, and referrals contribute $400 before discounting. Their rounded present values are $470 and $346. The total uses rounded figures.
The expected clawback reserve belongs in a forecast across comparable clients. An individual client can generate a larger actual loss. Test earlier discharge as a second scenario because it can remove future trail and trigger a clawback together.
Setting Acquisition Spend From Lifetime Value
Set an acquisition ceiling by subtracting the contribution you want to retain from the client’s estimated lifetime value. That retained amount must cover fixed overhead and your profit target.
Using the hypothetical $5,683 lifetime value, reserving $3,000 leaves a maximum acquisition cost of $2,683. This is a planning ceiling under those assumptions. A lower forecast or a tighter cash budget calls for a lower limit.
Compare channels by cost per settled client. Divide advertising, lead fees and acquisition staff costs by the number of clients who settle. A cheap lead can become an expensive client if few leads reach settlement.
For example, an assumed $80 lead cost and 10% lead-to-settlement rate produce $800 in lead fees per settled client. Add the acquisition work those leads require before comparing the channel with the ceiling.
Track payback separately from lifetime value. Payback occurs when cumulative cash received, less delivery costs and the clawback reserve, covers acquisition spending. A profitable lifetime forecast can still leave a cash shortfall while you wait for settlement or trail.
Compare each channel’s forecast with the settled clients it actually produces. If payback takes longer than planned, check conversion and settlement delays before increasing the budget.
Setting Retention Spend From Lifetime Value
Rank clients by remaining expected contribution, then weigh that amount against the cost and likely benefit of additional contact. Leave upfront already earned out of remaining value because it cannot fund a future return twice.
Use that ranking to organise discretionary reviews and repricing requests. Put a client with a review need and substantial remaining trail ahead of routine contact that has little likely benefit. Keep urgent client needs and promised service ahead of the financial ranking.
Evaluate extra retention spending on the income it can reasonably preserve. A review does not earn the client’s entire remaining value merely because the client stays. Compare the review cost with the expected improvement in retention, after allowing for work already included in servicing costs.
Your credit assistance must follow the client’s interests regardless of their value to the brokerage. The Australian Securities and Investments Commission explains the best interests duty and conflict priority rule in RG 273: Mortgage Brokers: Best Interests Duty. A suitable refinance can end your existing trail, and the client’s interests still take priority.
Use the guide to retaining mortgage clients to turn the review budget into a contact and follow-up process.
Lifetime Value Across Your Whole Book
Apply the same assumptions across clients to see where the book’s remaining income sits. Track My Trail’s Lifetime Value projects future trail per client under average-discharge, 20-year and 30-year scenarios.
Use those scenarios to compare the effect of different loan lives on your future trail. Add repeat business and referral assumptions from your own records when building the broader client lifetime value calculation.
Keep the book-wide estimate free of duplicate referrals and overlapping loans. For a sale or ownership decision, the guide to valuing a mortgage broker business covers how client income contributes to business value.
Recalculate after rate cycles and when runoff changes. Compare forecast trail with receipts and forecast discharge with actual discharge. If the model overstates either loan life or eligible balances, lower those assumptions before setting the next acquisition and retention budgets.
