Banking has become too competitive to market by instinct our haphazard advertising. This is why we toured the industry to find what metrics the most effective banks were using to gauge effectiveness and hopefully success. Successful banks separate marketing programs that have a goal of brand support versus those that focus on sales. While branding is hard to benchmark, sales is more straightforward and is the place that most banks start. In fact, many banks won’t commit resources to marketing unless it can be measured. Below are five of our favorite with information on how to use it and how to put it into practice.
Revenue Growth And Quality
This is obviously the most important and straight-forward metric. Banks try whenever possible tie the marketing effort to a particular campaign or offer in order to allow for tracking and management. In addition to revenue growth, banks track how the revenue is composed, be it from loans, deposits or fees. While digital efforts are easier to track, if nothing else, banks can measure pre and post revenue levels adjusted for seasonality or use a control group that will serve as a baseline.
Despite the importance of tracking revenue, bank marketers need a fuller view of their efforts, so these other metrics are recommended.
Revenue means little if it is not sustainable and if it doesn’t enhance customer engagement or satisfaction. Bank customers with higher satisfaction usually mean they have a higher lifetime value or more products per customer since those metrics are correlated. Measuring Net Promoter Scores, satisfaction, sentiment or likelihood to repurchase ensure banks are creating revenues that have a positive impact. You can market overdraft protection all you want, but satisfaction isn’t likely to be high. Better to invest marketing resources in programs that promote products, services or initiatives that delight the customer.
Customer Retention / Usage Rates
In determining lifetime value, understanding customer retention rates is mandatory. Since the average bank has 10% of their customers producing 120% of their profits, knowing how to retain customers is important. To calculate the customer retention rate, simply calculate the number of customers at the end of the period, minus customers at the start of the period and then divide the difference by the customers at the start of the period (times 100 for a percent figure). This is the inverse of customer churn and tells you how your marketing will keep customers from leaving. If you are marketing deposits, it is also important to track balance levels to ensure that marketing a given product doesn’t result in lower balances.
Banks normally have a high retention rate already (average about 96%), so it is hard to have too much improvement, but it is good to track just to ensure your marketing isn’t serving to drive customers away.
Advanced banks track a set of metrics around customer acquisition. Some of the most common include the number of leads generated, the closing rate for each lead, revenue per new customer, and average time period to close. Finally, if at all possible, it is helpful to calculate your complete customer acquisition cost which hovers around $511 for retail customers and over $9k for commercial customers.
It is important to keep in mind that customer acquisition cost is the fully loaded cost of acquiring an average customer to include your marketing expenditure, plus your internal use of resources including a partial allocation of fixed assets such as corporate overhead or lease expense. The goal isn’t to have a complete funds transfer pricing methodology, but a rough idea of the total cost of bringing on that new customer.
Return On Investment
If you can come close to the above four metrics, then you are just a step away from calculating the holy grail of marketing – ROI. It is rare that a single campaign or marketing effort can be solely attributed to a return, but making an attempt to calculate an ROI will give your bank experience in understanding how marketing can pay off. We will discuss more on this concept later, but for right now a good way to start is to attribute the effort to either the first campaign that “touched” the client or the last. In future posts, we will discuss more sophisticated ways to calculate ROI for bank marketing, but this will give you a good start.
We admit that calculating and tracking the above metrics is not as easy as we make it sound. Our goal here today is to push banks to become more quantitative marketers in order to raise our collective industry skill set. By taking a more quantitative approach to marketing, community bank CEOs will gain the confidence and elevate marketing to where it belongs – equal to finance, credit and risk management.
Submitted by Chris Nichols on May 06, 2015