Many community bankers are looking to increase profit growth, and management teams are focusing on cross-sell opportunities to accomplish this objective. For the banking industry, unlike many other industries, upselling and cross-selling has a high and disproportional impact on profitability. With proper tools and strategies, community bankers can upsell and cross-sell their products to maximize profitability. In this article, we will consider the common features
Seasoned bankers call it “The Distributor Tactic” and it is a little-discussed technique used for ages in banking to speed up the sales cycle to land small business deposit and treasury management accounts faster. The key to this tactic is to know that very few commercial checking customers utilize any medium or high-value treasury management services at banks (see below). These low penetration rates present an ideal situation to market your bank’s services and disrupt the competition.
If you are a bank targeting margin, cost of funds or even risk-adjusted margin you may be using an incomplete equation to drive profitability. This might help explain why your large bank competitor is making loans at margins that you can’t touch. Ironically, some of the loan deals and relationships that banks pass on due to margin might be the more profitable ones. If this has happened at your bank, consider these metrics to have a more well-rounded approach to profitability.
If you have ever been on Amazon or Zappos, you have seen the recommendations or the “customers that bought x, also bought this” either on your screen or been subjected to an email campaign. It has been said that 35% of Amazon’s sales are driven by behavior marketing, which is largely driven by their recommendation engine. Major banks employ the tactic as well and the methodology is what drives many offers behind Wells Fargo’s industry -leading product-per-customer metric or Capital One’s profitability.
Banks computing lifetime value of customers know that there are six components: 1) Cost to acquire; 2) Revenue/cost savings (volume and pricing); 3) Cost to service; 4) Relationship life; 5) Interest rate sensitivity; and, 6) Propensity to generate other business (referrals, related accounts, new product uptake, etc.). A customer represents a stream of cash flow and by looking at the revenue generated; the cost of the account and then discounting all that back over the expected life, banks can derive the customers expected lifetime value.
When you are Chief Strategy Officer for a bank, sometimes your work load doesn’t come in neat memos or emails. A lot of stuff just gets dropped off on your desk with notes to “Fix This” or solve that. Fortunately, a lot of these problems are easy to solve. In fact, the number one issue among community banks right now is the nebulous “Need to increase profitability” which for more than half the estimated banks is an easy one to solve.
As you look for ways to increase your brand without driving up your cost and you are building a business model around service, having a formal process around onboarding your customer is one of the best things you can do to start a culture of service. When a new client leaves your office or completes an online transaction for the first time, the honeymoon period begins.