Last week we had a healthy internal debate over the value of municipal customers. When it comes to profitability, municipal customers are either very profitable or not very profitable – there is really not much in the middle. In other words, municipal profitability does not follow a normal distribution and as such, you have to choose your municipal customers wisely.
Because we work with so many loan officers, both internally and externally, one key that separates average loan officers with high performing loan officers is the ability to focus on the right customer. One of the largest mistakes we see our loan officers making is assuming an organization is a potential customer just because they show interest. Just because a potential customer has contacted your bank or shows a desire to move forward doesn’t mean your bank should invite them to be a customer.
In our municipal example, selling to certain types of municipalities will always create pricing pressure, on both the loan and deposit side, and will most likely result in below average profitability. Why invite this type of customer in the door?
Try this – ask your account sales staff what the profile of your prospect looks like. This may be very different than the profile of your existing customers. Hopefully, the attributes include quality management with a proven track record, a certain number of employees and a history of growth, as these factors show up most often in profitable customers (as do certain industries, audited financials, a board of directors and a host of other attributes). Whatever the attributes, it is important to have a clear picture of characteristics that give you the highest probability of being profitable.
Then there is the other side of the equation – which of these profitable customers is likely to switch banks or finance with you? This profile may look slightly different and may include such items as growth, loan maturity in the next 12 months, past M&A transaction or an array of other attributes. Note that attributes like "growth" may be identifiers for both categories and thus rocket to the top of your attribute priorities. The point here is that calling officers need to spend time to identify what potential customer attributes best contribute to a shorter sales cycle. By proactively identifying these characteristics, banks can be more efficient in their sales process.
One of the biggest problems bank calling officers face is that they spend time with people that will give them time or that they feel comfortable with. This group of prospect is highly unlikely to fit your ideal prospect profile.
If you ask most bank loan officers they are working a prospect list of about 50 potential customers. This might be too many. By narrowing down the focus from 50 prospects to 10, bank calling officers can increase their effectiveness to close loans / deposits and close them with more profitable customers. Time is the most valuable commodity we have. If your prospects don’t fit the profile which should be the intersection of profitability and those customers that are likely to do business with your bank - don’t waste time on them.
Submitted by Chris Nichols on February 20, 2014