Statistically, we call it the density function. The more potential clients that are located in close physical proximity to each other, the higher the probability that each will become a client of your bank. Consider that during college, a time in your life was you likely had a high density of people around you, at any given moment, 20 people could randomly show up to your apartment or house. Sometimes you would be asleep only to wake up to find a small party in your living room without so much as an invitation. Compare that to middle age, where you likely have less density of people around you, and it takes three months of planning and schedule juggling just to see a particular friend.
The density function also explains why banks in metro areas also tend to be more profitable than banks in rural areas despite greater competition. Customer acquisition costs dramatically drop relative to profit in part due to the number of businesses per metropolitan statistical area. Not only is travel time reduced and marketing more effective but the probability of your client running into a prospect and acting as a referral source is greatly enhanced.
Putting The Density Algorithm to Work For Your Bank
If you are a believer in the density function for prospecting, then likely you already focus on metro markets near your bank to drive business. Now, you should take it a step further.
Where can you find the greatest density of businesses that need banking help? Shared office space.
As your bank looks for new ideas to make your employees happier and to drive revenue, consider putting more employees in what is known as shared or co-working office space. The monthly offices and desks for rent allow banks to move employees closer to their homes, reducing the need to expand formal centralized bank space. The kicker is, this move also can increase commercial customer leads.
While some banks specialize in financing shared office space, few banks have contemplated using shared space as a marketing tactic.
Companies like We Work, Regus, All Work and others are booming trying to fill the demand for the entrepreneur that is too big for home offices but too small to justify the expense of the traditional office. By our count, there are almost 5,000 shared office locations across the U.S. housing almost 700,000 business owners and employees. The average space contains about 80 people covering more than 45 companies.
Think about that for a moment – you can put your bankers within 2,000 feet of 45 companies with the majority of them immediately bankable and the rest are prospects for the future. Shared space can be had for as little as $150 per month.
We tested this tactic out to gather the below statistics and found on any given day there was an average of 35 business there ready to strike up a conversation. The number of banks in this space competing for those businesses – zero.
This happens to be a hotbed of potential small business companies that are at a stage in their growth cycle where they are looking for banking advice and value a consultative, service-oriented bank.
Putting This Into Action
As an alternative to housing employees in home offices or making them drive to a centralized location, using shared office space can be economically advantageous as a standalone tactic. However, as CenterState has experimented with, putting bank employees into shared space, even for a couple of days a week has a huge marketing advantage.
Because the density is high, it is likely your banker will run into three to five different businesses every day while at the shared office locations just from chance. By taking advantage of lectures, social hours and similar, the number of interactions skyrocket. Spend a little marketing dollars to host a speaker, bring in lunch, or provide a needed service such as notary, cash flow analysis or valuation and the world is your oyster.
This idea can usually be tried for a three month period for minimum risk.
In fact, after a couple of months in the space, it would not be uncommon to find multiple businesses showing up at your door. It’s like a more profitable version of your college days – just fewer people waking you up.
Submitted by Chris Nichols on December 10, 2018