tag:blogger.com,1999:blog-235433516644980443.post2074134833923396672..comments2024-03-27T05:08:10.195-04:00Comments on Jeff For Banks: Should Banks Jettison Unprofitable Customers?Jeff Marsicohttp://www.blogger.com/profile/12153599647481141591noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-235433516644980443.post-32881830552891003112013-01-14T15:54:01.029-05:002013-01-14T15:54:01.029-05:00JP,
Wouldn't this be an excellent research pr...JP,<br /><br />Wouldn't this be an excellent research project for Marketing... identifying the most profitable customers, sorting into groups by industry (for businesses) and demographic group (for individuals), incorporating into strategic decision making, and then building a marketing plan that supports strategy and targets groups that tend to be the most profitable?<br /><br />~ JeffJeff Marsicohttps://www.blogger.com/profile/12153599647481141591noreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-66128699184838414742013-01-14T15:50:19.401-05:002013-01-14T15:50:19.401-05:00Mike,
I agree with your comments. I was near Tamp...Mike,<br /><br />I agree with your comments. I was near Tampa last month. I should have given you a call!<br /><br />~ JeffJeff Marsicohttps://www.blogger.com/profile/12153599647481141591noreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-76687379905315123082013-01-14T15:48:36.381-05:002013-01-14T15:48:36.381-05:00Jeffry,
I agree with you in that during an engage...Jeffry,<br /><br />I agree with you in that during an engagement there are always sources of conflict (usually healthy) in a consulting relationship. For example, I had an engaging conversation today about the use of projected loan portfolio loss rates in a client capital plan.<br /><br />However, I believe Alan Weiss was referring to letting the most troublesome clients go as you add new ones, if you have a fixed capacity.<br /><br />~ JeffJeff Marsicohttps://www.blogger.com/profile/12153599647481141591noreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-42117139256413709442013-01-14T15:44:55.836-05:002013-01-14T15:44:55.836-05:00This comment has been removed by the author.Jeff Marsicohttps://www.blogger.com/profile/12153599647481141591noreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-56069358386974623542013-01-14T15:43:17.762-05:002013-01-14T15:43:17.762-05:00Serge,
I'll comment in your order:
1. It tak...Serge,<br /><br />I'll comment in your order:<br /><br />1. It takes appreciably longer to win a core deposit relationship than a loan. If you would like to fund a new $2MM loan with business checking requires the acquisition of 50 new accounts. Core deposit acquisition planning requires time and I would be suspicious of any claim that banks can achieve just in time funding with core deposits. So banks should "get while the getting is good". And, yes, today banks may not fund a loan with new deposit acquisition, but last I checked, most financial institutions enjoy a > 3% margin.<br /><br />2. Branches generating near zero revenue... not sure if this was a serious comment.<br /><br />3. According to a Cisco IBSG 2012 study, 53% of customers prefer to use the branch to apply for a loan, and 48% prefer to use a branch to obtain support for a banking issue. You don't believe this to be true?<br /><br />4. Now we are in 100% agreement.<br /><br />~ JeffJeff Marsicohttps://www.blogger.com/profile/12153599647481141591noreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-59868202986190028812013-01-14T13:55:46.814-05:002013-01-14T13:55:46.814-05:00This is has been a key challenge across the indust...This is has been a key challenge across the industry for quote some time. I have currently doing some work in the area of client profitability for affluent clients and ran into a 1991 Journal of Retail Banking article (OK, so I'm a bit of a pack rat) that cited Oliver Wyman data showing "29% of customer relationships accounted for 700% of retail bank profits, with the remaining 71% subtracting 600% from this total". That's not too different from contemporary data I have seen.<br /><br />There is definitely art and science involved in being able to successfully scale service delivery appropriately, but the starting point is at least having the data to understand which are customers are profitable and which ones are not, and targeting your proactive retention and expansion activities towards the former.<br /><br />The trickier part is trying to figure out which of the currently unprofitable customers have the highest likelihood of becoming profitable in the not too distant future.JP Nicolshttp://affluentstrategies.comnoreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-26159244188078475892013-01-14T10:18:00.823-05:002013-01-14T10:18:00.823-05:00I worked with hundreds of clients in a consulting ...I worked with hundreds of clients in a consulting capacity over a 20 year period, I can count on one hand the number who weren't either troublesome or unprofitable, or where the work wasn't boring or unpleasant.<br /><br />If you're a consultant and EVER run into a client who is profitable and pleasant where the work is easy and exciting... hang onto them for dear life. But if you're firing all the annoying ones you don't like, you'll be sitting alone in an empty office with nothing to do.Jeffry Pilcher | The FInancial Brandhttp://thefinancialbrand.comnoreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-55285795243457491722013-01-14T07:02:07.324-05:002013-01-14T07:02:07.324-05:00Jeff -
I would also add that realizing and unders...Jeff -<br /><br />I would also add that realizing and understanding that a certain percentage of your customers are not profitable and don't have the likelihood of providing a profitable relationship (at least anytime in the near future) also provides one other benefit. If you're aware of this, and have identified these relationships, you can reduce the resources generally applied (time and money) in marketing, cross-selling, etc. to these customers. This enables you to focus resources and efforts on the opportunities that can truly produce positive results.Mike Bartoohttp://www.gomarquis.comnoreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-66061634420156259072013-01-13T18:37:01.488-05:002013-01-13T18:37:01.488-05:00100% right - allow me to expand using the followin...100% right - allow me to expand using the following truisms:<br /><br />1) growing deposits for the sake of growing deposits while Loan / Book ratio is ~70% does not generate a spread of 3%. In fact, it generates a negative spread which is why many Community Banks are struggling.<br /><br />2) Branches account for 70%+ of total cost basis while generating (near) zero revenue. If the primary objective of the Branch is to house Sales focused employees, then a Community Bank would be wise to utilize an open-floor type model in a class-A building thereby dramatically slashing wasteful spending and redirecting investment into more valuable initiatives.<br /><br />3) hopefully by now most Bankers will have realized that the vast majority of banking customers do not want to engage through the branch channel. Most high-value customers have neither the interest nor the time. Bankers would be wise to increase the convenience factor by enabling their customers to engage when / how / where and when their customers prefer.<br /><br />4) jettisoning unprofitable customers may not be a sound solution, however, improving the efficiency of channels, products, servicing, marketing, and pricing of for various customer segments is essential. Treating a customer that generates an operating loss for a Bank (~80% of customers in a typical Community Bank) on par with a customer that generates thousands of dollars in operating profit is imprudent.<br /><br />Branches are just a sales & service channel, just like call center, online, mobile, and ATMs. Decisions about each should be fact based and dispassionate. More importantly, decisions about branches (or any other channel, product, etc.) should be made in the context of overall business strategy --- that is, how will the Bank compete and differentiate in a very crowded, largely commoditized market place? What is it that the Bank offers that is not available at a bank down the street, across town or 1,000 miles via an online-only bank (and no, great customer service is not an acceptable answer)?Serge Milman | Optiratehttp://www.optirate.comnoreply@blogger.com