By Achim Griesel
I once was told by an organizer of an event for bank marketers that he had never met a vice president of marketing at an institution with $1 billion or less in assets that cared about things like fee income and interchange revenue. In fact, he noted, he had never met a marketer who was really engaged in the profitability discussion. Marketers, he said, are simply expected to promote the products that others in their institution have developed.
Wow, these remarks raised a few questions for me:
- Is it true marketers don’t care about the revenue their efforts generate?
- Are they truly just promoting what others develop with no insight into development or execution?
- If the above comments are accurate, why should any of us wonder when marketing is one of the first things cut when budgets get tighter?
- Most importantly, if there is even some truth to these observations, how can we change this mind-set?
For marketers to be successful in fighting for their budget, they have to know their numbers. They have to know where their institution stands and where it needs to improve. And they have to be able to make a financial case their budget.
Benchmarks: why and what
For community bankers, it isn’t always easy to find the right benchmarks. Looking at your own numbers does not allow you to truly evaluate your progress. If you increase the number of core customers by 5 percent in a given year, is that good? Your own data won’t help because it’s too small of a sample.
So let’s look at bigger data. Most industry provided benchmarks are biased toward larger institutions. They are not in the same ball game and don’t deal with the same issues as community banks. The data our company has collected is unique and completely driven by community-based financial institutions. Sharing the benchmarks derived from more than 6 million customer relationships at over 100 institutions, with assets between $100 million and $20 billion, will allow you to assess where you’ll find your biggest opportunities.
I am sure most of you are familiar with these lines from the classic children’s book, “Alice in Wonderland”:
Cat: Where are you going?
Alice: Which way should I go?
Cat: That depends on where you are going.
Alice: I don’t know.
Cat: Then it doesn’t matter which way you go.
The first thing you need to determine as a marketer is where you want to go. Our data shows that growing core profitable customers is important to the community financial institution. We researched almost 100 community banks to determine the impact of core customer growth on profitability. The data shows that twice the number of customers per branch leads to 20 percent higher expenses, but more than two times the net income per branch.
Figure 1: Core customer growth impact on branch profitability
How does your organization stack up when it comes to the number of core relationships, defined as checking accounts, per branch?
Benchmark No. 1: Core Customer Relationships (Checking Accounts) per Branch
When it comes to core customers or checking accounts per branch, there is a significant difference between community banks and larger organizations. A top-performing community bank will have 3,000 checking accounts per branch, while the average community bank will be below 1,500.
Figure 2: Core customers per branch
Mega-banks will have twice the number of core relationships, which is also one of the reasons why they may and should make different decisions than community banks. As a community bank, you will likely not get to the same core customer numbers per branch that we see at larger organizations. You don’t have the resources, branch network or name recognition. But you will be more profitable if you can steal some of their customers and increase the number of core customers at your branches by 25 percent, 50 percent or even 100 percent.
Benchmark No. 2: New Core Customer Relationships (Checking Accounts) per branch per year The only way to dramatically improve the number of core customers—and profitability—is to increase the number of new account openings. But, even within our 100-bank sample, the benchmarks are dramatically different. They are driven by many factors, such as bank size, market geography and competition—but most importantly by population density.
Figure 3: New customer acquisition by population density
The table above shows the correlation between the communities you serve and the potential to increase your core customer base, but it also shows that competition from larger banks is increasingly higher in the most densely populated markets.
From a big picture perspective, the population density around your branches, the size of your bank (within the community bank space), or the geographical footprint seem to have some, but limited impact. Great performers will be great no matter where they are.
When building your benchmarks, look at the results of great, not average, performers. After all, why would you get excited about reaching an average level of performance?
Figure 4: New customer growth by performance level
Attracting new customers and being able to show growth is important for any marketer. But, what does the C-level in your bank look for? They are looking for returns, more specifically return-on-investment (ROI). To determine these benchmarks, you will need to know what these customers are worth to your organization.
Benchmark No. 3: Consumer profitability benchmarks
Checking account and household deposits are largely driven by local wage rates. To a large degree, balances will be driven by your local wage rate and the interest rate your institution is willing to offer. The benchmarks included in Figure 5 are based on national averages at community banks offering average deposit rates.
Noninterest income numbers are primarily driven by interchange income and service charge income on deposit accounts, including overdraft income. These are also national averages, and figures will be different on a regional or local level.
Figure 5: Household profitability benchmarks
The average life of a customer for community banks is 8.18 years. Having a core customer for more than eight years allows you to maximize the share of wallet. Reviewing Figure 6, you should ask yourself questions, like:
- Do almost 80 percent of my checking customers have a debit card?
Debit card revenues continue to grow.
Customers using the debit card at the highest level provide your financial institution more than $100 in revenue from this channel per year.
Knowing how well you could do and being able to assign a profitability component to that, will allow you to determine a true ROI for your marketing initiative.
- Do we get the fair share of our customer’s wallet? Do they have more than six products and services per household?
Figure 6: Share of wallet
The benchmarks in figures 5 and 6 are national averages. They will vary by institution size, geography, market population density and demographics around your organization.
Lastly, benchmarks are not static. They continue to move based on the economy, regulations, and customer behaviors as shown in some of the examples from each segment below.
Figure 7: Sample benchmark trending
Being armed with some of the benchmarks above will allow you to determine where your opportunities are. Going back to my initial quote, I envision marketing taking more of a lead role. Instead of executing what other departments request (OK, that is part of the job too), look for marketing to lead and create new opportunities. Imagine walking up to your chief financial officer and CEO with a plan that outlines the shortcoming in a benchmark, the opportunity, the expense and the estimated return. Maybe this will be a way for marketing budgets not to be first on the chopping block when expenses are cut.
Benchmark and Score Card