Case StudiesCASE STUDY: MANAGING & ENHANCING RELATIONSHIP VALUE
For example, when you buy coffee at Dunkin Donuts, the managers knows then and there how much they made from the sale. It's a finite transaction, with the net profit easily determined at that point in time.
But when customers purchase financial services such as a checking account, a money market account or an equity line of credit, the income achieved is based on how these clients behave over time. The balances they keep...the debit card purchases they make...the amount they draw down from their credit line...the NSF fees they pay...all these factors and many more can contribute to, or detract from, your net income.
In today's topsy-turvy economic environment, a New England-based super community bank quickly realized that in order to sustain a strong bottom line, the time had come to move from a volume-based "widget" sales culture to a philosophy that rewards its associates based on enhancing account and relationship value. They also understood that a robust, flexible valuation methodology was a key factor in determining the appropriate strategies to improve income from a range of constituencies, and to gauge success over time.
With our approach, an income statement can be generated for each account record – showing priority revenue and expense metrics specific to that account, including funds-based income, miscellaneous fee income and transaction activity expense. Subsequently, the value of every account is accumulated to assess the value of the entire relationship.
In the sample below, you will note that more value for the Privilege Checking account (CHK-PRI) is derived from Miscellaneous Fees than the margin on balances held in that product. This should be considered if the client asks to waive a fee. And the Personal CD (PCD-PER) is just slightly under water because the margin is too slim to offset the expense – perhaps because of a preferred rate. So when this account matures, a look at the value of the entire relationship is warranted before determining a new rate – certainly before a new preferred rate is offered. (Please click on sample to enlarge)
Impactful decisions? Absolutely – especially when multiplied by the hundreds...perhaps thousands of accounts where similar issues exist.
That's just one example of an important lesson we've learned from working with dozens of clients on valuation programs – the data must be actionable. What good is it to know how much an account or household is worth to your company if the approach doesn't also offer some direction on maintaining or improving that value?
Highly targeted programs have been developed that focus on: