By John J. Coffey, C.P.A. and Gene Palm, www.profitres.com, originally published December 2005, ABA Bank Marketing
Raindrops on roses and whiskers on kittens may be some of Maria’s favorite things; but when the dog bites and the bee stings, we like to turn our attention to the Profit Decile Report!
The Profit Decile Report
There are dozens of reports within a CRM that contain some aspect of profitability; but the most eye opening report for us is the Profit Decile Report. This one report can communicate more to your Senior Management and your Board than any other report in your CRM. The reason this report is so important is that it can show your bank’s leadership:
§ Who your most profitable (and least profitable) customers are
§ Why they are profitable or unprofitable.
If you were to ask your bank’s leadership what they thought about the profitability of your customers, they would probably say that 20% of the bank’s customers provide 80% of the bank’s profits – and they would be wrong – the fact of the matter is that it is much worse than this!
In fact, the top 1% of the bank’s customers can provide up to 45% of the bank’s profits and the top 20% of the bank’s customers can provide almost 175% of the bank’s profits! Furthermore, it is not unusual that only 30% of the bank’s customers are profitable at all. That means that the other 70% of the bank’s customers are at break-even, or pose as a drain on the bank’s profits.
Components of the Profit Decile Report
So what is this report and what kind of information does it contain? First of all, the CRM builds the Profit Decile Report using account-level profitability within your CRM. Generally, factors used for computing this account-level profitability are determined from outside the CRM, which have been integrated into the CRM. The CRM then aggregates the account-level profitability at the customer level. Then, the CRM divides each customer’s profitability by the total profitability within the CRM; and, places each customer in a profitability percentile.
Finally, the CRM aggregates customer profitability into 1% groups called “Centiles” and 10% groups called “Deciles.” Each row of the report contains the Centile (e.g., 1%, 2%, etc.) or the Decile (e.g., 10%, 20%, etc.), # of Customers, # of Accounts, Accounts per Customer, Profit or Loss, Average Profit per Account, Average Profit per Customer, Cumulative Profit and the Cumulative Percent for each Centile or Decile.
How to Use the Profit Decile Report
Once you know this, there are a number of things you can do. Most importantly, you can find out who your most profitable customers are and work on ways to retain them. You can be sure that your competition wants them; and is actively marketing their products to them! You can generate a report of these customers by branch; and, ask your branch managers to call them. Since there won’t be many of these customers; this should be a manageable task. Simply by calling these customers and asking them how the bank can better serve them will help to ensure that they will remain loyal to you.
You can also find out what products they use and how they use them and then cross-sell them additional profitable products. Finally, you can grade these customers (e.g., “A,” “B,” “C,” or “D”) and distribute this grade using your CRM. Your CSRs and tellers will need to be trained with appropriate procedures for how to give your “A” customers better service.
So what can you do to make your unprofitable customers more profitable? Just because these customers appear unprofitable does not make them bad customers. There are a number of reasons they are unprofitable.
Typically, they have more accounts than any other group of customers because they have been cross-sold low balance, unprofitable services for as long as they’ve been with the bank. An account and balance consolidation strategy could help make these customers more profitable.
These customers can have high balance CDs that have above-market interest rates. A comprehensive repricing strategy implemented at the branch level could dramatically increase the profitability of these customers.
These customers may be some of your most loyal customers. For instance, they could be paying the 59th payment of a 60-month auto loan; and, the resulting low balance makes them unprofitable. To increase these loan balances, you can market auto loans to customers who have had an auto loan on the books for 2 years or more.
Inactive or low balance lines of credit or HELOCs also cause customers to be unprofitable. An activation campaign could be of help here.
Finally, there are a number of wealthy customers in this group who only have a $100 checking account with you. In other words, they are someone else’s best customers! By integrating demographics with each customer’s profitability you can identify these customers, compare their profile with your most-valuable customers; and, cross-sell them products that your best customers use.
The hills are alive with the sound of music; and, the Profit Decile Report is truly the Swiss Army knife of CRM reports!
John J. Coffey, C.P.A. and Gene Palm are the principals of Profit Resources, a consulting company that specializes in MCIF technologies. © Profit Resources, Inc. 2006
