As we examine the ways financial institution marketers can support the bottom line and show the impact of their marketing investment, we need to consider a key component: keeping account holders active and engaged.
Specifically, what metrics will help you know whether you’re engaging and retaining the right account holders with the right mix of products and services over the life of their relationship with you?
As we learned in my previous post, attracting the right account holder at the optimum cost-per-application is important.
But it’s only one step of the process in helping your financial institution continue to grow and prosper. Now that you’ve got them on board, how can you avoid losing them to a competitor?
Attrition and churn are facts of life, and for financial institutions they vary depending on a number of factors. Two that we’ll look at more closely are:
- Retention based on how long a relationship the account holder has with you
- The total number of products they have
The short of it is that the stronger (more products) and the longer the account holder’s relationship with your institution, the less likely they are to attrite.
Industry attrition rates range from a high of 23 percent at the one-year mark, down to as low as 5.2 percent after 10 years.
On the product side, attrition rates for a customer with one account are around 16 percent, while on average the industry attrition rate is 5 percent for a customer with at least four accounts.
Measuring retention should be an ongoing process, tracking increases or decreases over time and identifying how to improve it if necessary. Tracking other variables, such as length of relationship, number of products and demographic factors, provides visibility into where you’re falling short in product offerings to certain market segments and allow you to adjust your cross-sell initiatives.
Cross Sell Importance Increases As Interest Rates Decrease
Growing revenue from account holders is critical in today’s low interest-rate environment. Having a process in place to correctly identify account holders with the greatest revenue potential is critical.
For example, segmenting account holders according to attrition propensity and purchase potential will help marketers understand where to focus their time, effort and budget dollars.
Let’s add another important calculation to the mix: cross-sell ratio.
The cross-sell ratio for the industry as a whole is 3.6 for multiple account households, calculated as the number of products and services sold divided by the number of customers (or households). The single account household percentage for the overall banking population stands at 27 percent.
Think about that for a moment. Better than 1 in 4 households within your institution is at risk to attrite because they have only one account with your financial institution.
At the same time, these households are no doubt a drag on profitability. Imagine the financial impact your institution will realize by deepening relationships with them.
You’ll want to keep an eye on how your cross-sell ratio is trending over time. Cross-sell ratios can be improved by launching high-ROI direct marketing initiatives to account holders. Even if your financial institution’s ratio is equal to or better than the industry average, there’s an opportunity to improve it with targeted cross-sell initiatives.
Financial institutions can also use metrics to identify how specific products perform over time. For consumer checking products, marketers can use industry reports like Strategy Corps’ annual report on consumer checking performance, an analysis of eight kinds of checking accounts encompassing over 4.5 million account relationships nationwide. You can track performance annually on a range of benchmarks, and understand how best to optimize the financial potential of every checking account holder.
In a future post I’ll consider two crucial marketing metrics that are used across industries: customer lifetime value (CLV) and return on marketing investment (ROMI). I’ll discuss why they’re especially important for financial institution marketers.
In the meantime, be sure to watch our webcast from July, “The Marketer’s Guide to Justifying Your Existence (Part 2),” where I speak about cross sell ratios, attrition propensity and purchase potential in more detail.