The Cost of Lost Customers
Industry reports estimate that banks are losing customers at an average rate of 12.5% per year, while average acquisition rates are 13.5%. This means acquiring new customers is nearly a zero-sum game—and a costly one at that. Gartner Research says the cost of acquiring new customers is about five times the rate of retaining existing ones, and those new customers are unlikely to be as profitable.
Jill Griffin and Michael Lowenstein further support this finding in their book, Customer Winback: How to Recapture Lost Customers—And Keep Them Loyal. They state that the average company has between a 60% and 70% probability of successfully selling more services to a current customer, while only a 5%-20% chance with a prospect.
Keeping customers loyal
With mergers and acquisitions expected to continue across several sectors (e.g., healthcare, retail, manufacturing and telecommunications), the customer pool for banks will continue to shrink—requiring banks to go above and beyond in order to attract and retain business.
Frederick Reichheld, author of The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value, puts the monetary impact of keeping customers loyal into perspective. He estimates that as little as a 5% reduction in customer churn can boost banks' net profits by as much as 80%.
The following calculation quantifies an institution's potential revenue gain by reducing customer churn for a typical commercial client:
Average Annual Revenue Stream Generated
Estimated Life Span of the Relationship
Life Time Value (LTV) of a Client
By calculating a client's Life Time Value (LTV), you soon realize how even the smallest decrease in customer churn can improve your bottom line significantly.
If you do not know your average annual revenue stream per client, use data from the 2006 Treasury Strategies Benchmarking Database. For example, Treasury Strategies reports that the average annual bank profit on an active, middle-market (annual revenues up to $1 billion) account is $5,723. Given the typical, eight-year life span of a commercial relationship, the LTV of an average middle-market relationship is $45,784:
$5,723 x 8 years = $45,784
For large corporations (annual revenues exceeding $1 billion), the average annual bank profit on an active account is $63,677. Using the same eight-year relationship life span, the LTV of your average large-corporate relationship is $509,416:
$63,677 x 8 years = $509,416
With such dollar amounts in jeopardy, initiatives to retain valuable customers are worth implementing. In fact, today's savvy corporate clients demand it—they seek greater value and tangible solutions from a reduced number of banking partners.
Marketing's role in client retention and loyalty building
Today's business customers face mounting responsibilities in an increasingly competitive environment. CFOs and other financial professionals are often second in command to the CEO in making the necessary strategic, forecasting and planning decisions for the long-term health of their companies. Banks that make themselves available through in-person and written consultative communications become embedded in their clients' business process and stand the greatest chance of earning and keeping their loyalty.
One of the keys to keeping customers loyal is building on their trust. However, one industry survey reveals that only 28% of bank customers feel their bank is trustworthy and consistently acts in their best interests.
Bank marketers can help change this perception by offering commercial clients the right mix of tools and information to help them make quality business decisions. For banks, this means migrating away from traditional, product-centric, promotional communications and toward more solutions-oriented messaging designed to truly assist customers.
While banks may net fewer customers overall today than they did previously, the potential revenue gains banks can realize from these relationships have never been greater. For a case study overview of several banks that instituted customer-centric marketing programs successfully, click here to download Financial Publishing Service's white paper, The Cost of Customer Churn.
The Presentation Trap: Why Making
Presentations Can Cost You the Sale
By Jeff Thull, CEO, Prime Resource Group
Even the most sophisticated sales professionals get caught in the "Presentation Trap" in which they spend an inordinate amount of time preparing an impressive presentation, but often lose sight of the issues at hand. The result is a presentation delivered prematurely in a complex decision process that wastes everyone's time because it fails to focus on a customer's specific problems or needs.
Conventional salespeople hate to hear this because presentations are key educational weapons in their sales arsenal. Admittedly, customers won't buy what they don't understand and presentations can elevate a customer's comprehension level. However, presentations are one of the least effective methods for accomplishing this goal. Here's why:
- Presentations are basically lectures—even if they contain advanced multimedia elements. The salesperson is the talking teacher and the customer is the listening student who remembers very little about what's presented. Two-thirds or more of the information customers hear falls outside their area of comprehension.
- Presentations rarely devote more than 10 to 20 percent of their focus on a customer's current situation. The bulk of presentations describe the seller, its solutions and customers' rosy futures if they buy. Presentations may fill customers' knowledge gaps, but this educational gain is centered on the solution offered rather than the implications for their actual business. Customers still lack a compelling understanding of why they should buy your solution and how it applies to their unique situation.
- Your competitors are following your same strategy. You tell customers they need the solutions only your company provides and your competitors make similar arguments about their solutions. Eventually, all the messages customers hear begin to sound the same.
When customers begin to evaluate competing, conventional presentations, they try to make the complex understandable by weighing common elements and eliminating those that don't fit neatly onto their comparison chart. When this happens, the salesperson's ability to differentiate their offering from the competition is subverted.
Don't let this happen. Avoid falling victim to the Presentation Trap by asking yourself these five critical questions:
- What percentage of your sales presentation describes you, your company and your solution?
- What percentage of your proposal describes your customer, their business, and their problems and objectives?
- How well do customers understand their own situations, risks and options?
- How much of your presentation focuses on persuading and convincing?
- How well can customers connect your solutions to their situation and desired future?
Diagnose, don't present
The advice I share with sales professionals is don't present. Instead, conduct a thorough diagnosis to uncover a customer's unique problems and expand awareness about their situation. Only after customers understand the ramifications of this problem and you establish credibility by guiding customers through this process can you make solution recommendations as a valued and trusted advisor. At that point, a "presentation" won't be necessary.
About the author
Jeff Thull is a leading-edge sales and marketing strategist and valued executive advisor at major companies including Shell Global Solutions, 3M, Microsoft, Intel, Citicorp, IBM and Georgia-Pacific.
He is also the author of the best-selling books Mastering the Complex Sale: How to Compete and Win When the Stakes are High and The Prime Solution: Close the Value Gap, Increase Margins, and Win the Complex Sale. Jeff’s new book, Exceptional Selling: How the Best Connect and Win in High Stakes Sales, is now available.
For more information, please contact: Prime Resource Group, 3655 Plymouth Blvd., Suite 110, Plymouth, MN 55446, [email protected], www.primeresource.com, 1.800.876.0378 or 763.473.7529, Fax: 763.473.0792.