How much does your Bank or Credit Union spend on Customer Acquisition? You would think that every Bank or Credit Union executive should know or at least be able to quickly determine the cost. After all, without knowing the cost of Customer Acquisition, it is impossible to determine if the effort is worthwhile? Cost is a key variable in the Return on Investment (ROI) calculation and is perhaps the only way to determine the success (or lack thereof) of business strategies.
Less than 15% of Banks and Credit Unions surveyed by Andera indicated that they thought that their Customer Acquisition costs are within +/- 10% margin of error. More than 60% of Banks and Credit Unions admitted that they had no way of assessing accuracy of their estimates and some 22% others admitted that their estimates are “guesstimates” with an error of at least 25%.
Not surprisingly, some 40% of survey respondents declined to provide an estimate for their customer acquisition costs, while the remaining survey respondents provided their estimates averaging about $80. Although Banks and Credit Unions indicated that their costs ranged from a low of $50 to well over $250 per customer, the vast majority also indicated that they either had no way of validating these cost estimates.
One of the recurring themes in discussions with FIs is the ability to identify operating costs and the effect they have on profitability. Capturing various customer-centric costs (including customer acquisition and retention costs) is a key component of overall profitability.
FIs of all sizes (but particularly small-to-midsized firms) need to better identify these costs if they are to more effectively compete with larger firms who already have a good (if not complete) handle on these metrics.
The ultimate goal is to project potential lifetime productivity for each account and household –to identify those customers who may be unprofitable or marginally profitable now, but could be highly profitable customers down the road.
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