Guest post written by Maria Del Amo-Lombardo, Director, New Market Development at Cathedral Corporation
This is a thought-provoking question and one that we pose to our customers all the time. There are several ways to measure your most profitable members. One of the most obvious ways is to look at overdraft or NSF fees on a monthly basis and see which members get hit the hardest by them. Sure, you are getting income from this, but what do these members really look like? Do they hold a small share account or have a single product with you? Is this the member segment that has had no interest in other products or services but generates a significant number of calls to your call center? Looking at all of these factors may lead you to wonder how profitable of a member segment this really is.
Another way to measure profitability is to consider the entire account relationship. What about members with larger share accounts, checking accounts, and loans? These members have shown the potential to use a variety of your products. Will you consider them profitable members?
The reality is that the old 80/20 rule applies here. 80% of your profits come from 20% of your members. The 80% are eroding your profits because of their low deposits, little incremental business, and your continued support of them. But see this as not a problem, but as an opportunity to incubate more profitable members. It’s worth the effort – increasing your profitable members by 5% could grow net income by nearly 40%.
So, you want to get more of these potential high-growers– but where can you get more members that do fit the profitable member profile? Can you turn some of those members who are costing you revenue into profitable members? Do you understand what drives them to have a closer relationship with you? Have you identified the additional products they need from you?
There is no magic member segment that contains the most profitable members. Every credit union has a different segment that is the most profitable. You need to ask yourselves the questions posed in this blog in order to determine the best answer for your credit union. Be careful to consider not only which member segments you get the most revenue from, but other factors as well. If a member segment brings in the most revenue, but also requires more one-on-one assistance and generates the most calls to member services, you may want to put that expensive segment out of the running as your model segment.
Once you understand who your most profitable members are, it’s time to attempt to convert your other members to that segment. The cost of attracting new members is high. By intelligently targeting your current members with messages that are relevant to them you can start building a profitable member. Use the communication channels you already have with them to cross sell other solutions. For example, you’re probably used to viewing printed statements as a necessary evil, a cost of doing business. With the right technology and careful targeting of member segments, the ‘plain vanilla’ statement can be transformed into a one-to-one marketing machine. For a more in-depth review of how to transform your statements, take a look at our recorded webinar.
Use the right target marketing and channels, convey the right message, and over time you will begin to add new business and revenue, building your base of profitable members.
Cathedral Corporation offers variable, data-driven solutions for printed and electronic financial services communications to enhance a credit union’s member relationships.