Tom Long
Tom Long Dec 13, 2017

How to drive strong revenue growth in a thin-margin era

To create operating leverage or grow revenue faster than expenses represents the essence of business. And with compressed margins the new normal, it’s an economic necessity to lift or accelerate growth trajectory. Thus in a thin-margin business, stimulating top line revenue growth amounts to a priority for every financial institution.

The law of diminishing returns

Taking a closer look, two factors impact an organization’s ability to grow: sales volume and attrition. Consider that a sales and attrition dynamic exists within each product line; it determines not only the composition of the balance sheet but its growth rate as well. Further, every product line and market where the bank competes for business can be plotted on a growth curve. Uncovering benchmark statistics allows the financial institution to anticipate the challenge.

Growth Curve

In general, as each product line portfolio grows given an unchanged attrition rate, the absolute volume of business that requires replacement expands. This attrition volume will eventually approach or exceed annual sales volume, which compromises growth. Stagnation arises when attrition equals sales volume—while contraction occurs when attrition exceeds sales volume.

The growth paradigm

Core activities that ensure growth include improving the stability of the account base, competing in new product lines, or entering new markets to leverage an existing product set. For the last 24 years, The Long Group has surveyed consumers and businesses regarding financial service usage (ownership) and behavior (the access and maintenance of their relationship). This captures evolving trends; here is what the proprietary database suggests as financial institution priorities.

Focus point one: Improve retention

At the typical financial institution, four months of the year are spent on growth. The sales volume acquired over the remaining eight months of the year gets invested in replacing business lost through attrition. Reducing attrition is a quantifiable exercise: Specifically, customers that maintain a one- or two-account relationship generate churn. Therefore, the average size of a client relationship determines longevity with client tenure—expanding by 50 percent among households that maintain three or more balance sheet account relationships with the institution. While automating sales production has strategic benefits, the typical financial institution remains in search of an executable plan to expand share of wallet.

Two: Improve penetration

The branch is rapidly morphing from a transaction center to a sales center, with many financial institutions unprepared for this opportunity. Often financial institutions operate within specific branch markets without knowledge of focus. Yet pinpointing product lines that will contribute to each branch’s growth remains essential. Establishing feasible, realistic and appropriate product line sales volume frames expectations. In addition, creating a plan to capture the identified opportunity produces accountability. It starts with the knowledge necessary to generate strategy and focus to launch impactful business development activities on a branch-by-branch basis.

Three: Enter new markets

Branching today represents a significant investment and as such requires a disciplined decision-making approach. To sustain growth necessitates a thoughtful process to evaluate potential new markets, each of which compete for capital. Once de novo branch market priorities are established, discovering a specific site with the locational advantages to successfully penetrate the market reveals a means of entry. However, branching momentum is determined pragmatically. This happens quantifying the profit and loss impact of the branching decision. New markets, successfully identified, accelerate top-line revenue growth and drive financial performance. The benefits to branching are great.  So are the consequences.  Often, knowing what the financial institution wants to get out of the market doesn’t equate to knowing what the market has the capacity to give. Manage the risks with an analytical approach to branch expansion.

Parting shot: Think strategically

Growth requires discipline—and discipline requires focus. Thinking strategically will allow the financial institution to behave tactically. Examine whether the institution has a solution to expand customer relationships. Create a mechanism to understand, evaluate and capture the incremental product line opportunities within each existing branch market. And construct a profitable branch expansion blueprint. Plan for success by closing the knowledge gap to improve performance.


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Tom Long is the principal at The Long Group LLC, based in the Greater Boston area. For more than 20 years, The Long Group has been providing tactical guidance and insights to financial institutions through strategic planning, customer and market analytics, expansion planning, staffing and productivity analysis and marketing.

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