Microbusinesses, defined as firms with annual revenues of less than $1 million, constitute 90% of all businesses and thus represent a significant opportunity for banks. But given the small size of loans involved in this segment, how does a bank profitably serve these customers?
The following is a suggested ten-step process for improving branch sales and service to microbusinesses. While this process requires substantial effort and likely some tough decisions related to personnel and other areas, banks that avoid addressing this challenge may suffer from inconsistency in how they approach microbusinesses and, ultimately, generate subpar results.
Quantify opportunities and evaluate current branch capabilities. Banks wishing to understand their local business opportunities can now access an avalanche of information from database providers. They can screen the demographic composition of a branches’ potential business customer base by revenue size, industry, past credit performance and even likelihood to purchase certain products. Branch sales staff no longer needs to rely on driving around business parks or shopping malls to find targets. Targeted marketing can take much of the guesswork out of the marketing process.
With branch banking, like most other opportunities, the 80/20 rule dominates. In short, the majority of a bank’s microbusiness opportunity exists within a relatively small number of branches and it is those branches that merit the majority of management activity. So, after assessing the opportunities, bankers need to look at the ability of the branch to deliver on those opportunities. Do personnel have sufficient time, knowledge, and incentive to sell? Are there specific characteristics related to the local geography that the branch should address, for example, a concentration in certain industries or an economic trend? And, how should branch opportunities be prioritized to ensure the most effective use of limited bank resources?
Assess implications of the review. Once this review is completed, management needs to assess and act on the implications of its findings. What does the bank need to do differently going forward and what specific changes need to occur within the branch and the people who work there to capture revenue opportunities?
One key area centers on people: Do branch managers possess the ability to serve and sell to businesses? Will training fill the gap or, alternatively, do they need to be replaced? One client that initially invested in training found that they needed to replace about 50% of their lead branch staff in order to move performance in the right direction.
If bank management is unwilling to act on the implications of their branch reviews, they should not begin the review process.
Clarify ongoing roles and responsibilities. Oftentimes, one significant required change involves clarifying job definitions within the branch structure to create a greater focus on sales. For example, the branch or assistant branch manager may have calling and business-related sales goals. But, banks are often better at adding “to dos” to the branch than they are at truly redesigning a job to provide both clarity and success to branch sales activities.
The inelegant description I like best compares branch activities to a sausage. Management keeps pushing more expectations and responsibilities to a branch, stuffing it with more to do while too infrequently eliminating enough tasks to free up time and focus for sales. Of course, the use of technology and centralized processing has freed up time; however, at many banks, much of that time has been allocated to compliance and regulatory issues, not selling.
What’s the solution? Each bank will require an approach that addresses its individual situation and culture, but some banks find selecting a Branch Business Banker (BBB) increases the focus on selling to microbusiness. The BBB can work with multiple branches and can serve as the branch manager’s sales coach and team leader in this sales initiative.
Simplify the product set. For years, many product managers have been building products faster than bankers can learn how to sell them. In contrast, in entering the small loan market for businesses, alternative finance companies (AFCs) have emphasized streamlined processing and a standardized product set. Going back to the 80/20 rule mentioned above, banks can often reduce costs and improve marketing focus by limiting their quantity of loan and deposit products.
Segment the opportunity. Top banks identify priority customer segments and create a product offer that meets each segment’s specific requirements. As a starting point, bankers should evaluate their current customer set to determine their most significant segments. In some cases, those segments have developed by chance rather than strategy.
A gap often exists between the segments a bank would like to serve and its current reality. We worked with one bank that wanted to focus on professional services, i.e. doctors and lawyers. However, when we evaluated their current portfolio we found that retail (not surprisingly) comprised their largest segment and that their penetration into professional services was well below industry averages. This bank then decided that the required investment in product and people was too great to bridge that gap.
Establish metrics and manage by them. One major bank we know focuses on metrics capturing five activities: number of calls, proposals made, hits generated, hit ratio and new revenue generated over about 12 product areas. These metrics and others can now be collected by customer relationship management (CRM) software, allowing management to track individual and branch performance closely.
Every bank has metrics that it tracks, but does it live by them? By that we mean does it pick the right metrics that are aligned with its business goals and does it tie business goals into its incentives?
Redesign and implement incentives. The old cliché that people do what they are incented to do remains as true today as ever. At many banks, either implicitly or explicitly, bankers feel goal number one is to keep internal compliance and external regulatory types happy; selling takes a back seat to this. But, branch sales incentives aimed at microbusiness growth need to be an important part of branch compensation.
Incentive payments as a percentage of total compensation remain too low at most banks. For sales organizations, “at risk” compensation can be equal to or more than base dollars. Conversely, at banks, this compensation represents a relatively small part of total income, anywhere from 10% to 30%. Certainly, if a bank has BBBs focusing almost exclusively on sales, their compensation should reflect their success or lack thereof.
Enhance the sales management process. Recently, I was with a client selling a relatively sophisticated product. I began to ask about the sales process and how much time senior sales officers spent selling versus service and support. Despite the value this capability provides both the client and the bank, “sales people” can spend upwards of 60% of their time on non-sales activities.
Sales management tools can increase efficiency and improve communication within the bank. All the banks we know that use these tools effectively operate with the philosophy that if something is not on their system, it does not exist. A tool like this can transform a bank’s culture to make it much more client focused and can result in more per-client sales; opting in cannot be an option.
Leverage technology. I placed technology late in this list because bankers often give it too much weight, hoping that Information Technology (IT) will somehow solve non IT-related problems. The effective use of technology can change profit dynamics and turn losses into profits. Some areas include:
Applying the insights provided by Big Data to target marketing activities;
Using digital banking to streamline processes;
Collecting traditional and nontraditional information to improve credit decisions through enhanced scoring;
Tracking sales activities and simplifying cross-bank referrals.
These can be transformative tools, or they can be a waste of money, depending upon the depth of commitment that a bank has to the microbusiness segment.
Review and revise. In effect, the review and improvement process never ends, as bank management incorporates its experience and adjusts to market realities.
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