More customers means more expense--but also higher profits.

• Author: Griesel, Achim
• Position: Financial report

For many years our company has advocated attracting more customers to drive greater profits. We have always argued that a large portion of a financial institution's costs is a fixed component and, as long as branches have capacity, adding more customers generates greater profits.

We validate this argument with data from almost 100 community bank clients. We split our clients in two groups based on the number of customers they serve per branch. The lower-performing group averaged 1,000 core-relationship customers per branch, and the higher-performing group averaged 2,000 core-relationship customers per branch. We then looked at the expense and income components that have the most direct correlation to the number of customers served by a community bank. For the expense, we focused on payroll and premises. On the income side, we focused on interest and fee revenue.

THE IMPACT ON EXPENSES OF MORE BRANCH CUSTOMERS 1,000 2,000 Difference Accts Accts Employees 10.8 15.0 4.2 Payroll (in '000) 670 874 204 Premises & Building 158 227 69 (in '000) Other Non-Interest 511 695 184 Expense (in '000) Total Expenses (in '000) 1,339 1,796 457 all figures in '000 Source: Haberfeld Associates As expected, financial institutions with a higher number of customers incur higher expenses. With twice as many customers, they average 4.2 more employees per branch and 30 percent higher payroll expenses. In...