Making 'Customer profitability' Mark.

• Author: Sutherland, Kim

Customer Profitability. Much has been written about this financial-services industry issue over the past five to 10 years. Many myths exist about both the process and the uses of the results. Despite all this discussion, however, efficient execution of account and customer profitability is certainly not yet a standard in the banking industry.

We do know that the issue is important. Institutions that prevail and focus on the appropriate process steps and translate the output into strategies and initiatives for their sales forces can achieve as much as a 30 percent improvement in average relationship value in a 12-month period.

This article's purpose is to provide some guidelines about what is considered to be important in an account and customer profitability valuation. Your bank can use these guidelines to compare its efforts to date. And, the guidelines can serve as a template for the bank's next steps.

Although there are still more institutions talking about customer profitability than actually have it, more and more banks are moving in the direction of obtaining this information. Unfortunately many institutions have spent millions of dollars in their quest, only to be unsatisfied with the results.

Obtaining accurate profitability information is harder than it seems at first. Here are some of the major barriers to getting this data:

Not knowing what components truly drive better profitability valuations. This means you don't know where you can make compromises without diluting the value of the output.

Partnering with an inexperienced vendor. Some of them don't have many customers actively using their profitability modules--let alone clients that are pleased with the process and outcomes.

Lock of commitment within the organization to get to the "right" data. The devil is truly in the details. It's worth spending a little time to "get it right."

Thinking you can make a list of fields needed to calculate profitability and be done with it. Every institution is dealing with its own universe of available information. It's far more productive to start with what you have than to ask for something that might not exist.

Understanding that it is a "process" and an ongoing effort and not a onetime project. This impacts not only the full-time employees within the organization necessary to support such an endeavor, but also the amount of support you can count on from other areas of the bank that will be affected.

Thinking you can simply publish the information and that it will find its way into the sales efforts of contact staff. There's no point in sharing the information unless you are prepared to answer questions and to instruct people in how they should be using it.

The important thing in beginning this process is to gather as much information at the account level as you can. Every distinction you can make, instead of allocating things in an ordinal fashion across groups of accounts, will enhance your ability to make better distinctions at the account level. The table (this page) details some key items you want to gather into your database/data warehouse for input into the profitability valuation.

It is also important to understand how you might use the information. The best way to maximize the uses of the information is to include fields by which you will review the...