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Business Development Strategies For Community Bank Boards
- By Ray Adler
You will not find a chapter in a book on Board Governance regarding this topic. Yet it is an important and unspoken expectation of a Bank’s Board. Over the years of working with banks in their quest to move from a “sit and serve mentality” to becoming more proactive about selling, I have asked dozens of Presidents and CEO’s “How effective is your Board in bringing new business to the bank?” Their responses were consistently similar and predictable: “Some will, some won’t.” or “Some can, some can’t.”
Why Board Involvement Is Important
Banks do an excellent job for the most part tracking new business activities. The number of loans funded or CD’s opened each month is well tracked. While being overly focused on bringing new business in the “front door,” few banks have a good handle on the business that is flowing out the “back door” by way of customer attrition. A $200,000,000 bank has on average 10,000 household relationships. The top 5% (500 relationships) generate $4,000,000 in profits annually or approximately $8,000 per relationship. That’s the good news. The other news is that more than 10% of your best customers (50 customers) close their accounts annually, and with it goes $400,000 in profits. Obviously these numbers vary depending on the size of your institution.
What Are Your Options?
Certainly, doing nothing is one option. Another better option is focusing as a Board, on creating more “top five” relationships using the fastest, easiest and least costly means possible…generating referrals. The key for your Board to understand is that a few quality relationships, only 2 to 4 new customers a year per Board Member, has a meaningful impact as an offset to customer attrition. From experience working with Bank Boards on this subject, once your Board understands (A) the cost of customer attrition and (B) that a few quality, new relationships brought to the bank each year by each Board Member makes a meaningful contribution to the bank’s botton line, they are much more willing to engage in the activities that bring in new business.
Give and You Shall Receive
Board Members have considerable contacts, knowledge, and years of experience that would be of extreme value if offered to the business owners and entrepreneurs in your community. Most small businesses are sorely lacking in resources and information. They often can’t afford a CFO to assist them in maximizing their cash flow. Nor can they afford a VP of Marketing. And they are always looking for new customers. One of the fastest and easiest ways to generate new business for the bank is when Board Members focus on offering time, advice and/or referrals to the owners of the businesses in your community. The conversation goes something like: “Hey Bob, I have many contacts in the community as well as some people who potentially might be able to use your services. Is there anything I can do to help your business be even more successful?” Bob will be flabbergasted that someone offered assistance. But even more powerful is how Bob will feel about you. Called “The Law of Reciprocity”, when one person helps another, the one receiving the help is very usually willing to offer their help in return. It is a natural response from most people. At that point, it is very natural for a Board Member to tell Bob that the bank is growing and always looking to be introduced to other business owners in the community. This is an amazingly easy way to generate referrals and business for your bank. The bottom line is that success in generating new business is linked to giving information and referrals.
Anywhere and Anytime
My last recommendation is that banking relationships can be created anywhere and at anytime. The gentleman in front of you at Home Depot isn’t likely to be wearing a sign that reads: “looking for financing to buy an apartment building.” The fact is, you never know who you are standing next to. When Board Members can be a little more engaging of the people they come in contact with, be it at cultural, community or sporting events, in grocery stores, at non-profit events and at the Home Depots of the world, you never know when an opportunity might arise to pass out a business card and extend an invitation to stop by the bank.
If each Board Member can commit to bringing in two to four new relationships a year, the financial affects felt from losing 10% of your Top-Five customers will be greatly off-set.
- Ray Adler