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Echo Partners Community Bank Blog

    Top 3 (or 4) Big Deposit Profitability Surprises

    [fa icon="clock-o"]} [fa icon="user"] Howard Lothrop [fa icon="folder-open'] deposit profitability, analytics

    You know what's one of the biggest benefits of doing a lot of deposit profitability analytics work?  It's quickly Analytics on Red Button Enter on Black Computer Keyboard..jpeglearning what's NOT obvious about the process and results.  I want to share some of these surprises with you today.

    I'm going to start with a special "bonus" surprise as I count these down.  Even though it's not intuitive, this is one you should already be familiar with:

    1. Seeing how many unprofitable accounts there actually are.
    2. Realizing you're treating unprofitable accounts as if they were profitable.
    3. Finding some of your most profitable accounts in surprising places.
    4. Seeing how quickly and easily you can get 10x+ ROI on a deposit profitability and analytics project, starting the very first month.

    Let's take these one at a time and quickly review.

    • Seeing how many unprofitable accounts there actually are.

    If you're at all familiar with my deposit profitability and analytics work, I'd wager you've heard me say: "Half of your deposit relationships are unprofitable...The problem is you don't know which half."

    I've really got two comments here.  First of all, the entire point of calculating deposit profitability is so you actually do know which accounts are profitable and which are not.  It's a fundamental building block to start.  

    Second, I really understate it when I say half of your relationships don't add to your profit.  In fact, I've yet to see a bank with less than 60% unprofitable, and I've seen them up to 70%.  This should be a real "eye-opener" for you to jumpstart your deposit profitability program.

    • Realizing you're treating unprofitable accounts as if they were profitable.

    Simplistic and generic metrics are the root cause of this problem.  This is so counterproductive.  It's like rewarding people for the exact wrong behavior.  

    Even worse, when you don't have the data to back up your benchmarks, you almost certainly compound the error by paying money for marketing programs that succeed in attracting more money-losing accounts that just further  reduce bank profits and destroy shareholder value.

    • Finding some of your most profitable accounts in surprising places.

    This is a perfect example of that old adage "Don't judge a book by it's cover."  But without a deposit profitability program, that's all you've got to work with.

    I guess it shouldn't be a surprise to learn that there are some lower balance accounts that quite by accident are working out just fine.  There's a perfect storm of balance, transactions and fees that results in a group of invisible, but highly profitable accounts.

    It's like alchemy, turning lead into gold, but with the ability to sort, sift and specify the right characteristics in order to create more value, not less.

    • Seeing how quickly and easily you can get 10x+ ROI on a deposit profitability analytics project, starting the very first month.

    This is one that actually surprised me, but shouldn't have.  I didn't think the payoff would be so immediate, but it is, starting in the very first month.

    Want to know the secret to this instant success?  It's the low-hanging fruit that is the natural result of so many unprofitable accounts grouped in tight clusters.  Find out how to use this characteristic to your advantage.

     

    Howard Lothrop

    Written by Howard Lothrop

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