Why profit enhancement requires deposit profitability.
Most bankers are familiar with generic profit enhancement strategies. The basic concept suggests raising fees to make accounts more profitable. And if done correctly this can be a great profit building approach.
The problem is that it’s almost never done correctly. Basic concepts are misapplied. Instead of raising fees only on unprofitable accounts what most commonly occurs is a blanket fee increase. We’ve all heard of a “win/win”. This is a “lose/lose”.
This is almost guaranteed to deliver exactly the wrong result. Fees don’t go up enough to make unprofitable accounts profitable, but your best most profitable accounts are harassed and motivated to take their business to another bank. Wave goodbye to your best customers.
But consider what happens when you add deposit profitability to the mix. Instrument-specific deposit profitability results in accurate individual P&L statements for each and every account.
Now you know who should have fees raised (only unprofitable accounts) and who should not (profitable accounts). And with 50% of accounts typically unprofitable this is a huge difference.
So when you’re looking for profit growth strategies make sure you get deposit profitability in place first. You’ll be glad you did.