To Act or Not to Act: 2 Metrics Drive Banking Customer Retention

To Act or Not to Act: 2 Metrics Drive Banking Customer Retention

Recently my satellite company called me up. I thought it was a typical sales call, upselling me to some premium package. But I was surprised…

They told me that data they are collecting on my system showed that we are having some signal loss and they would like to send someone out to fix it – on their dime. No service call charge, regardless of what they find.

Intervene before it's too late with your customer.

Intervene before it’s too late with your customer.

I was a little shocked, and I must admit, I was looking for the catch. There wasn’t one. But it was true that we were suffering silently with some signal issues.

They sent out a tech. He reviewed the situation, found the installation wasn’t done right, and re-installed the entire satellite system. All without us asking.

I asked what the motivation was for taking such a huge step. He said the company had identified that they were losing customers based on quality issues. Those quality issues were totally fixable, but they just didn’t know about them. So, they started collecting data.

But what amazed me was the proactive way in which they intervened – even those they weren’t asked.

It got me thinking about our banking customer retention experiences. Would you intervene financially with a customer if you thought – but did not know – the relationship was at risk?

I’ve asked this question to many banks, and all too often the answer is no. At best, I get an “I don’t know.”

Knowing When to Act

The problem is that our banking customer retention efforts are build on being reactive, not proactive. We respond when a customer complains or closes their account. But we all know once the customer closes the account, the chance of reversing that is almost zero.

But banks are still too afraid to do anything. Why?

Because we don’t want to leave money on the table. But it’s not about leaving money on the table, it’s about knowing the most important customer retention metrics.

What we should really be afraid of is being too late: one of the critical mistakes banks make. (Want to know the other two?)

The Most Important Customer Retention Metrics

The two numbers you need to know for profitable banking customer retention are:

Expected Value of the Customer Today vs. Expected Value to Keep the Customer

Let me define these.

Expected Value of the Customer Today: this is the lifetime value of the customer if you don’t intervene. This has two parts:

The probability the customer stays * Their lifetime value + The probability the customer leaves * 0

Of course, the last term is just 0. A big fat 0. As in nothing.

Expected Value to Keep the Customer: this is the lifetime value of the customers assuming you intervene and give the customer something of value. Obviously that lifetime value is slightly lower than their lifetime value today – assuming they stay. But the idea is that by giving them something to stay, you’ve increase the chance that they do in fact, stay.

The probability the customer stays given the offer * Their lifetime value with the retention offer + The probability the customer leaves anyways * 0

Am I Leaving Money on the Table?

You know it’s time to intervene and drive banking customer retention if one fact is true:

Expected Value to Keep the Customer > Expected Value of the Customer Today

When that relationship is true, it’s time to do something.

In order to calculate these metrics you need to following pieces:

  • The probability your customer will stay (on their own)
  • The lifetime value of the customer with their current relationship
  • The probability your customer will stay after you make a retention offer
  • The lifetime value of the customer with the retention offer

If you don’t know these components, you should begin measuring and modeling them. I talk about how to do that in the chapter on retention in my book Seven Billion Banks.

It’s All About the Data

In the case of my satellite company, they knew that – given the data they had collected – the my lifetime value was greater if they sent out a tech on their own dime and fixed my system than if they just let things go until I complained. Data and analytics improve the customer experience.

What data are you collecting about your customers that predicts retention or churn?

What are the top five drivers of customer churn in your bank?

If you don’t know the answer to these questions, it’s time you figured it out. Driving profitable banking customer retention is about data. You probably have a lot of the data already in terms of transaction history. You probably don’t have data in terms of interactions with the front line staff. Both are critical for success.

The only remaining question is: which retention offer should I make? That’s a question we’ll get to in another post, but for today we have the markers to help us decide when to act.

When you have the data, it’s easy to make the call about being proactive or reactive. It’s which decision creates more long-term value for your customers.

Don’t let your customers suffer with their own version of “signal loss” until they just get fed up and leave. Find out where the suffering is and fix it.