To justify your existence as a marketer, it’s imperative to communicate the positive influence of your marketing spend, or your return on marketing investment (ROMI), to senior leadership.
To do this, you need to link the results of your campaigns and initiatives with bottom line measurements like revenue and profit.
Below, I outline several key performance indicators (KPIs) and analytics that can help you do this.
Net Interest Margins (NIMs)
Net interest margin, or NIM, is to financial services marketers what the gross profit margin is to our non-financial counterparts. As marketers, we need to be keenly aware that in this low-rate environment, NIMs are down, keeping pressure on profit margins.
Going back to 1984, NIMs were above 3.5 percent and climbing. Since the mid-90s, however, NIMs have been on a downward trajectory. And, as recently, as Q4 2015, NIMs were below 3 percent.
How Marketers Can Impact NIMs
Some of the factors impacting NIMs are beyond your control as a marketer, such as short-term interest rates and your institution’s geographic footprint. But marketers can affect two areas that do impact NIMs:
- Account holder growth
- Loan demand
More account holders mean more opportunities to forge deeper relationships and cross-sell initiatives that can grow interest income. Strong loan demand can improve NIMs because of loan yields.
Whether it’s auto loans, HELOCs or credit cards — you should be aligning your efforts (and marketing budgets) with what will make the biggest impact on your institution’s NIMs. By doing so, you will prove to senior leadership that your marketing priorities are aligned with business objectives.
Marketers should also keep in mind the extent to which campaigns impact their financial institution’s efficiency ratio. This number — overhead as a percentage of revenue — is essentially how much it costs your institution to make $100. It increased sharply from Q3 to Q4 2016, from 57.64 percent to 65.31 percent. That’s not good.
As with NIMs, efficiency ratio is partly out of your control; however, you do have some influence. For example, cost-cutting measures that hit the entire organization are a factor.
Improved workflows, especially in producing economies of scale, can greatly cut costs in your financial institution. Third party vendors, for instance, can perform jobs quickly and efficiently without a lot of churn, overhead or wasted budget dollars that often result when using partners who are not skilled in campaign tactics.
Marketers can also impact efficiency ratios from the backend: by increasing revenue. Initiatives that drive up loan demand and increase non-interest income (going back to checking account acquisition and cross-sell campaigns) positively impact efficiency ratios.
Looking at the environment in our industry today, there is no doubt the timing is right for banks and credit unions to launch marketing initiatives. Both sectors have plenty of room to grow their loan portfolios.
In Q3 2016, credit unions had a 78.60 loan-to-deposit ratio, while banks enjoyed a 71.19. (Compare that to Q3 2007, just prior to the Great Recession, when loan-to-deposit ratios were flying high at 93.1 percent.) This represents a real opportunity to increase loan demand.
Consider a Gallup Poll question back in 2013 about retail banking. Respondents were asked what prompted them to open an account with their financial institution. Fifty-nine percent said nothing encouraged them. They did it without any prompting by the financial institution.
Does this mean marketers are useless? After all, nearly 60 percent of new account holders came through the doors without any prodding by the financial institution.
The real takeaway here is that 41 percent acted as a result of the financial institution doing something to convince them that a particular account at this particular institution was what they needed to help solve a financial need. Either by receiving something in the mail, or talking to someone at the branch — whether or not they were thinking about opening an account — 4 in 10 did so based on a marketing initiative.
This is a heck of an opportunity for marketers.
If this topic is of interest, be sure to check out our webcast from April, “The Marketer’s Guide to Justifying Your Existence (Part 1),” where I speak at length about NIMs, efficiency ratios, and how marketers can impact them. We’ll be hosting two other parts in this series as the year progresses, so continue to watch this space for updates.