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January 19, 2010

How do you create satisfied small business customers? How does that impact bank profits?

SHORT ANSWER in case you cannot read the entire post:

  • Meet with you small business borrowers for a new needs assessment
  • Visit at least 3.3 times each year
  • Understand their business
  • Demonstrate that you understand their business

The JD Powers and Associates 2009 Small Business Banking Satisfaction Study provides some specific goals for customer satisfaction that can drive profitability. A small business lender can use these as a benchmark:

First…some interesting findings:

  • Nearly one-half (48%) of small business customers have a negative outlook about the economy, which may be impacted by tighter credit conditions.
  • Among business owners who applied for loans in the first six months of 2009, 67 percent of those loans required personal guarantees, compared with 52 percent of loans made three or more years ago.
  • During that same time period, the average time to approve and fund loans made within the past six months has increased to 15.1 days from 13.1 days in the previous six months.

Does your bank assign an account manager to each small business customer?

Overall satisfaction averages 726 on a 1,000-point scale among customers who were assigned an account manager, compared with 669 among customers without a designated account manager.

  • Currently, 46 percent of small business customers are not assigned to an account manager.
  • Only 34 percent of customers who have an assigned account manager report having had a problem with fees and service charges, compared with 39 percent of customers without an assigned account manager.
  • Only 10 percent of customers with assigned account managers report issues with funds availability, versus 16 percent for those without an account manager.

Do your small business customers think you understand them?

  • Satisfaction averages 139 points higher among customers who report their account manager “completely” understands their business, rather than just “partially” or “not at all,” yet fewer than one-half (45%) of customers report their bankers “completely” understand their business.
  • Among new customers who report their account manager “completely” understands their business, a thorough needs assessment is conducted 85 percent of the time, compared with only 35 percent of the time among customers who report their business is not understood.
  • Customers who report their business is “completely” understood by their account manager report receiving 3.3 contacts each year, compared with 1.3 contacts among customers who say their account manager does not at all understand their business.

Here is where I got interested. Understanding business is not something you learn in class. It is something you partially learn in my classes on tax return and financial statement analysis because I focus on understanding. It is also something you can learn from mentor lenders, and from your small business clients themselves.

It takes effort and willingness and interest. And according to the JD Powers & Associates, it will add to the profitability of the bank.

How does this impact bank profitability?

The study found that higher satisfaction among small business customers has a substantial impact on a bank’s financial performance. Overall, highly satisfied customers (satisfaction scores averaging more than 800) generate $4,107 of annual net revenue each on average, which is $675, or 20 percent, more than less-satisfied customers.

Need profit? Keep those small business borrowers highly satisfied.

  • Is it time for a(nother) thorough needs assessment?
  • How often do you visit your small business customers? Perhaps a good 2010 resolution is at least 3.3 times! <grin>
  • Time to reach out?

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Linda Keith, CPA

Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis.
She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans.
Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.

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