Predicted Customer Value: The most valuable Metrics your Financial Service Company is missing

The most common question I am asked by analysts on existing or new engagements is “What is the most important thing we are missing?” Invariably, I pause and start an earnest mental review of their current dataset architecture, data collection tools, and their personnel, then weigh them against the stated business objectives of the engagement. In order to prevent offending the client or friend, who often are one and the same, I usually pose the question of “What is the average value of a customer for the business?”

BICK-BAM-BOOM-CLANK-AYOOGA…. (Insert any other sounds of a machine coming to a grinding halt)

Most clients cannot answer this question…. initially!

With remarkable precision, marketing departments can state the costs for acquisition per customer during any given period. Most can actually go a step or two beyond this and tell you within customer segments or by medium or marketing vehicle exactly what the cost per acquisition is and was historically. In fact, marketing budgets and what translates to acquisition spend/ad spend are often determined based on these amazingly precise figures which are seen as THE KPI’s.

Working in Financial Services, I have come to believe that if you are setting value based on CPA and SPEND alone, you are missing the boat.

Example: FriendlyBankUSA CMO Peter Pumpkineater walks into Sally Creamcheese’s office Monday morning and with authority states “Sally, I want you and your team to increase credit card applications by 30% in the first quarter of the coming year, NO EXCUSES”. Sally Creamcheese immediately calls a meeting with all of the marketing analysts, determines the channels which are driving the largest volumes of applications by the associated CPA, and prioritizes them based on which is most scalable. Sally then sets the plan in motion to purchase more advertising which will net the desired 30% increase credit card applications.

Fast-Forward: Q1 of the following year ends and Peter Pumpkineater has reviewed the numbers multiple times. He sees the 30% increase in credit card applications, but only a net gain of 2% in new credit card accounts. What’s worse, he sees that the marketing to increase the applications has cost him 20% more than the same quarter the previous year and he only has a 2% net increase in customers gained to account for the spend.

FriendlyBankUSA is not alone in this scenario. Without understanding the value, or Customer Projected Revenue, of the customer segments being acquired, marketers are exposed to the risks associated with treating all customers equally. In Financial Services, there are vast differences in customers with high credit scores and low debt and customers with terrible credit scores who are leveraged up to their eyeballs.

The most important metric(s) that Financial Services clients invariably are missing is “Customer Projected Value”. Creating customer value metrics is the only way to secure the missing portion of the equation.

Key Equation: Customer Projected Revenue – Cost Per Acquisition = Net Projected Revenue

Projected value metrics come in all shapes and sizes but the hard truth is that without being able to understand the value of acquisition from a revenue perspective, you are buying customers simply by volume and frequency.

Determining marketing spend on the DELTA which exists between CPA and CPR enables marketers to understand where spending more per Acquisition is prudent as well as quickly identifying where they are overpaying for the customer type/segment being acquired. This ability moves advertising sales from a supply-driven pricing structure to a demand-driven market approach. Having the ability to tell your AD Network, Search Provider, or Email Marketer, the exact price you are willing to pay turns the tables in the Marketer’s favor. Empowering marketers to know exactly where those hidden break-even levels are, and more importantly which segments possess the most exploitable margins is the responsibility of good analysis.

Financial Services companies value customers in very different ways, but usually those determinations are based on Average Account Balance, Credit Worthiness, or Trade History. Treating customers as you would any security or investment, which seeks to acquire the most valuable customers for the lowest market costs, will increase the DELTA, which translates to increases in profit margin on an individual customer and the larger customer type. The hidden bonus in acquiring a higher value customer population is the company is reducing its debt and risk exposure. Secure and valuable securities are the same as secure and valuable customers; they are the currency upon which the entire financial industry is built.

Determining the Projected Value metrics your company needs will be based on your individual business objectives and should be executed on a per-campaign basis. There are multiple ways to determine projected revenue metrics, and we at Adobe Consulting would be happy to help you find the solution that fits you and your company best.