What is the Cost of Customer Attrition to Banks?

Commercial customer attrition costs banks a great deal in profitability - up to 10 basis points in Return on Assets per one percent of attrition. This can be avoided by focusing on customer loyalty.

Unionville, PA, March 01, 2013 --(PR.com)-- Through peer group research, CashFlow Insights has determined the impact of commercial customer attrition on regional and community bank profitability. The Return on Assets (ROA) of a bank is reduced by up to 10 Basis Points for each one percent increase in customer attrition. Robert Merkle, CEO of CashFlow Insights, said “The impact for every bank is different based on their operational costs and efficiencies. For example, the effectiveness of Relationship Managers in closing new business has a significant impact in determining how large the cost of customer attrition is.”

The peer group study was designed to isolate the impact of commercial customer attrition by removing the impact of other variables through careful bank selection. All participating banks are within the same mid-Atlantic geographic market, removing the powerful effect the local economy has on the profitability of regional and community banks. The banks participating in the study rely on commercial loan income for 45% to 75% of their total gross income. This makes commercial customers their dominant income source; therefore commercial customers are the key driver of profitability.

Mr. Merkle pointed out, “Banks that focus on ensuring customer loyalty have a significant advantage in today’s environment. They have lower costs which drives the profitability advantage our research has identified and faster revenue growth since loyal customers buy more and refer others to their bank. And those referred customers are higher value than customers from any other source.”

CashFlow Insights specializes in working with banks to improve their management of commercial customer relationships. The result is faster growth and increased profitability through greater customer knowledge and loyalty. For more information about CashFlow Insights, visit www.cashflowinsights.com.
CashFlow Insights
Robert Merkle