Calculating Bank Customer Profitability in Salesforce1
Calculating Bank Customer Profitability in Salesforce1

Calculating Bank Customer Profitability in Salesforce1

06/04/2014 by Jason M. Atwood (he/him)
Reviewing some of the ways banks can utilize the Salesforce1 to calculate product, customer, and relationship profitability on the platform.

As banks continue to embrace Salesforce1 (minor rebranding) as a CRM platform, building out on the service side and integrating with their back end core system, they look to leverage more and more of the application development environment. After large needs like core integration and house holding have been tackled the likely next step is to dive into the world of profitability. Let's take a look at the why and a little bit of the how on calculating profitability in Salesforce for banks.

What Is Profitability?

Profitability means a lot of things in different contexts, but in the banking space profitability refers to the metrics comparing earnings to expenses. The outcome of a profitability calculation is usually data points such as return on assets, equity or investment (ROA, ROI, ROE). All of the factors that go into these calculations are too much for this blog post but consist of data points like average balances and fees as well as costs from servicing and overhead of the bank. Since each bank has their own unique costs the profitability calculations need to be customized in advance. In the following banking example let's look at three different layers of the profitability to better understand the overall customer picture.

Product Profitability

The first layer is at the banking product level such as checking, savings and loans. Each different product has their own calculation based on lots of variables that are tied to the type of product and other different data points. These include things on both the expense and earning side of the equation. For example, some banking products have low earning potential and low costs like a safe deposit box while others, like commercial loans, would have a higher earnings but also higher costs and overhead. These things get factored into the calculation at the product level which result in product level profitability outcomes. This allows banks to compare product to product and is the base calculation for the next level of profitability, the customer.

Customer Profitability

Customer profitability starts with the customers connection to many different banking products. In the first step all of the product profitability were calculated and in this step the idea is to aggregate those numbers, rolling them up to the customer level. For example, the calculation would be the sum of all incomes from the products divided by the aggregate allocated capital. This would give combined return on equity number for each customer. Banks can make better decisions by being able to compare customer profitability across regions, markets and segments. Combining this with the power of Salesforce analytics is a huge win.

Relationship Profitability

The last calculation comes at the relationship level. A relationship in this case is a collection of customers and financial accounts who are related in some way. This could be a household relationship or in the commercial space a business relationship. The base calculation is the same as the customer, summarizing the incomes of everyone in the relationship divided by the allocated capital of everyone in the relationship. This allows for reporting across of return on equity for each relationship in Salesforce. Now banks can compare the profitability of households and businesses from the bottom up.

The one thing to take into consideration is that profitability is a very custom metric to each and every organization but with the power of Salesforce can be brought on platform and be provided in real time.

Are you interested in banking profitability calculations? Leave a comment below, on our Facebook page, in the Success Community or directly @JasonMAtwood.