Have you ever stopped to consider how much a single customer is worth to your bank, credit union, or fintech over the course of your relationship? That's the million-dollar question (well, maybe not quite a million), and it's exactly what a recent episode of the Banking on Digital Growth podcast tackled. In this article you’ll discover how much financial brands might be losing due to clunky websites, and learn a handy formula to calculate the cost of a high application abandonment rate. Buckle up and get ready to unlock the hidden wealth within your customer base.
The top 3 insights from this article:
The world of finance often fixates on immediate gains – new accounts opened, loans approved, deposits secured. But what about the long game? How much is a single customer truly worth to your bank over the course of your relationship?
This question, while seemingly simple, is surprisingly neglected by many financial institutions. Here we are highlighting its importance and offering practical strategies to unlock the hidden wealth within your customer base.
Many banks simply don't know their CLV. This lack of understanding can have a significant impact on a bank's financial health. Imagine trying to run a business without knowing the potential profit margin of your products or services. Without a grasp of CLV, banks struggle to allocate resources effectively. They might invest heavily in acquiring new customers who, while initially attractive, offer lower long-term value. Conversely, they might neglect existing customers with high loyalty and spending potential.
According to our research, the average new retail customer brings in roughly $2,500 over their banking journey. This number might seem modest at first glance, but consider the sheer volume of customers a bank typically serves. When multiplied by thousands of customer relationships, that $2,500 translates into a significant source of long-term revenue.
Furthermore, the average cost of acquiring new customers sits around $750. With this knowledge in hand, banks can make informed decisions about their marketing strategies. Knowing the average lifetime value of a customer allows them to target high-value demographics and tailor their offerings accordingly. They can then compare the acquisition cost to the projected CLV to determine the return on investment for their marketing efforts.
Poorly designed websites can be a silent drain on a bank's CLV. Imagine a customer interested in opening a new account. They visit the bank's website, eager to start the process. However, the application process is cumbersome, riddled with confusing instructions and hidden fees. Frustrated and discouraged, the customer abandons the application, leaving the bank with a missed opportunity.
These abandoned applications represent lost potential customers and translate to millions of dollars in missed CLV. Streamlining the application process, improving user experience, and ensuring a smooth digital journey can significantly reduce abandonment rates. By prioritizing user-friendly website design, banks can capture the interest of potential customers and convert them into loyal patrons, ultimately boosting their CLV.
In today's competitive financial landscape, digital growth is no longer optional. Customers increasingly expect seamless online experiences, and financial institutions that fall behind risk losing ground. But simply focusing on opening new accounts isn't enough. The key to sustainable success lies in fostering long-term, valuable customer relationships. This is where the concept of Customer Lifetime Value (CLV) comes in. By understanding the true worth of your customers over time, you can make informed decisions about marketing, sales, and website optimization, all geared towards maximizing value.
For more about financial transformation, reach out to James Robert Lay at the Digital Growth Institute.