Small Business Banking Strategies

September 23, 2002

Financial Services Industry Newsletter

Strategies for Success

Relationship Consolidation: Winning Strategy for Small Business

The small business market is large and very profitable. The average small business relationship generates 50% more revenue than retail "affluent" customers because deposit balances tend to be higher, and because business owners tend to consolidate their personal and business accounts at the same institution.

In most respects, small businesses behave more like consumers than middle market companies. 92% of small businesses are owner managed and they are heavier than average users of bank branches. Retail branch distribution is key to acquisition and retention of small business accounts -- 56% of all new small business banking relationships are acquired through retail branches.

Distribution convenience is a key reason why 62% of business owners ultimately consolidate their accounts. However, business owners are almost 40% more likely to combine their relationships at the bank where they have their personal accounts, rather than the other way around.

One of our clients developed a very successful strategy to acquire small business accounts and grow revenue. The first step involved identifying business owners who had either a business or a personal relationship with the bank, but did not have both. Products were created which recognized both the combined business and personal relationships, and provided incentives for consolidation.

A similar effort was undertaken to identify businesses that were not customers but were located within the trade area of the bank's branches. Different sales and marketing strategies were created based on the estimated profit potential of the relationship. Specific sales actions (who would call, how often) were key to this institution becoming the leading small business bank in their market - and growing branch generated small business revenue 41%.

Do you have the right strategies to grow small business relationships? Here are four "best practice" strategies:

	Make it easier for both your customers and branch staff by offering small business accounts that mirror your consumer accounts.
	Identify customers who have either a business or personal relationship with the bank, but not both. Create target marketing and relationship recognition programs to consolidate relationships.
	Identify prospects in your trade area who are not customers. Leverage new data tools to predict which financial institution they currently use, and model potential account profitability -- then fine tune sales prospecting to acquire your best prospects.
	Improve the effectiveness of your small business distribution. Clearly identify your target market, then map the location of every target prospect. Create small business hubs based on customer and prospect concentrations -- and develop distribution strategies that will extend your reach and market share.

Can we help you improve your penetration of the small business market, and your revenue from existing relationships? Please contact us.

David Kerstein is President of Peak Performance Consulting Group^®.

Peak Performance Consulting Group^® is one of the leading consulting firms specializing in financial services. Recent client engagements have included developing new small business relationship accounts for a regional bank, and assisting one of the top 10 US banks enhance their small business sales and distribution strategy.