SCOTTSDALE, Ariz.-It is a mistake to simply measure a branch's performance according to the number of products is sells or cross-sells, according to one analyst, especially if the credit union really doesn't have a handle on the profitability of those products.
Mike Kohl, president and CEO of the Kohl Advisory Group, headquartered here, made clear that money-losing products do not suddenly become profitable when sold in volume.
"It is critical to start with product profitability, because products are the basic element that a financial institution sells," he said. "They are put in members' hands and the member pays. They can be profitable or they can be unprofitable. But branches can only be profitable if products sold are profitable. You cannot take an unprofitable product and sell it to a member and make it profitable."
Similarly, members can only be profitable if the products they acquire are profitable, Kohl continued, noting that the reason for a branch being in place is to enhance the credit union's relationships with its members and get more products into the hands of members.
"It makes a huge difference if those products are profitable or unprofitable," he emphasized.
Those who calculate member profitability should examine the products those members have, not count the number of branch visits the members make, Kohl said. If fees are set up properly, even the member who bounces a number of checks can be profitable. Sometimes, those members are the most profitable, as many credit unions have learned after instituting a courtesy pay program.
Delivery System For New Business
Branches are delivery systems, as are ATMs, Kohl said. Therefore, branches should be measured based on their contribution to the credit union's overall bottom line.
"This means acquiring new, profitable products. Branches promote new relationships and enhance existing relationships, which is not emphasized enough," he declared. "A whole lot of time and effort are spent looking at the total expense of a branch and dividing by the number of members who bank there. View a branch as a delivery system for new business for the credit union, not just a place to accept deposits or cash checks. Selling products is what justifies a branch's existence. Members have lots of ways to make deposits."
