Hidden Pitfalls That Can Skew Profitability Analysis

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FAIRFAX, Va.-Credit unions typically measure, track and compare performance among branches. But many overlook the influence the home office can have on those numbers, according to one person.

Paul Lucas, a branding and marketing consultant, urged credit unions to take a look at whether marketing is doing the "right thing" to support a particular branch, or whether marketing efforts are promoting some branches at the expense of others.

"Once identified, problems need to be fixed," he said. "I did a communication audit on a credit union in Miami that looked at marketing and branding. This process always identifies a lot of holes and inconsistencies, and should be done by someone from outside the credit union for perspective."

With increased pressure from NCUA examiners, who are telling CUs that to be profitable they must cut physical facilities, cut staffing and cut marketing, Lucas noted CUs have been forced to take a long look at their branches. But it isn't always so easy, he reminded.

"There are a lot of logistical details with measuring branch profitability, and care needs to be taken," he said. "If all the loans are processed at the headquarters facility but there are branches all over the place, the big question is how to work out profitability? Should transactions be coded by branch?"

7 Measures For 7 Branches

As an example, Lucas said he is working with a credit union in Maine that has seven branches. Management has to measure where the members come from for each of those branches. He said that, again, it's where that outside perspective can be helpful.

Branches can be treated in a similar fashion, he said. Management should ask, are all of our branches doing the same things? Are the people in all of the branches good at cross-selling other products? If not, they might need more training, Lucas assessed.

As part of many a consultation, Lucas asks what is a credit union's definition of "service"? Does the credit union measure service? And are people held accountable for it?

"Every credit union says they give the best service, but then the product and service penetration numbers say otherwise," he noted. "If a credit union does not define exactly what good service means, and then measure it, then it does not have good service at all. No slam against them, but a lot of small credit unions are not able to do this."

To improve, Lucas said having the right focus is important, but then it also is important to have the right people and the top tools. "People are everything, but then the processes must be in place for them to perform. Everything has to work together."

Not all branches are "great" for a variety of reasons. Lucas said there might be a disconnect in training, staff and hiring might be different, or the CU's marketing might not support a certain branch as much as others.

"I'm working with a credit union that has four branches in one city and has another in a city halfway across the country. There is a huge disconnect there. The tactical processes might break down when trying to implement the strategic plan in a case such as that."

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