The economics of customer retention have been the subject of much discussion. In recent years, the fine work of Bain & Co. and the Advisory Board shed some light on the profitability of customer retention and moved it from voodoo economics to reality.

The first step in understanding the economics of customer retention is to recognize that the value of a customer to the bank is not in current annual income. A customer's value is the net present value of the stream of annual marginal profit contributions over time.

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