Determining Lifetime Member Value
04.21.2015 - 04.21.2015 (M & BD)
Erin is just days away from her 21st birthday. She is two years away from completing her advanced degree and getting a good job. She is in a relationship, planning to get married, and have children. Erin plans to buy a used car. As her family grows, she will buy over five cars and at least two houses. Along the way she will need credit cards and a line of credit.
- Would you like Erin to become a member of your Credit Union?
- What would you be willing to spend to make Erin a member of your Credit Union?
- How do you determine lifetime member value?
I ask this question to a number of credit union executives and the answers I receive include - we are not sure to real numbers that have ranged from $50 to over $800! When I probe further as to the rationale of how the executives came up with this answer, they cite a number of considerations without getting too specific.
Here are a few determinants of how lifetime member value can be computed:
Credit Worthiness: What is the members score? While many of us prefer A’s & B’s, there is potential value in interest rate income to serve those with lower ratings.
Members Age: A younger member may not have the optimum income to start off, but if nurtured and they stay – it could turn into longer term profit. By the same token, a retired member might not take out big loans limiting your available opportunities to earn income.
Potential Products: Do you know what the profitability impact of each of your products is and over what period of time? Do you know what your “sticky” products are? What are you doing to move your members to have more than one product relationship with your Credit Union?
Income Level: While we do have an opportunity to earn “punitive” fee revenue from lower income members, a higher income usually results in greater loan amounts and consequently larger interest earnings.
Debt to Income: How much debt does the member have? How much risk are you willing to take? What is the potential upside income with that member?
Number of Potential Relationships: How many other positive relationships can you acquire because of your relationship with this member?
Personal Situation: The answers here range from what brought the member to you to the MSR’s personal opinion on how they perceive the member. This can be subjective, but a hunch from experience can get better over time.
Knowing how much your member (or potential member) is worth is important as it gives you an opportunity to figure out how much you can spend to acquire and build on the relationship.
Join me on April 21st as I discuss these and many other considerations of how different financial institutions compute lifetime value. We will compare this with how lifetime value is computed by other industries and apply these key principles back to help our own initiatives. From creating segments to building personas to creating member journeys – we will discuss ideal practices to optimize member relationships.
And do think about how much you would be willing to pay to get Erin to become a member of your Credit Union?
Sundeep Kapur, Digital Strategies, Digital Credence, Lexington, SC
Sundeep has had the opportunity to help many financial institutions create and execute a successful member engagement strategy. His specialty lies in helping brands adopt digital by focusing on fundamentals – reduced cost, improved security, and driving revenue - all towards enhancing lifetime member value. He recently authored a white paper, “Grow 2020: Driving Effective Member Engagement.” This document has helped guide many Credit Unions with their five year strategic plans. He promises to share these best practices at our event.
In addition to direct work with clients, he writes articles for magazines, teaches yoga, and is invited to speak at a number of financial conferences. He is the author of an e-book on digital best practices with over 1600 articles at www.emailyogi.com.
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