We all want to cross-sell more to our customer base, but most institutions have surprisingly poor metrics for this strategic activity. Research has firmly established that customers with multi-product relationships actually do show higher value, lower price elasticity and lower propensity to leave - all good reasons to pump up the team and cross-sell like there's no tomorrow. After all, that's the foundation that CRM and database marketing stand on - the existing customer base - and we've spent serious money on those platforms over the last two decades. But the questions what is a cross-sale? and how do you know when one has happened? are surprisingly difficult to answer.
The reason we get ten different definitions from ten banks and multiple definitions within the same bank, we believe, is that key information is missing from the definition most banks use.
Let's start by looking at the most common KPI for cross-sell the Cross-Sell Ratio. Simple enough, it is the number of products per customer, right? Sort of - it depends on what we call a product and what we call a customer, and those definitions are not comparable across banks or often divisions within a bank. A thorny patch here.
Let's ignore those issues and drive on - does a cross-sale have to involve new money as well as a new product or does cannibalization count? We may be kind of old school on this, but we don't think eating your own lunch is selling - we like to think that a sale involves new money. Cross sales ratio doesn't tell us that, because it counts products (however defined) per customer (however defined) instead of looking at the source and destination of customer money flows.
So what is a cross-sale, really? In our view it is the incremental increase in the customer's balances that arise when a customer acquires a new product. To get to this we need three things - product and customer definitions that are stable and comparable, and we need to understand the flow of funds between, into and out of accounts. If we have that information, we can see cross-selling as an activity rather than a KPI statistic and we can manage that activity to improve productivity. Research shows that flows across products are significant, especially for deposits | investments, where 30% of account growth is internally funded. It's time to get a handle on these basic metrics to improve sales force productivity and reap the benefits of higher value, lower price elasticity and lower propensity from cross selling.
