In 2011, creditunions.com published a series of articles on key ratios for board members that continue to be popular with our readers today.In this new four-part series, we explore key ratios specifically for marketing managers.Part 1 examinedmetrics relating to membership base and new business.Part 2 reviewed the member relationship based on balance sheet totals and the number of accounts.Part 3 tackled product penetration rates. Here, we consider the income and expense items related to marketing.
9. Fee Income Per Member
The level offee income per member is driven by the credit union’s fee strategy, which is a function of the credit union’s field of membership (FOM) and financial structure.A credit union’s fee strategy is generally designed to fill in the shortfall between net income and the credit union’s ROA goal.Other issues include the FOM’s tolerance for fees, competitive pressures in the credit union’s trade area, and the board’s attitude toward fees.Beyond this,fee income per member can also indicate member usage.As they would at any financial institution, credit union members generally pay some type of fee to use products and services.Marketers must not only be cognizant of competitors’feesbut also be able to support the credit union’s fee strategy by communicating how the credit union’s products, services, pricing, and fees fit into the market landscape.
How to calculate: (annualized fee income)/number of members=fee income per member
10. Education & Promotional Expenses Per Member
The amount of money a credit union spends per member on education or marketing expenses is driven by the credit union’s business plan, market commitment, and sales culture. Education and promotional expenses are an investment in the success of the credit union’s products and services. To ensure the investment is producing results, credit unions should evaluate the expense in terms of other measures that indicate market penetration.These measures include accounts per member,average share balance, share draft penetration, and average loans per member.
How to calculate:(annualized educational & promotional expenses)/number of members=educational and promotional expense per member
11.Education & Promotional Expense Per Loan Origination + Net New Deposit Account Balance
This metric, while somewhat similar to the one above, tries to reconcile education and promotional expenses in a given year with the new business generated that year. Although measuring average balances and accounts per member is important, those twoaspects are cumulative over time. It is equally important to measure the new business generated in a single year. Measuring the promotional expenses relative to the loans originated year-to-date and the net new share balances helps measure the more immediate return of the marketing spend. As there is a seasonal trend to savings and lending, credit unions should evaluate this metric in full year (i.e., 12-month) increments only.A year-to-date review significantly skews the data.
The credit union’s demographics and members’financial behavior will greatly affect this metric. For example, older members are less likely to take out new loans and might be spending-down retirement savings. A credit union with these membersmight have to increase marketing spending to entice members to open a new loan versus a credit union serving a younger membership in their prime credit years.
How to calculate:(annualized educational & promotional expenses)/{(annualized loan originations) + (annualized YTD change in deposit balances*)}=educational and promotional expense per new dollars in loan originations and deposit account balances
*Current deposit balances less deposit balances as of the prior year-end.
12. Net Income Per Member
Ultimately the credit union exists to serve members; however, each credit union manager must work with the board of directors to determine profitability goals. Marketers are key employees in helping to meet those goals. Credit unions can measure success at the institutional level such as through ROA or ROE or at the member level. Net income per member is one way of thinking about how each member contributes to the credit union’s success. Profitability levels vary depending on member product usage, engagement, and organization contact, and the credit union’s chosen delivery networks such as branches, call centers,and online services as well as FOM help drive these variables.
How to calculate: (annualized net income)/number of members=net income per member.
Read The Entire Series
12 Ratios Every Marketing Manager Should Know (part 1)
12 Ratios Every Marketing Manager Should Know (part 2)
12 Ratios Every Marketing Manager Should Know (part 3)12 Ratios Every Marketing Manager Should Know (part 4)