How to get your return on investment through increased loan growth and profitability

How can credit unions garner a quality return on investment (ROI) from staff training, business development, marketing efforts, community involvement, etc.?

Credit unions allocate a significant amount of money toward staff training. They also invest in relevant resources from time, money, people, giveaways, and more to marketing and branding, supporting community events through sponsorships, providing financial literacy, offering home buying and debt management seminars, and other non-revenue generating services. Many credit unions refer to these strategies and activities as investing in their most valuable assets: their staff and communities. Many credit unions, however, are expending a myriad of resources without knowing what their specific or tangible ROI is.

In my experience, CEOs, CFOs, and other executives have been more inclined to allocate a robust budget to strategies that show a quality ROI. With marginal return on asset (ROA) ratios and an increased focus/concern on risk-based capital constraints, credit unions must “rethink, outthink, and innovate” as Mark DeBellis eloquently states in his book Reflections Through a Windshield. This process helps ensure everyone in the credit union is focused on the right stuff to maximize the credit union’s ROI and ROA.

As we all know, credit unions can’t invest in new technology, brick and mortar, more staffing, new services, etc., without increased income – specifically loan interest income, which is what credit unions should focus on (not fee income). That said, credit unions must become more strategic in their efforts to increase loan growth and, equally as important, profitability. In a nutshell, credit unions need to make sure they are getting the most bang for their buck – and loan interest income is a driver for revenue, as well as the backbone of success for credit unions. So make sure you are investing your dollars into strategies that will maximize your ROI and ROA through increased loan growth and profitability.

Below are some simple strategic tips to help track ROI and get a higher ROA through increased loan growth, profitability, and retention:

1. Create a benchmark for ROI: Any strategy and/or activity your credit union engages in (marketing and business development; training programs, etc.) must be able to produce a minimum number of loan opportunities to cover the cost of the strategy and/or activity. For example, if you sponsor a community event, determine in advance how many loans the credit union would have to generate to cover all expenses associated with the event: human capital, giveaways, food, refreshments, sponsorship fees, etc. Then come up with a plan of action to ensure you achieve your goals. Another example would be training. If you invest in training for frontline staff, how many loans would you have to generate to offset the cost of training?

2. Determine what your loan interest income would be for one loan and determine how many loans you would have to capture to break even. A solid guideline to follow is: An average loan balance of $10,000 (auto loan) with a 7% loan yield with a 36-month turn around would equate to $2,100 in loan interest income.

3. Create a simple tracking program to measure your ROI for your sales and service training programs, community events, and seminars. For example, track closed loans and checking with e-statements and payroll direct deposit (PFI status) referrals to ensure you are getting your ROI from training and other activities you have invested dollars. Create promo codes for loans that are generated from business development efforts, loan referrals, etc.

4. Create a plan of action to ensure you can capture loan opportunities as a result of any sales and service-training program, event, or seminar you sponsor. For instance, do you have the appropriate tools needed to generate loans as well as the appropriate staffing present at business development events – and are they trained to ask the right questions to ensure you get a positive response resulting in new members and new money (loans and deposit accounts) that create PFI status and retention, as well as profitability?

5. Train staff to ask the right questions: A good rule of thumb for sales and service training is to never ask a question that gives you a 50% chance of getting the answer “no”. For example, never ask someone if they would like open a new checking account or credit card. Most people respond with, “No thanks, I already have a checking account” or “I have too many credit cards.” In most cases, the person who responds with “yes” to your credit card is generally the person who doesn’t qualify. So don’t ask that question. Instead, train your staff to ask questions that will lead to more loans, credit card balance transfers, and checking accounts with direct deposit and e-statements. Bottom line: set your staff up for success with the right training.

6. Create a dynamic business development team: Understand business development is not the same as marketing, and PR is not the same as business development. Marketing is indirect sales and business development is face-to-face sales. Bottom line: just because your marketing person who is dynamic in marketing doesn’t necessarily mean they will be (or want to be) the perfect fit for business development. They are not one in the same. Business development is about generating “new members…new money by opening doors to businesses and getting face-to-face interactions with the employees.” PR is about branding exposure. Once again, they are not one in the same. Additionally, business development is not the same as commercial lending. Business development focuses on the largest companies in your area to access employees for consumer loans; commercial lending focuses on small “mom and pop” businesses to capture commercial loans.

7. Establish SMART goals for all staff: Specific, Measureable, Achievable, Real/Relevant/Relatable, and Time-sensitive. There is nothing more motivating to staff than to know what specifically is expected of them. Provide the training and resources needed to help them succeed and then reward them for achieving those goals. Give them a great cause to work toward and they will jump through hoops to achieve success. For example, several of the management team agreed to shave their heads if the credit union doubled their loan volume in one month. The staff were trained and empowered with the tools to achieve success, which resulted in an unforgettable head-shaving ceremony!

In part two, we won’t show you how to shave your head but will show you how to create your formula for success to ensure you get your ROI and increased ROA and accomplish all of your objectives for 2015. Stay tuned!