Services Per Household or (SPH) has been a staple term in the MCIF industry since the inception of the tool, however is it or should it be a standard to compare your institution to your peers?
Since there are no standards in the industry as to what makes up a service, institutions are free to build, bring together, or break apart as many product categories as they choose fragmenting a standard that was once the norm.
A past organization I had worked with had about 44 different service categories and I was the individual that lobbied hard to get all of them. Now you may be saying that is just way too many, however to my defense the majority were from the commercial world where no standards are set and the litany of products are very unique and diverse. As for the retail world there were standards we adhered to.
Through a lot of discussions we’d determine checking should be broken down to interest and non-interest, savings and money markets, internet banking and bill pay. There were strong cross-sell considerations for each of our categories.
My intention was to increase services per household in a methodical way to build a stronger bond with the customer. As with most organizations the overall count of accounts and household numbers were declining, however those that remained were higher balance and multi service households and better for the organization.
Within your MCIF system there should be a function that will allow you to review your SPH. Do this as a company, however more importantly do this at the branch level. After you have obtained a reading for each, review your service categories make adjustments then run again.
If your system has the ability to stratify your services do so by branch and look for the percentage of clients that are single service, 2 services, 3 services and 4 or greater. The organization that I was with we looked at these components for both existing accounts and new since the last update. The trends were very interesting. New branches consistently had clients come in to the institution with 2 or more services and then built from there, however the more established branches had low initial services for new accounts and lower than normal existing SPH numbers.
The biggest difference between the two were existing locations had a lower number of new households establishing relationships compared to new locations. The sales culture in a new location is just different. They were hungry for the business. In addition, most new locations were built in more affluent areas where a single account would bring a checking, savings, debit card, and all internet services without even blinking an eye.
Services per household is an important measurement, however it should never be the measurement to run your institution. In a later blog I will address how focusing on single service households could be one of the best projects for any marketing group, however for now we will continue to work through SPH.
As said above SPH is a good measurement tool, however a more accurate measurement that one could compare against peer is APH or Accounts Per Household. You just can’t mess that one up. It is what it is.
I’d like to provide you with one of the biggest and most detrimental case studies that was conducted that proved the very point never to run your sales culture on a single measurement, and more importantly never SPH.
Early on in 2000 I had a boss who in my mind was a great man. He knew how to motive his work force and worked hard to implement new measurements and pushed hard to change the culture of the bank. We had always had SPH as a part of our measurements, however is was not THE measurement. As a part of a new initiative he established a goal of obtaining an SPH of 3.55 within a year. On average the company had an SPH of 2.37.
Although a formidable goal we at that time had no idea as to what we started in motion. Marketing plans were drawn, reports were built to monitor the progress BI-weekly. Not known by us at the time was how large and dirty this project became for the organization.
To lay more ground work the company had established a new sales culture to increase cross-sell ratios helping associates break out of their comfort zones to begin truly helping the customers with their financial needs. It was working great, there was a resurgence in people helping people and associates were made accountable for their actions.
The project of monitoring SPH was both a next sales step and something that market makers had been asking Senior Management for years. As the months progressed very little progress was being seen in the numbers. Additional sales training was provided and the pressure started building. In the mean time a number of things were taking place which ended up in an entire restructure of the organization, the CEO, my boss, and others were let go. This came as a shock to everyone.
However what came next was even worse. The incentive compensation models for retail were changed to a point system with point values and incentive payouts based upon average balances and types of accounts. It was my job to run the numbers with past data to determine if the payouts were to be the same and that those that were doing the work were compensated for it. With a few minor adjustments we put the program into play. I was handicapped with one additional issue in that the money for the development of the tracking tool, which had an ancillary benefit of decreasing on boarding time by 75% was cut from my budget. The argument that was provided to me was, “If we reduced the entry times associates would fill it doing something non-productive instead of contacting additional clients.” Strike 2!
Here is one more component I was not prepared for. The new Senior Management team picked up where the others had left off. SPH became THE driving factor in their sales program. This number was the only thing. The funny thing was, there were only three individuals in the entire bank that knew how it was built, knew the issues with it, and knew how important clean data was to connecting households correctly, however we were so far removed from Senior Management we couldn’t nor were allowed to pass the information on.
The pressure was strong at the weekly management meeting about SPH, regions and branches were getting beaten up bad. It was almost like a pressure cooker getting ready to blow. Some locations had it easier than others, however it was very apparent the larger number of households a branch had the more difficult it was to turn the ship.
I must also note that at the time I was still in marketing, the place with the pretty paper and colored pens.
After the first month I felt we had a problem. I made the incentive compensation committee aware. We were a little above our projected payouts, but I had made a few changes in the software program that tracked the data to close down some holes that we found where fraud was occurring. The second month solidified the problem. The payout doubled and toped out the incentive compensation payout in month two for the quarter. At that point the flood gates had opened and I found entire branch locations manipulating the systems to get their SPH numbers up an in turn we were paying associates to do it.
I went in to fraud prevention mode and found hole after hole. Multiple entries into the system, accounts with zero or negative balances, you name it. There were still a lot of good associates out there and they brought these issues to my attention. I was able to quickly write programs to stop or monitor the action. I even had an argument with a manager who just couldn’t understand why we wouldn’t pay incentives on a negative or zero balance/non-funded accounts.
Here is one of the best ones; I sat in on a sales conference call where a regional sales manager was providing best practices for increasing branch SPH. It was take a $1 out of petty cash and open an account for a customer. I also heard of branches that just automatically opened debit cards for those that didn’t have or requested one.
It was so hard for me to believe that a bank that was trusted with individuals life savings was not unlike any other organization, if the door was open and the pressure to succeed was high enough things would find their way gone. By the end of the third month I had closed all of the doors and those that were in the wrong were either let go or reprimanded. I was confident that the program was going to be successful.
However it was determined by the new CEO, it was best to walk away from the damage that was created and start a new program based not on individual accomplishments, however the branch as a whole. The new program was put into place, but the pressure on SPH still remained.
It was about six months later that in one of my regular meetings with regional Sales Managers and Presidents about reporting that a Sales Manger asked me how do we get the pressure of SPH off them. I looked at the regional president who had weekly contact with the CEO, and said he was the one that should take the recommendation. His response was that I should sit in one of those meetings to see how brutal it was.
I took a deep breath and told him that I would take care of it. Believe me I was no body in the organization, however I was the head of the MCIF group and had to tell the CEO why running a company based on the single measurement of SPH was detrimental. Besides what did I have to lose?
I figured a face-to-face meeting was the best, however after more thought I figured I’d just put my thoughts in an e-mail and hope for the best. It took me about two days to get it right and I just sent it directly to him. I informed my boss about what I had done, and his response was that I had just committed suicide. My heart sank, however I was the only person in the company that had the data, that knew the data, and knew why it was wrong. If I was to soon die I knew it was for the best for the company.
The next morning I received a response from the CEO, thanking me for the insight, along with an agreement on the issues and for my very reasons from that day forward the program was stopped.
I had won this little battle of misinformation and felt good. I did spend some additional research time to really see where the mistakes were made. Most tried to blame the head of retail that was no longer employed with the bank, however I was able to see his plans of direct mail campaigns to existing clients aggressively offering additional services. Multiple campaigns to help drive cross-sell, however when he left the supporting campaigns left with him and no one picked up the ball to make the program work.
I use this as a strong case study not to use SPH as the only measurement tool. The company suffered from it. It forced trusted individuals to do distrusted acts. I even feel that earnings and the company’s’ stock price was affected because even though there were a lot more accounts, those accounts came at a price that cost the bank hundreds of thousands of dollars. Zero balance, negative balance accounts that did nothing for revenue, they cost, and in addition the company paid incentives. Try closing 24,000 bill pay accounts that were put on the books and then finding out they had not been used for over 13 months. Even today I shake my head that all of this took place in only 3 months.
In conclusion, use review Services Per Household as a measurement. It will provide you a consistent look at those problem branches or even ones that have it right, however what ever you do don’t drive your company with it.
If you have additional questions on this or any other topic please e-mail me or leave a comment below.
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