Referral Madness

‘Sup, GonzoBankers? Keepin’ it real out in the field? I’m glad to report a downright rosy trend among our esteemed clients. Thanks to a newfound pragmatism sweeping the industry, even the most diehard, ivory-tower-dwelling retail heads are backing way off on their demands for the ever-elusive, multi-channel, enterprise-wide, customer-touchpoint-embracing CRM functionality. At GonzoBanker, I’m proud to boast that from day one we’ve said that the winning proposition in the CRM world is simply to have a strong contact management system and a simple, maybe even homemade, intranet-based sales and referral-tracking system. That’ll cover about 90% of what the most unabashed CRM wonks are trying to accomplish.

The market is full of functional contact management systems. The products are out there, but we’ve seen only a few successful implementations. Among core players and stand-alones there is definitely a dearth of simple products that can offer an uncomplicated, usable sales and referral-tracking system that flows from the point of sale to payroll. Our clients have said that they like the idea of creating their own tracking system, but they have the perception that such a system would carry an indigestion-inspiring price tag and untold development time. They point to the money center banks – the real success stories in retail banking – that have created their own sales and referral-tracking/incentive programs and say that they have unlimited budgets and a Texas-sized technical and marketing team to drive the project.

Well, as they succinctly say on “The McLaughlin Group” – Wrong!! I have a longtime friend, we’ll call him Kerry King, who works for one of the Big Boys – an unnamed, gargantuan U.S. bank that has developed a remarkable sales and referral-tracking system at a cost that is downright stomachable. This system drives sales and referral incentives for thousands of retail trench warriors – branch managers, new account reps, consumer lenders and tellers. Here is a sketch of how the system works:

1. Individual branch profit goals are calculated by the Finance group based on projected footings and earnings and some very high-level product profitability estimates.

2. Based on these targets, Mr. King’s group renders sales per day per retail FTE goals at each branch and uses the Finance department’s profitability estimates to assign incentive pay for sales and referrals of the various retail products. Retail employees are incented on some very basic objectives, such as:

• New deposit accounts sold/referred – measured only by the number of accounts, not dollar value, mainly for simplicity’s sake and the fact that deposit account balances tend to vary
• Debit cards – ATM-only cards are assigned no value
• Referrals to affiliate organizations – such as trust, mortgage, brokerage, merchant cards, small business payroll services, credit cards, etc. (Only referrals to affiliates that result in closed sales are incented.)
• Retail loan sales – number of loans sold
• Retail loan sales – Dollar value, with credit lines credited at X percent of the full line amount (based on the bank’s historic line usage rates)

3. These goals are approved by the individual bank presidents, and the race is on.

4. The incentive-tracking team developed a simple database to record new sales and referrals, by employee, from feeds from the core loan and deposit systems and from the various ancillary systems.

5. Tracking the direct product sales – from core deposit, loan and debit card sales, and from the nontraditional affiliates – is relatively easy and something that our clients already can do. It’s a simple daily feed of the relevant product, balance, rate and sales rep ID information into the tracking database.

6. Tracking referrals at King’s bank is quick and straightforward as well. This is where our clients usually stumble. To log a referral, an employee accesses a simple Web-based tool that requires a total of three input fields – employee user ID (pre-filled), prospect’s tax ID number, and the product type that was referred. The product type is chosen from a drop-down menu of no more than a dozen options – such as consumer loan, deposit account, insurance account, etc. (Entering a referral into the tracking system takes 20 seconds, tops.)

7. After the daily feed process, the incentive-tracking database cross-references the customer tax ID number of each new sale with the prospect tax ID numbers entered into the Web-based referral tool. When it finds a tax ID and product type match, the referring employee gets a referral credit.

8. The incentive database tracks direct sales and referral credits for each employee, aggregates them, and compares them to goals. Sales goals depend on job function. To be eligible for incentive pay, employees must reach at least 80 percent of each goal assigned to them, and they must average 100 percent across all assigned goals. (So you can miss goal on a few metrics, but you better make up for it in others to be eligible for incentive pay.)

9. The incentive group sends payroll a quarterly file with each retail employee’s incentive pay.

10. Average quarterly incentive pay is as follows:

• Branch managers – $1,000 – $3,500
• New account reps/consumer lenders – $500 – $1,000
• Tellers – $250 – $400 (This is the area with the most variability. The aggressive till jockeys can make almost $1,000 per quarter – not a paltry sum for a teller.)

Look out Circuit City, because the retail nouveau riche are going shopping!

This system flat-out works. Kerry boasted that core banking product sales immediately jumped nearly 10 percent when the incentive program was implemented four years ago, but closed sales referrals to the affiliates (trust, mortgage, etc.) grew 12-fold.

King said that early on there was significant branch-based bellyaching that all of this newfangled sales focus would lead to sub par customer service. This noise halted right around the time the first incentive checks were cashed. And contrary to speculation, retail turnover did not worsen at all as a result of the bank’s new incentive program. King added, “Bankers will sell absolutely anything if you pay them for it, and they’ll laugh out loud at you if you ask them to sell or refer anything without a pay kick.”

Here’s why this system works:

• The program is SIMPLE. King’s bank could have made a science project out of this if they wanted to. The resources were there and the big bank mentality tends to lean toward the complex. But the number one goal from the project’s beginning was to develop a system that is understandable, easy to administer, and likely to keep its legs after the first six months of initial excitement.

  The technology is far from rocket science. It’s a DB2 database with feeds from core and ancillary systems. The rules are straightforward and measurable. Tracking sales and referrals takes almost no time or effort on the front line’s part. An employee making a referral does not have to depend on the actual salesperson to do anything but sell in order to get credit for the referral.

• Importantly, the incentive-tracking group that develops the rules and the retail branches all report to the same individual. This minimizes the Us versus Them mentality and feels less like the incentives are being jammed down employees’ throats by the suits in Finance.

• The Retail head gets buy-in from the bank presidents and then enforces the program with an iron fist. There is very little argument from the branches after the first few complaints are squashed.
  

Now, to be honest, this system has holes. King’s group had to decide what to do when multiple employees enter a referral for the same customer. (The two referring employees split the referral credit.) And of course you can cheat any system. Sales have to be legit. To get a sales credit, new accounts must be funded and ancillary products activated. (Sales credit is removed if the criteria is not met within X days.)

Other holes… Maybe a teller could go through the day’s work of a platform employee and enter referrals for each account that was opened. Or they can just start a concentrated effort of entering known tax ID numbers into the referral system in hopes that the customer will come in and open accounts or buy new products, thus tallying a referral credit. But with minimal effort the bank catches these cheating toads, too. On average, 40 to 50 percent of a retail employee’s referrals result in a closed sale. If your referral closure rate is above 80 percent (like the teller claiming all of that day’s new account sales as his referrals) or below 20 percent (like the employee entering known tax ID numbers at random to get future referral credit), you’re going to get audited. If you’re cheating, you’re stealing. If you steal, you’re on the street.

What I truly love about this system is that it is repeatable for our mid-size bank clients. The system is simple and far from labor-intensive. King’s 25-person group (10 database techies, 10 report writers and 5 managers) runs the incentive pay program for thousands of retail employees – about one FTE for every 1,400 RETAIL employees. The average mid-size bank ($1 – $10 billion in assts) has 765 TOTAL employees. So we’re talking about minimal personnel expense here. This is a database (even Access would probably do) with contributions from a few financial, marketing and I.T. people on a part-time basis. Even if you have to hire someone to write and maintain the database and pay a consultant with incentive pay expertise to help establish the ground rules, the up-front costs would be minimal for most of you. If you can’t justify hiring one person – or go nuts and hire two people – to potentially get some butt-kicking retail sales results – well, c’mon!

Let me know where my logic has failed you here, GonzoBankers. Where has the snotty consultant oversimplified? Send me your success or failure stories. If I’m wrong about this, I’ll publish my humiliation publicly. If I’m right, I’ll gloat. But I think you can do this in-house with a simple database, minimal technical expertise, a low budget, and a lot of political and organizational savvy. Lemme know.
-smh