There are multiple strategies to retain your business customers. In this blog, we focus on one critical strategy to retain your business customers: Maximize your Centers of Influence.

Let’s start by defining “Center of Influence.” In business, we refer to centers of influence (or “COIs”) as those individuals that continually send you customers. Whether the customers are individuals or businesses, your COIs are a constant pipeline for your business. In this blog, we focus on maximizing your COIs that refer business customers to you. But the strategies work similarly with consumer customers too.

One simple example of a COI are dentists. If you are an orthodontist and own a practice, who is your best source of referrals? The children’s dentist! Children initially go to a pediatric dentist to ensure everything is fine. Dentists teach children about cavities and also observe how their permanent teeth are growing. As soon as the dentist detects that the permanent teeth are not straight, they tell parents to think about braces. Dentists usually have a couple of their preferred orthodontists, and they give the parents their contact information. Parents then follow up with the “trusted orthodontist” who will take care of their children’s teeth and visit your clinic. At that point, it’s up to you, the orthodontist, to ensure they buy your services and stay with you.

Customer retention is just as crucial as customer acquisition.

Customer retention should be an ongoing strategic objective for financial institutions. Retention is just as crucial as customer acquisition. And one could even say that losing an existing customer is more costly than acquiring a new one. Why? Because you have to “undo” everything you set up for each customer and start the process of acquiring another one. All your time spent training the customers or additional resources hired becomes an expense with no income to show for.

There are multiple reasons business customers leave your institution. One important reason is simply ownership succession. The ownership transition from one generation to the next may not include your financial institution. Why? Because the next generation successors don’t have an existing relationship with your institution. Therefore, they go to other banks or credit unions they know or have relationships with already established.

Another reason is that the current owners sell the company to a new team of investors or another established company. The new owners use different institutions than yours to meet their banking needs, maybe even your competitors.

Who are the primary Advisors for businesses?

Business owners work with three primary advisors during an ownership succession whether the successors are family members or outside investors. And the succession process begins 24 to 36 months before any deal is closed. Below are the three primary advisors to businesses:

1. CPAs and Accountants: Business owners work with their CPAs on tax matters and in preparing financial statements to present to potential buyers.
2. Mergers & Acquisitions (M&A) Attorneys: The attorneys get involved in drafting the Letters of Intent (LOI) for the potential buyers. The business owners selling their business hire their own attorneys to review and negotiate the LOIs.
3. Wealth Advisors: Business owners, your customers, typically work with their wealth advisors ongoing. They may be the first ones to know when the owner is planning on selling the business. The wealth advisors begin the planning process and work with the tax accountants on multiple scenarios years before deals close. Not all financial institutions own a wealth management company. Therefore, it’s important to create an affiliation with a wealth management company.

Notice that the bank or credit union is not one of their primary advisors. This is a huge opportunity for your institution to become one of your business customers’ four primary advisors!

How to identify and maximize your COIs.

It is important to first identify your Centers of Influence so you can then maximize the relationship. Below are some strategies on how to do so:

• As you acquire a business customer, ask them who their key advisors are and ask for an introduction. You can then start building your own relationship with your customers’ advisors.
• You can also ask existing business customers who their key advisors are and establish a relationship with them going forward.
• If you have already identified your COIs, then get to know them better at the personal level. It’s important that your COIs feel appreciated and valued. Your COIs may or may not be your customer but treat them as your best customers!
• If you can, reciprocate and become their COI as well. Referring your institutions business customers to some of your COIs’ firms can be a win-win. Of course, you need to use common sense and avoid conflicts of interest. But it can be done to meet some of your business customers’ needs that your institution cannot meet. Examples are referring them to a tax accountant or an attorney that is also your customer and your COI.
• Always say “thank you” to your COI and let them know if the referral became a customer. COIs like to know what happened to the referral.
• Lastly, ensure you build relationships with your COIs’ successors too. If your COI is a partner at an accounting firm and he/she is going to retire, ensure they introduce you to their successor. Take the initiative to get to know their successor and offer your banking services to help their customers. Do the same with attorneys or wealth managers if they share about their own retirement timeline.

One Critical Strategy to Retain Your Business Customers – Conclusion

As mentioned above, there are multiple strategies to retain your business customers. One critical strategy to retain your business customers is to maximize your Centers of Influence. You acquire COIs by getting to know your business customers’ advisors early in the relationship. The goal is that when the time comes to selling the business, you retain the business as customers.

Knowing and building relationships with your Centers of Influence is crucial to retain your current business customers after they sell their business. Remember, it doesn’t matter if the business owners sell to their family members or to new investors. What’s important is that you’re building relationships with the successors and your customers’ advisors.

It’s also important to build relationships with your COIs’ successors. Doing so will guarantee your pipeline will continue growing indefinitely and it won’t dry out.

I hope these strategies encourage you to identify your COIs and maximize your relationship with them, so your institution continues to grow.

Each year during the fall, community banks start thinking about budgeting for the next fiscal year. Some institutions develop aggressive strategic plans; but they neglect to budget appropriately for the implementation of their strategic objectives. Therefore, you must align the budgeting process with strategy. Doing so is crucially important to ensure your institution implements the strategic plan.

There are three key areas that leadership must focus on when developing their strategic plan: growth, profitability, and capital deployment.

Let’s address each area of focus from a strategic perspective and how to align the budgeting process with strategy.

Growth:

The first question to address is: Why do you want to grow the institution? The obvious answer is twofold: 1) to stay competitive and 2) because if you’re not growing, you’re shrinking! But there may be other reasons such as expanding geographically to new territories. Or you want to offer new products and services or reach new target markets. Whatever the reason, you must find the answer and be able to describe it to your shareholders, customers, and regulators.

The next important question is key: How do you plan to grow the institution? The “how” represents your strategies to grow the institution and there can be multiple strategies.

Below are examples of growth strategies:

• Expand into specific territories (name them) or markets to attract new types of customers.
• Hire the right new talent with specific sales skills and experience to go after bigger business customers.
• Update our technology to be able to scale and support the increased number of customers. (The technology can include everything from the core system to a new Customer Relationship Management (CRM) system to AI integration. And there is always the ongoing investment in cybersecurity technology to protect your institution from cyber-attacks.)
• Create a new division of the company to offer new services to existing and new customers. Examples could be Mortgage, Treasury Management, or Private Banking.

Each of these strategies must have its own budget. Then you can perform a cost-benefit analysis to decide which ones to implement and in which order. Also, ensure you implement marketing strategies that support your strategic objectives for growth. And include the cost of each marketing strategy in the overall budget too.

Profitability:

As you identify your strategic objectives for the new plan you must align the budgeting process with strategy. For your institution to be profitable, the budget must show a net income after all is said and done! This is what the owners/shareholders will hold leadership accountable for… the bottom line.

Sometimes community banks leave money on the table and don’t charge appropriately for their services. Often, they give certain services away (i.e., Treasury Management) for free thinking they need to do that to stay competitive. However, in the end, they need to be a profitable business to succeed. And there are many ways to increase profitability.

Below are some examples of strategies to increase your profitability:

• Consider integrating AI into existing processes wherever possible. By increasing efficiency, you reduce expenses and/or increase profits depending on how you choose to use AI.
• Maximize the current technology that you’re already paying for. Often, the software solutions you purchase or subscribe to have multiple features that you’re not using. Learn about all the features before you purchase any additional solutions.
• Perform a cost-benefit analysis on each major initiative that is an identified strategic objective in your strategic plan. Ask this key question: Is this initiative going to be profitable? If yes, by when? The timeline needs to be recorded and be part of the budget. If not, then why are you doing this? Occasionally, there may be an initiative that you decide to pursue knowing that it will not be profitable. One example is to open a new branch as a “deposit source” that may not be profitable for a while.
• Ensure the main goal of your marketing strategies is to create sales leads which in turn result in sales that produce a profit for the business.

Again, each of these strategies must have its own budget. Some strategies, especially technology ones, may require an initial large investment and you won’t see “the fruit” for a while. And that’s okay as long as everyone understands the end goal.

Capital Allocation:

Every business starts with capital – however small. And every business needs ongoing capital to survive. When a company, regardless of size, runs “in the red,” (meaning they have a net loss), they’re “eating the capital.” There are four principal ways to raise capital: 1) Get investors to invest in your company which means you now share the ownership; 2) You inject your own money which may deplete your savings; 3) Obtain a loan which brings the interest expense and eventually the need to pay off the loan; or 4) Retain the earnings of the company. If your bank is owned by a Holding Company (HC), then the HC can obtain a loan and inject capital into the bank. However, the bank still has to pay interest to the HC.

The first question is then how do you plan to raise capital? The next key question is: How are you going to deploy your capital? For example, are you going to invest it in new technology or hire new talent or upgrade your website? If you invest in technology, will it be to protect the company from cyber threats or to increase efficiency or to offer new products? Sometimes you need to allocate capital to improve your company’s infrastructure. You must be specific as to how exactly you will allocate your capital. Ideally, you allocate capital with the goal of producing growth and profitability.

Below are some questions for your company’s leadership to answer to arrive at strategies to allocate your capital:

• Think long-term. Which initiative will produce long-term profitability while supporting the growth of the organization?
• If one of your strategic objectives is to expand geographically, is it better to invest capital in a new physical location? Or could you achieve the same results with an online presence?
• Will investing capital in your website redesign and marketing strategies result in net new sales in your local city and State? Or do you just bring your website up to date?
• Would hiring a superstar salesperson increase sales or would it be better to invest in training your current staff?
• Can the new product you want to offer be sold to most of your customers or is it just for a few? If you only sell it to a few customers, will the product still be profitable?

As you can see, there are multiple critical questions you and your leadership team must answer before identifying the strategic objectives. Each objective then must have strategies on how to accomplish them and the cost associated with it. That’s how you align the budgeting process to strategy.

I hope these ideas help you in your budgeting process for next year as you conduct your strategic planning sessions.