I have just left Wells Fargo Bank in San Francisco. My purpose for this trip was to close my account. Correction, my real purpose was to have a $500 fee for closing my home equity loan waived. But, if that didn't work, I was going to close the accounts.
I walk into the bank, introduce myself to the sole banker on the floor and explain that I would like to close my accounts. Okay, that might not have been the best intro, but it was the only one I had, so I went with it! "Sure" says Mr. Banker rather impatient, as he starts typing away on the computer. "Why are you closing the account?" - asked in such a way that it is obvious he is only asking because he is required to ask. (Oh, did I forget to mention that it is 5:30 on a Friday and the only thing standing between him and the end of his work week is closing my accounts!)
I explain my situation and how Wells refuses to waive a $500 charge on the closing of a home equity loan. He proceeds to explain to me that in opening such an account the bank absorbs all sorts of costs, such as credit check, appraisal and filing fees. In other words, it is all about the banks perspective and all the costs they have incurred historically.
So, long story short, Wells Fargo lost a customer over $500. As I sit there waiting for Mr. Banker to get the cash from the teller, I started thinking. This guy has no idea how much money Wells Fargo spends on acquiring a new customer. As a result, he has no idea if he should waive a $5 fee, a $50 fee, or in my case a $500 fee.
Let me explain what I mean.
In every business, it costs a certain amount of money to acquire a new customer. That is called a Client Acquisition Cost. These costs can be anything from investment in sales and marketing campaigns to promotional specials (example, 50% off your first haircut). For those of us in the service arena, a popular promotion is to have an introductory 1 hour meeting with a potential new client. The cost of that 1 hour is my client acquisition cost.
Now let me apply that concept to the Wells Fargo situation.
As a business owner, home owner, and consumer, I have the potential for a lot of bank products from business checking, credit card processing, mortgage loans, credit cards and regular old checking accounts. If it costs Wells Fargo $500 in marketing, sales and various other promotions to acquire all of my business, Mr. Banker, should have waived my home equity loan fee and been happy that he had kept another customer. If on the other hand, it costs Wells Fargo $5 in client acquisition costs for a new customer with my profile, then Mr. Banker was absolutely right in letting me walk out the door with my money in my pocket.
That leads me to this question - do I know my real client acquisition costs? Do my clients know their client acquisition costs? Do I know when it makes sense to give in and waive a fee or when it would be less costly for me to just let that client go and acquire a new client instead? Do my clients know this information, or maybe I should start adding that analysis to the information we provide as part of our monthly review?
The more I think about this, the more I believe this information is important because without it, we are at best shooting in the dark and at worst shooting ourselves in the foot.
Something to think about....