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by Darryl Demos, KeVIN TraVIs aND Dale JoHNsoN
RETAil SAlES FORCE
To revitalize branch sales and solve over-staffing issues, banks will need improvements in metrics; goals and incentives; capacity management; and proactive selling.
One of the major questions in retail banking is how to optimize the branch sales force, which has been hit by a triple whammy of declining product demand, declining branch traffic and declining product profitability. As measured by daily sales units, branch sales productivity has fallen by roughly a third in recent years. While one full-time sales person typically sold about 1.7 products per day in the 2003 to 2005 era, for example, that figure fell to about 1.1 sales per day over the 2010–2011 timeframe, according to Novantas research. Combined with the crunch in product revenues (margin compression; impact of Reg E and Durbin; slack demand), this trend has badly undercut the economics of the branch sales force. Compared with 2003–2005, when the present value of the expected revenue stream from new product sales (net of variable costs) was roughly 3.4 times average total sales compensation, the current “return on sales force investment” (RSF) has plummeted to about 1.5x, according to our multi-bank research — dangerously close to breakeven. This condition won’t magically repair itself when economic
As en se in e th
conditions improve, given that branch traffic likely will continue to decline. Already among major regional banks, Novantas research shows that from 20% to 40% of the retail customer base is largely disconnected from the branch, visiting less than once every two months on average. These “virtual domiciled” customers have established a banking center of gravity in alternative channels such as online and mobile banking, automated teller machines and contact centers. And their ranks likely will continue to grow, mirroring the offsite shopping trends seen in other retail storefront industries, such as books and electronics. Among other things, this has a big impact on cross-sell, given that there are far fewer opportunities to interact with customers and detect emerging needs. Against this backdrop, branches are being left with a profound excess of on-site sales capacity relative to the foreseeable revenue opportunity and traditional performance levers. There are four major steps that banks should take to combat this insidious trend: 1) Determine the bank’s threshold returns on sales force investment, or RSF; 2) Recalibrate sales goals and incentives to meet RSF thresholds; 3) Adjust staffing in
“Already among major regional banks, from 20% to 40% of the retail customer base is largely disconnected from the branch.”
line with market potential and target returns; and 4) Develop a playbook to move the sales force from reactive order-taking to proactive outreach.
By the NumBers
Branch sales will remain critically important to retail banking and still will need to generate roughly 80% of product volume. Although more origination volume is shifting online, 71% of consumers still say they prefer to open an account in the branch. Even among the growing virtual domiciled crowd, most people want to retain access to retail branches and still tend to seek lobby service for high-value transactions. But broken sales force economics need to be corrected. Prior to the market downturn of 2008, the average branch product sale (mostly checking and savings accounts)
figure 1: Declining “return on sales force investment”
Expressed as a multiple of average total sales compensation, the present value of the branch product revenue stream has plummeted in recent years.
Peak RSF of 3.4x
$1,250 Average daily sales per FTE (present value of expected product revenue stream, net of variable costs)
Given ﬂat product margins, a sharp boost in sales productivity will be needed to reach a target RSF of 2.5x, about 0.8 additional sales per FTE/day, or a 73% lift from current levels.
Target Recovery RSF of 2.5x
Trough of 1.5x
$500 $516 $250
Avg Daily Sales Resource Cost
Source: Branch productivity benchmarking and analysis by Novantas, LLC
Transforming Retail Sales Force Economics
generated about $208 of annual revenue, according to Novantas research. That figure fell by roughly 35%, to about $143, during 2010–2011. Meanwhile as we have said, daily sales volume per FTE fell by a third. To diagnose the impact on sales force economics, we start by calculating the near-term value of a typical staffer’s sales production (Figure 1). Based on the average sales pace in 2003–2005, the typical retail banker was selling about 1.7 products per day. The present value of this production to the bank, based on the average duration of cash flow from each product discounted at 15%, was about $1,176 for each representative daily. Fast forward to 2010–2011 and the picture is quite different. The average banker is now selling about 1.12 products per day, down from 1.7. Translating the margin and volume reductions into the average present value of the product revenue stream, each banker is now generating about $516 daily for the bank, a more than 50% reduction from pre-recession levels. Meanwhile, banker compensation has actually risen slightly. At the peak of the market in 2003–2005, we found an average RSF of about 3.4 times sales compensation. This revenue multiple on sales force direct costs is in line with expectations in the financial services industry, based on Novantas research, and provides plenty of room for profitability once other fixed costs are added back in. More recently in the 2010–2011 time period however, the industry average RSF has tumbled to only 1.5x, dangerously close to breakeven and creating a risk of negative returns once other direct labor costs are included in the profit calculation. Given the weak outlook for product margins and market demand, it will be next to impossible to reverse this trend by sticking with current sales practices and staffing levels. Yet substantial progress is possible for banks that can transform the model for branch sales.
“Once established, the RSF threshold clarifies the foundational need to sell more across the business, and it begins to help reshape priorities in role design and expectation setting.”
the reactive culture
Across retail banking, there is a vast surplus of branch sales capacity relative to the revenue outlook and traditional sales models. But the challenge goes much deeper than a mathematical balancing of staff resources and revenues. Rare is the retail bank with a truly proactive sales outreach. instead, most sales teams are still stuck in a reactive, order-taking mode that relies on advertising and promotion to drive branch traffic.
Perpetuating this trend is a widespread perception that asking for more business is somehow at cross-purposes with a service culture. Typical staff training is all about creating the best sales fulfillment experience, and how to probe for opportunities during customer sessions. Meanwhile, proactive cross-sell is limited to branch managers and “outside the branch” sales staff geared toward small business. Though there is a growing interest in using branch staff for proactive calling programs, progress in many cases has been limited by a lack of preparation and handicaps in technology and process disciplines. Along with adequate grounding in phone-based prospecting and sales, branch staffers need analytically-distilled calling lists that make the effort worthwhile, plus remote “call guidance systems” that can improve the quality of interactions. Yet some banks have launched outbound branch sales initiatives without these basics in place. Goal-setting and incentive programs further reinforce a reactive vs. proactive sales model. Top-level goals mostly are based on prior-period accomplishments, often with limited context on true market potential. Then in the field, regional and district managers allocate sales targets based on fuzzy criteria about which branch managers they believe are most capable of achieving them. Even when “local trade areas” are considered in the analytics, many banks still lack a branch-level rationale for setting stretch targets. Some banks further handicap the goal-setting process by linking targets 100% to the financial plan of the division. When plans are linked in this manner, there is a disincentive to set stretch goals due to the risk of distorting the budget. Managers gravitate toward conservative goals, thereby lowering the expectations that are communicated to the field. Furthermore, incentive plans are often designed to reinforce an “even” performance vs. creating large incentives to achieve breakthrough results. This reactive environment cannot prevail in an era when customer demand remains subdued and traffic is being sucked out of the branch into other distribution channels. The organic rate of transaction decline of some 4%–5% is about to get jolted even further by the proliferation of image-enabled ATMs and other consumer-friendly technologies. Such innovations typically drive another 35% of deposit activity out of the branch network within nine months of introduction, based on Novantas adoption curves developed across
multiple client engagements. The 4%–5% rate of decline in branch transaction volume could easily reach 7%–8% in the industry, with a cumulative 3-year decline in transactions of more than 25%.
BuildiNg the Proactive sales Force
Changing the reactive sales environment and improving RSF involves serious organizational challenges. While metrics, goals, incentives and capacity plans all originate within the retail organization, each function has unique inputs, methods and outputs, and rarely do these activities intersect in a cohesive manner. Each area needs to be individually addressed and thoroughly integrated. metrics. Bank-specific RSF metrics are essential in making the profound changes that are needed. it is one thing to understand retail banking revenue pressures at a financial statement level, it’s quite another to operationalize this by precisely identifying targets and potential gaps at the sales position and branch level. Once the current RSF is determined, the bank will need to set a threshold by answering this one key question: “Considering the mix of offerings and revenue potential,
“What sales volume is necessary to meet the bank's RSF standard per sales person?”
what sales volume (per day or week) is necessary to meet the bank’s RSF standard per sales person?” Once established, the RSF threshold clarifies the foundational need to sell more across the business, and it begins to help reshape priorities in role design and expectation setting (Figure 2). For example, operational tasks that detract from selling activities become tougher to justify in an environment where bankers need to hit higher sales targets in order to recoup the investment in the position. While each bank will need to develop its own RSF standard, the immediate goal is to identify and stop the hemorrhaging. Then when systems are stabilized, banks can begin rebuilding RSF to sustained higher levels — we would advocate a target of 2.5x. goals. Often today, sales goals are disconnected from local market potential. Usually they are heavily based on past performance, with some consideration of local trade area. Not only does the bank fail to set realistic goals for itself, but reps in weak markets wind up impossibly challenged while reps in strong markets are tempted to coast. Bankers need to develop an analytical framework that
figure 2: rebalancing resource and results
To rebalance branch sales resources and results, leading banks analyze local market potential and RSF trends to adjust staffing and performance expectations.
High Performers Increase sales FTE, support staff to maintain peak output Mid-Range Performers Maintain sales FTE and elevate sales expectations and staff support Low Performers Restructure sales FTE and elevate sales expectations and staff support
4.70 4.14 4.18
Non-Teller FTE per branch
128.8 113.2 91.7 72.7 65.2 54.5 Monthly sales per branch
Source: Branch productivity benchmarking and analysis by Novantas, LLC
Transforming Retail Sales Force Economics
identifies the stretch sales goals ultimately needed to meet minimum thresholds. New techniques for setting goals based on “fair share” and “stretch share” consider local controllable characteristics such as the size and experience of management and staff; local visibility and pricing advantages and disadvantages; and potential customer “cross-sell portfolio value assignments” to better calibrate fair and stretch goals. The importance of the stretch goal concept is clearly shown when sales volume is analyzed in relation to customer traffic. Typically within a regional branch network, we find that busier branches (75th percentile) have a 22% lower conversion ratio than the branches down at the 25th percentile of customer traffic (Figure 3). in high traffic markets, reps are tempted to lapse into passive order-taking — how much more could be achieved in these markets with additional proactive outreach and higher sales potential? incentives. in our experience, a bank can often achieve higher local sales performance by simply asking for it and
“A bank can often achieve higher local sales performance by simply asking for it and aligning incentives accordingly.”
aligning incentives accordingly. One of the major barriers to this aggressive posture is that many goal and incentive plans are linked too closely to the financial plan. if the division is given a revenue target of $100 million dollars and there are 100 sales people, for example, each one is given a goal of $1 million, with “at plan” compensation linked at this level. in fast-growth companies, by contrast, the corporate revenue plan is often a fraction of the target set in the field, giving the bank leeway to set more aggressive individual goals to “test” what can really be produced. in the example above, the sales team might be tasked with, say, $1.5 million dollars each, with a collective goal of $150 million, or 150% of plan. in this case, the bank can “ask for more” but “plan for less” and figure 3: are High-Traffic Branches selling to Their Potential? thereby eliminate the natural throttle of a sales plan that must equal the Industry wide, there is an inverse relationship between branch traffic revenue plan. volume and the ability to convert walk-ins to sales. capacity. Based on local market potential and the level of selling activity needed to meet threshold RSF, a target staffing level can be 3.0 Compared with branches at the 25th percentile established for each branch. What of customer trafﬁc, branches at the 75th percentile often will be discovered through of customer trafﬁc are far less successful in converting this analysis is that low-potential 2.5 walk-ins to sales. Are they coasting on high trafﬁc volume? outlets need to pull back, either to one full time sales representative 2.0 or to a part-time arrangement. At –22% the opposite end of the spectrum, some of the largest and best-posi1.5 tioned branches may uncover more opportunity than what current staff can seemingly fulfill (see Figure 3). 1.0 There are other markets around the world that operate with zero sales staff in selected locations and sig0.5 Increasing Customer Trafﬁc nificantly higher staff in busy, urban areas. This trend has not yet been 0 tested on a large scale in the U.S. 5th 15th 25th 35th 45th 55th 65th 75th 85th 95th The RSF metric becomes a negotiating tool in sorting through staff Customer Trafﬁc Percentile capacity questions. For example, branch managers will sometimes want to hold on to sales staff despite Source: Branch productivity benchmarking and analysis by Novantas, LLC
Conversion Ratio Sales per 100 Walk-ins
“Rare is the retail bank with a truly proactive sales outreach. Instead, most sales teams are still stuck in a reactive, order-taking mode that relies on advertising and promotion to drive branch traffic.”
a weak performance outlook. in some cases they should be given a trial period to do so, conditioned on achieving the targeted RSF at an individual or team level. if they fail to improve RSF, the objective proof point will be there to “right size” the branch. Playbooks. Once the branch understands local market potential and the selling activity required to maintain RSF, then branches will need a playbook to generate needed sales activity to drive volume. Sales playbooks will include express improvements in terms of best practices, as well as key tactics that may apply either to all branches or to only select types. Playbooks for proactive sales behaviors typically will include: • New metrics focused on conversion of walk-in traffic and appointments per day. • More solicitation outside of the branch — more commonly seen among smaller locations today, this should be standard practice across larger outlets as well. • improved solicitation through the phone using improved lead lists (especially for the virtual domiciled customer segment), and better tools for managing a remote outbound sales force. • Greater use of selective customer portfolio assignment for growth, a growing tactic among the top cross-sellers in the industry. • Use of social media to build local awareness — if banks do not develop faster and better programs to utilize the power of social media, creative local managers will develop their own solutions. • Following the recession, small business represents one of the most viable and “sticky” banking business lines. it has strong profit dynamics; strong ties with retail banking (proprietors’ households); and there’s a strong need for credit and services. The consumer sales force can do more to nurture small business. A well-designed playbook will balance the need for “control from the center” with the need for local understanding and responsibility. industry are seeking ways to solve the sales productivity crisis primarily by growing sales, not cutting staff. The advantage of a metric such as return on sales force investment (RSF) is that it creates a common lens for leaders across the organization to better understand and respond to the sales productivity crisis. it helps to translate organizational revenue opportunities and shortcomings into the daily realities associated with the most common and expensive resource pool in consumer banking — the branch sales force. Other sectors of financial services, such as commercial banking, have used such performance metrics for years. As retail banks embrace a reasonable profit-based metric for measuring branch sales staff, they will be able to create a much more dynamic and proactive slate of sales programs and investments, and better leverage the time and energies of branch staff. Others that stand pat risk colliding with reality — customers are no longer tethered to walk-in branch banking, and neither can leaders expect to grow branch sales by simply asking staff to sell more to a dwindling stream of walk-in traffic. By no means does this approach advocate a retreat from a service culture. Rather, RSF and the transformation to a proactive sales force is a natural, progressive response to the “new normal” in the customer economic equation for consumer banking.
Darryl Demos is a Partner in the Boston office, Kevin Travis is a Partner in the New York Office and Dale Johnson is a Principal in the Chicago office of Novantas LLC, a management consultancy based in New York City.
order-takers No more
The long-standing assumption that a branch sales force can support itself strictly based on walk in traffic is no longer supported in a post-recession, post-regulation and virtuallydomiciled world. At the same time, leaders from across the
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