Context
As interest margins narrowed, non-interest income and cost control became decisive for banks. Non-interest expenses grew alongside product and customer counts, yet which product and which customer those expenses belonged to was unknown. And while it was unknown, one question stayed unanswered: does this customer actually make money for the bank? An unanswered question of that kind means pricing and marketing decisions get made on instinct.
Approach
- Operating expenses — personnel, running costs and depreciation — were allocated to products by duration and transaction count.
- A unit transaction cost was calculated for each product and reflected into the bank's systems.
- Customer-level cost was derived from the products used and transactions performed.
- Customer profitability analysis was built by comparing net income per product against cost.
- Customer profitability and internal cost screens were modernised to feed strategic pricing and marketing decisions.
Outcome
- How much each customer actually returned to the bank became measurable.
- Product cost moved from being an estimate to being a calculated figure.
- Pricing and marketing decisions could be grounded in profitability data.
- Sustainable profitability began to be addressed through cost visibility alongside revenue growth.
This case study describes the project through its scope and approach. Client name, commercial figures and performance metrics are withheld under confidentiality obligations.
What This Project Left Behind
An institution that knows its revenue but not its cost does not know its profit. In most companies the customer believed to be most profitable drops down the list once cost is allocated. Every pricing decision taken before this analysis exists is in effect a guess — and it usually rewards the customer who demands the most service.
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