How much does it cost your financial institution to open one new account?

Last week, I wrote about the Tell A Friend program. It wasn’t my first post on the topic. It seems a TAF program is an inexpensive way to open accounts and get new customers/members. But I’ve heard banking executives, even some marketers, disagree.

The big mental block they all seem to have is the premium. Yes, you give TWO gifts for one account opening. Somehow, these program opponents equate that idea with flushing away money.

So let’s analyze the formula. Most new customers who walk in to open a new account don’t do so because they bumped into your building while walking down the street. Somehow, they learned you have the account they want. Very often, this happens because you’re advertising your products.

Advertising isn’t free. Print ads, billboards, broadcast ads, direct mail marketing, and even social media all cost you something. But your website is free, right? Well, except for the web company you hired to manage and upgrade it. Or the new hires who do the same. And the hosting fees.

The TAF program relies on three elements:

1. Your staff promoting TAFs during transactions
2. The printed coupons
3. The enthusiasm of your customers/members

Your staff is already in place. They’re handling the daily transactions. You train them anyway, so you include TAF program training along with the rest so they promote the program correctly. Can’t see an additional cost there.

You need coupons, so there are fees for paper and printing. Still, each coupon costs only pennies.

You can’t put a value on the effect your customers have as a free sales force for your financial institution. Compensating an individual with a gift because she brought you a new customer hardly seems out of line. Plus, it builds loyalty.

Typically, we see our direct marketing clients open new accounts for between $60 and $65 each, which is a comparatively low cost. Other methods of marketing are more expensive and less effective.

So how does that compare with the cost of a stack of TAF coupons and a few more premiums?

Certainly, you can’t rely on a TAF program to open all your new accounts. You need multiple means to reach prospects. But don’t overlook the effectiveness and value of a well-managed Tell A Friend program.

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Pay attention to how you (and management) value a premium. Here’s an example of inaccuracy. I spoke with a group that used a $250 gift card pack as the premium. They argued over giving “a $250 gift” for the TAF program. The bank paid only about $12 for each gift card pack, not the $250 redemption value. Likewise, your Great Gizmo may sell for $30 in the store, but you pay only $10 from a premium vendor.

Here’s last week’s post on the TAF topic: The Inequity of Some TAF Programs.