Plansmith Blog

Bankers: Are You Considering a New Branch Location?

Posted by Kevin Stang on 4/18/18 2:42 PM
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So, you decided to open a new branch? This comes after you’ve spent hundreds of thousands of dollars on new electronic delivery technologies. It also comes after we just hit a record for financial institution branch closures. And let’s also add the fact that lobby traffic has reduced by 10 times the rate of those branch closures. Given these facts, how can you know if you’re making the right decision?  

Although a lot has changed in the delivery of financial services over the past 10 years, branches definitely do have a place in today’s financial marketplace. But how do you know if a new branch is right for you? All you need to do is answer these three questions:

  1. Will you better meet the needs of the local marketplace?
  2. Can you substantially deepen the relationships with existing local customers?
  3. Can you confidently estimate a positive return on investment from both of the above?

Despite the dramatic changes in branch delivery over recent years, still many financial institutions let their gut make decisions as they forgo answering question number three. Don't be one of those financial institutions. You see, once you compute your ROI, you not only can validate your decision, but also quantify how much you can spend on space, staff, technology and more. 


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So how do we compute the ROI? There are actually many different approaches, but today I will walk you through our mirror methodology. We will first take an existing branch, preferably with a comparable amount of competition, and mirror that branch’s performance to predict your new location’s performance. A common mistake is to simply estimate the new branch will produce the same numbers of your similar existing branch. However, we must account for the differences between each markets' demographics. You can accomplish this by taking these steps:

  1. Use demographic market segmentation data to measure product performance per segment at your existing location.
  2. Measure your market share for each of the segments above.
  3. Quantify the number of households per demographic segment within your new potential market.
  4. Multiply together the three items above, for each segment and product combination.

For example: Our East Branch averages $10k in auto loans per household in the (22-34 year old, $100k income) segment. They also have 20% share of those households surrounding their branch. Our proposed branch has 2,000 households that fall under the same segment. We can now estimate the new branch to produce  ($10k * 20% * 2,000) $4MM in autos from that segment. We can now add that $4MM to whatever we compute for all the remaining demographic segments to ultimately produce a total auto loan balance estimate.


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All in all, you now know how to compute very specific output estimates for a proposed branch. Moreover, the methodology used not only gave consideration to the diverse needs of multiple market segments, but also how well the institution was able to deliver on those needs.  

For more information on how we can help you with your branch needs, please call us today at 800-323-3281 or click here to book your free 15-minute market consultation with me.

Or, click here to watch a quick overview to see how market intelligence makes it easy to make better strategic decisions and grow market share.


Topics: strategic planning, market analysis, market intelligence, credit union planning, community bank planning