Client and Product Profitability
Profitability measurement is complex and major private banks often struggle to obtain a clear picture of how profitable their business lines, relationship managers, clients and products are - which hampers their ability to identify appropriate measures. Room for improvement regarding transparency exists in different areas, e.g.:
- The true costs incurred by the activities of each profit centre are often unclear as re-allocation of costs to profit centres is not properly performed.
- Allocation of revenues to profit centre is incorrect or incomplete.
- Revenues per product class is often not directly visible due to many banks’ revenue type aggregation approach (e.g. interest income, trading income, commissions income, etc.).
- Restricted ability to measure profitability due to unavailable cost and revenue data or inadequate interfaces between accounting and MIS systems.
Deloitte’s Client and Product Profitability (CPP) service offering is a bottom-up approach that uses deductive logic to assess in detail financial data and profitability drivers on client, product, RM and business line level. The CPP approach focuses less on quick wins but more on the profound and unit-specific (e.g. teams, RMs, clients, etc.) cost and profit attributions within the bank. This allows for concentrated revenue improvement actions.
Deloitte’s project experience suggests that various benefits can be ensured:
- Transparency on the underlying drivers of profitability of selected regions, teams, products and clients
- Selection of the best opportunities to ensure long-term benefits without compromising own short-term position
- Implementation of continuous profitability monitoring and steering
- CPP effectiveness measurement due to program performance reporting and benefits tracking
- Re-shaping of profitability communication and governance procedures
