The KPI Connection - Net Interest Margin

October 23, 2014 | Melody Astley

On Tuesday we posted the metric of the month (Net Interest Margin this month). Today we’re going to take it one step further and talk about how NIM translates into – or “connects” -- to key performance indicators (KPIs)….in other words, things you can actually talk to your client about impacting through your solutions.

Said differently – This is the how to make the numbers make your job easier. How do you incorporate it into a meaningful discussion with your client? If your client has expressed a need, or you have identified an opportunity, to increase (Improve) the NIM, how and by how much can your solution help them? Let’s take a look at an example of a tool we use here at FinListics.

We call them Business Process Maps and they do just what you think they might do – they map a financial metric to the business processes that impact it, the activities that comprise each process, and ultimately to the KPIs that can be impacted by changes or improvements in that business process. Here we’re looking at a sample of a business process map for NIM in Banking and are focusing on the breakdown for our example (click on the graphic to enlarge it):

The KPI Connection - Net Interest Margin

The map connects Net Interest Margin to the business process of marketing and shows percentage of share gained as one KPI that can be impacted by changes in the underlying marketing process of a bank. So when you’re talking to a banking client who’s focused on improving their Net Interest Margin, one example of talking the how, would be to show how your solutions can reduce the percentage of market share gained….and how that may impact Net Interest Margin.

Operational KPIs In Action Here’s how that conversation could go -- for a bank with $5 billion in annual revenue, industry averages show that the percentage of cross-sell/up-sell is 8%. Your experience with other clients in the industry tells you that your solution can reduce overdue receivables by 3% - 5% on an annual basis - which means you can improve your client’s cross-sell/up-sell revenues by $2.4 to $4.0 million in the first year just in that one area with your solution! Not only that, but you can also point out that delaying the decision to implement, or dragging the decision out through a long RFP process, will cost them too – in this example, assuming a $3M, 3 year signing, between $60k and $170k a month! Compelling stuff…..

The key to getting the above information? Asking questions:

  • For your clients’ industries, what metrics, business processes and operational KPIs can your solutions significantly impact?
  • What are industry norms for these operational KPIs?
  • What ranges of improvement do your solutions provide for these KPIs and what is the cash flow value to your clients?

And of course – the most important question: How can you impact these areas and ultimately drive results for your client’s business? For a deeper discussion on Operational KPIs and how they drive sales, see our previous blog post at http://www.finlistics.com/blog/introducing-a-new-series/

Posted in KPI, Metric of the Month, Selling Strategies, Key Performance Indicator

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