Hi All,

I am interested in knowing what are the common practices in calculating bank customer's profitability

a) How do you allocate cost of servicing the customers to a specific customer. what is the common practice?

can we use unit cost of servicing a customer by dividing total operating expenses of the bank with total no. of customers?

b) How do you ascertain the income generated from the customer

My assumption is that its calculated as mentioned below

Interest income = {total interest on loans + Overdraft accounts - total interest paid on transaction & deposit accounts}

Fee income = fees earned on loans+ Overdraft+ Transaction accounts+ Deposit accounts (including penalties)

c) How to allocate the cost of acquiring the customer e.g. spend on promotions / advertising / marketing efforts/ commission paid to agents to acquire business

Again, is it derived as total expenditure on advt / marketing / promotion divided by total no. of customers acquired during the period?

It would be great if you can suggest some good resources on the topic

Thanks

Lakshmi