Credit Union Marketing Budgets: Too Much, Too Little?
The average marketing budget for most financial institutions (banks or credit unions) at any asset size should be around 0.1% of total assets. BofA, at $1.9 trillion, budgets $2.0 billion for marketing which is almost exactly 0.1%. Many factors affect this guideline — up or down — including, but not limited to, growth goals and media costs in specific markets. Credit unions with community charters need to allocate more.
As tempting as it may be for some members of your organization’s management team, a recession is never the time to cut the marketing budget. First of all, as market conditions get tougher, you need to ramp up your spending — just to keep your bottom line where it’s at. Second, it’s easier to “cut through the clutter” when there’s less clutter. It makes perfect sense: you’ll stand out if you ramp up your marketing while others cut back.
Take a look at this data from Callahan & Associates “Peer 2.0 Study” from June 30, 2008.
| Asset Range | Marketing Investment Per Member |
Avg. 2008 Mktg. Budget |
Budget Ranges |
# of CUs |
|---|---|---|---|---|
| Over $1B | $12/member | $2.5 million | $350K – $19M | 135 |
| $500M – $1B | $14/member | $993,000 | $150K – $3M | 201 |
| $250-500M | $14/member | $566,000 | $40K – $2.8M | 296 |
| $100-250M | $13/member | $255,000 | $0 – $1.2M | 686 |
| $50-100M | $10/member | $105,000 | $0 – $600K | 776 |
Key Insights:
- The country’s largest credit unions spend, on average, the least per member, but they may also be gaining media efficiencies with their marketing budgets.
- A marketing budget of $350,000 is not enough to support and sustain a billion-dollar credit union. That represents only .035% of total assets.
- Similarly, a $150,000 marketing budget is inadequate for a $500 million credit union. That’s only .03% of total assets.
- A $40,000 marketing budget is dismally low for a $250 million credit union. That’s about .015% of assets.
- A marketing budget of $2.8 million seems excessive for a $500 million credit union, as does $1.2 million for a credit union with $250 million in assets. That’s around 0.5% of assets.
Key Questions:
- What is your average cost of marketing per new member?
- What is your average growth in assets per marketing dollar spent?
This article © 2012 by The Financial Brand and may not be reproduced.
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$0? Might as well just close up or find a new accountant because every credit union spends money on marketing whether they realize it or not.
I like the table above because it almost states that credit unions under $50M spend $0 on marketing which is not true. We have quite a few clients who are under $50M. The idea is to be creative and maximizing what you have (people, networks, assets etc).
I have not heard of credit unions applying a fixed average marketing assessment to each member. That is interesting. What about all the non-income generating members with stagnant accounts? If the credit union is not “fee’ing out” those members it would be artificially inflating their budgets.
I have always hear the 0.10% to 0.15% of assets which seems more reasonable to me. One thing I would mention is that new branch openings should not be applied to the existing marketing budget. That should be part of the overall project costs and ADDED to the marketing budget. That is just a pet peeve of mine.
As for your last point. I say this all the time. The best example is that I also own a coffee shop. As I watch the other coffee shops around me die off, I have increased my marketing budget to pull those folks in. Other coffee shops are dying and we are thriving in a down economy because my competition is not marketing or advertising.
Apply this to credit unions – as banks are dying around you INCREASE your marketing to pick up those loose customers that are looking for someone to help them. This is one of the greatest opportunities in US history to create a shift from banks to credit unions. Every night we hear about banks failing on the news – credit unions should be differentiating and promoting. They should cut payroll, incentives, bonuses and such before they cut marketing. Now is the time to tell your agency or marketing department to GET CREATIVE. That is their job! If you arent asking them HOW to get more members (and then trying some of those ideas) then you need to stop reading and start sending emails and making phone calls. It is time to get a little crazy and try things you my have never tried before.
Rereading that, it sounds rather self-serving, but that doesnt make it untrue
Great points Tony.
Along the lines of what you were suggesting about separating budgets for new branch openings from the regular marketing budget… It reminded me of a point I stress in all my presentations: Brand-building is not the Marketing Department’s responsibility — it is everyone’s responsibility in every department. Inasmuch, a separate budget needs to be establishing for internal- and external brand-building activities. HR has as much responsibility to build the brand (internally) as any one department.
Here’s a suggestion that may help your financial institution get a branding budget started: Build from your budget for community events, sponsorships and charitable giving.
Coming from the banking world, I’m bemused at any talk of basing your comign year’s marketing budget based on EXISTING members. At best this can only dictate some sort of internal retention marketing budget.
I have always been taught to develop a marketing budget based on business-line goals for the coming year: how many new customers do you want to attract and from what demographics, how many loans do we want to sell and how many new accounts do we want to open?
The costs of such activities should coincide roughly with your revenue numbers (just like most other business lines) and end up in the neighborhood of 4% to 8% of the previous year’s total revenue. Aggressive growth goals, of course, will dictate higher numbers while strategies based on retention will be somewhat lower.
Basing a marketing (which is french for “sales growth support”) budget on the number of customers you already have is like driving while looking only in your rear-view mirror.
I was thinking the same thing earlier this morning and completely agree Nathan. I’m just republishing the data as provided by Callahan’s.
The figures (budget per member) are useful in conceptualizing cost of marketing as distributed across your current members. Many use the figures not necessarily to set a market budget, but rather understand how much their marketing/advertising costs each of their members.
In other words, “Is it better to spend $14 per member in marketing, or would we be better off to give some of that money back?” Or, “Our new campaign costs $X, which distributed over Y members, comes out to be $Z per member. Can we justify to each member why they don’t have that extra $Z at the end of the year?” Notice the difference in thinking between this and, “Can we justify shouldering a cost of $X based on expectations of future returns?”
The member-centric mindset of credit union executives lends itself naturally to this line of thinking: the members bear the cost of marketing, not the credit union. I’m not endorsing either method of thinking as superior, just pointing out different ways to approach the same question.
Hi Jeffry,
I’ve been analyzing credit union marketing budgets since 2001, when I developed EverythingCU’s Marketing Budget Report, which enables CU marketing professionals to compare their marketing budgets with their specific peers, instead of looking at these broad generalties (In other words, the VP of Marketing is thinking, “So what if there are one or two CUs in my asset range on the other side of the country with zero marketing budget, I want to know if the CU down the street from ME is spending four times what I am”).
I agree with some of the things you and Tony have said here, but must point out some things that you are overlooking. First of all, let me say that I am totally a marketing guy. I agree that marketing per current member is not the best metric for determining next year’s budget, and that’s why our marketing budget report also shows marketing budget per *potential* member, as well as marketing budget as a percentage of total operating expenses. I agree with Nathan, the best way to determine marketing budget is by looking at next year’s business goals, and then figuring out how much money is needed to achieve those goals.
To one of Tony’s points, I agree that marketing (and branding) are both company-wide activities. But just because that’s true, it doesn’t logically follow from that that you should have a dedicated budget for marketing activities. In fact, the notion that marketing is company-wide would indicate NOT having a dedicated marketing budget, right? If you are providing training to MSRs about their role in marketing the business through excellent service, cross-selling opportunities, etc., then that comes out of the training/HR budget, not the marketing budget. (Training is in the salary expense budget if it’s being done by an employee.)
And Tony, the Callahan table above in no way implies that CUs below $50 million in assets don’t spend on marketing. That table implies that Callahan and Associates thinks that CUs with less than $50 million in assets aren’t worth thinking about (when it comes to marketing anyway), unless it’s Jeffry who truncated the table at that point.
Since I first learned that there exist numerous CUs with zero marketing budget seven years ago, I’m no longer shocked by that notion. And before you go poo-poo’ing those orgs as being luddites, you must first also ask, are they achieving good business results? If they are, then so what if they don’t have a dedicated marketing budget? Only if there is a correlation between poor business results and small or no marketing budget can we make the assumption that more marketing dollars is a good thing (which unfortunately is not the case).
As example, you may be shocked to learn that there is a CU with $950 million in assets whose web site is DOWN, and has been down for YEARS. We might scream and shout, “fix your site, you [beep]“, but they don’t care because until recently they’ve had an ROA north of THREE percent (which is about three TIMES greater than the CU average.) They are absolutely rocking their business results, with solid loan and savings growth, have NO checking accounts, and have an average loan balance of $77k (which is about seven times the national average), and from what I can tell, have a true, differentiated brand.
Elliot, I don’t understand where you are going with “the members bear the cost of marketing, not the credit union.” If we’re going to look at it that way, at a credit union, the members bear the cost of *everything*. You’re making it sound as if the members should get to decide whether or not marketing is done, and how much money should be spent on it. If we go with that line of logic, we should also have the members decide how much is put into building new branches, whether or not to hire another loan officer, how much to pay each employee, whether or not to raise or lower rates, and the list of business decisions continues endlessly. If you are advocating that every business decision, every subset of the total operating budget needs to be conducted with the mindset of “is this worthwhile or should the money be returned to the member”, then I’m with you. What I am questioning is singling out marketing for this scrutiny as if it’s an add-on item.
Bottom line: there’s more than one way to skin a cat. Each organization has a different way of going about its business. What works for one credit union is not going to work for another one just down the street.
Morriss, when we expand the principle, you are right that members do bear the cost of everything. The reason I was referring specifically to the marketing budget is because that is the data Jeffry used and Nathan questioned.
I am not implying the credit unions must have every single business decision approved first by the members, such a system would clearly be painfully inefficient. However, seeing how the expenses associated with business decisions affect the average member is useful information.
Long story short, my original comment was to explain why the data was useful, but certainly the same principle could just as easily be applied to any budget item, expense, investment, etc.
Also, Callahan reports the same data for all credit unions, regardless of size. Certainly, credit unions below $50 mn in assets are worth thinking about.
Hi Morriss,
Thanks for your thoughts and comments.
Broad, generalized advice like that offered in this column (and subsequent comments) should always be weighed carefully before making any decisions. Marketing departments are always looking for something they can use to justify their budget requests. That’s all this article was trying to do. It isn’t blanket advice.
Your reflections on maintaining the purity of marketing budgets is precisely what I was saying in comment #2. Brand-building (not marketing) is a company-wide activity. If you want to become a branded company, you should create a budget for branding. If you don’t, then what happens 19-out-of-20 times is that the marketing budget is cannibalized and not increased. HR and Marketing should always have their own separate budgets. The point about branding is that an organization really never takes anything seriously until it shows up on the balance sheet. Making “branding” a subsection of the “marketing” budget reflects a flawed understanding of branding.
I’m curious how this $950 million credit union funds its loans without checking accounts. It seems that if you’re only offering CDs and other high APY products, your average cost of funds would be too much to offer loans profitably.
I didn’t truncate the data from Callahan’s. It is exactly how they provided it on their website.
I checked the link and Jeffry is right, the article does not report data for credit unions below $50 mn. I had thought previously that the data was taken directly from Peer 2.0, where data for $50 mn is available. I’ve forwarded this article to the author.
Jeffrey, most CU’s don’t realize it, but offering checking accounts is a very expensive proposition. The time and energy it takes to have staff to deal with the transaction account is one that is hard to quantify just how costly it is. The fact that this CU in Montana doesn’t have to deal with checking accounts, and instead can focus solely on great rates both for loans and savings… well, it’s working like gangbusters for them. This CU keeps expenses down like nobody’s business… including employee expense. They have the employee expense of most CUs a tenth of their asset size.
These guys are incredible. They have NO money market accounts and NO share certificates. They just have ONE savings account…. which pays 3.67%! Not bad in today’s environment!
From what I understand, nearly all of their loans are for farm land… which they provide at a VERY reasonable 5.35% average.
These guys keep it simple, and it is totally working for them. This is also what great branding is all about: be known for ONE thing (okay two) and do it extremely well. They aren’t trying to be all things to all people. Need a checking account? Sorry, go somewhere else. Need a CD? Sorry. Need a money market account? We just offer ONE GREAT rate ALL the time on savings, now quit bothering me, son.
Feel free to dissect their balance sheet on the NCUA’s site. They are Whitefish Credit Union Association of Whitefish, Montana. You can’t view their web site because it’s down. I don’t know that it was ever up.
Hi Jeffry,
I’m the writer of the Callahan article. First off, thanks for using Callahan data and making its reach further. I’m glad that it has spurred such good conversation, but I think there are some things I need to explain, particularly the use of marketing investment per member as a budget planning metric and the notion that Callahan & Associates does not think CUs with less than $50m in assets are worth thinking about when it comes to marketing. I have broken it up into a couple of posts to make it more readable.
Most of the comments focusing on marketing investment per member imply that marketing is restricted only to potential members and not existing members, and that simply isn’t the case. Do credit unions focus marketing dollars to existing members?
Is there more opportunity to enhance CU relationships with existing members? The statistics say yes. A few examples (data as of 2Q08): average credit card penetration is 14%, share draft account penetration is 45% and the average credit union member only has two accounts according 5300 Call Report data from Callahan & Associates.
While it is obviously important to increase the number of members you have, it is equally important to take full advantage of your current membership. If they aren’t getting credit cards, mortgages, auto loans, etc. from you, then they are getting them from someone else. The goal is to become your members’ primary institution and to provide the greatest value to them.
We also used marketing investment per member because it is a reasonable comparative tool. However, it was denoted that it is influenced by things like FOM, individual philosophy and the community you serve. Marketing serves multiple purposes in a credit union, attracting new members and retaining current ones while expanding their relationship with the credit union. As with every metric, marketing investment per member is one piece of the pie and to fully understand a situation and make decisions, multiple metrics should be used.
Yes, credit unions below $50m in assets were not included in the table originally. However, that in no way means they are not important or do not provide value. Peer 2.0 can run the data easily enough, so here it is:
Credit Unions $20m-$50m in Assets
Average marketing investment/member: $8
Average marketing budget in 2008: $40k
Credit Union Budget Ranges: $0-$226k
# of Credit Unions: 1,413
Credit Unions Below $20m in Assets
Average marketing investment/member: $3
Average marketing budget in 2008: $5k
Credit Union Budget Ranges: $0-$138k
# of Credit Unions: 4,632
Additionally, I’d like to provide some data to answer 1 of the “Key Questions” from the blog post.
I have sent more detailed stats by asset size to the editor of this blog.
–Average growth in assets per marketing dollar spent in U.S. (4Q07): $50
Hopefully, this helps the conversation. It’s important to share and discuss ideas. We are at a pivotal crossroads in the financial industry and the basis of the article was that credit unions have an opportunity like never before and marketing is a vital part of succeeding.
Thanks for reading and if anyone has any questions or would like to discuss this in more detail, please feel free to email me at wquinn@creditunions.com.
This conversation rocked!
@Morriss My comments about setting a marketing benchmark based on assets was meant only for estimating a benchmark. Marketing budgets should always be dictated by goals (not by members size or asset size). If your budget is $100k a year and with that you hope to increase credit card penetration by 10% and add 2,000 members to your rolls, but last year you spent $100k and only increase visa pen. by 3% and member growth by 500 – then you need to either adjust your strategy, goals or your budget.
Other than that, for the “little guys” that I love so dearly, while they say they have almost no budget for marketing, we all know that isn’t true. Even time to go out and spread some word of mouth costs time and effort. That is time not spent doing other things that could be generating revenue. It may be hidden in an operations or business development budget, but it is still marketing.
Most of my post was tongue in cheek rant. I have been having more and more of those lately. But I stand by the principles – Marketing is the communication of your brand and benefits of your products and services, and you only get out of it what you put into it.