Everything you want to know...
If your bank wants to go after the small business market in a big way, then the first thing you need to do is define “small business.” This may be easier said than done.
The U.S. Small Business Administration (SBA) has a very broad definition of small business: any company with 500 or fewer employees. But from a practical standpoint, such a broad definition isn’t very helpful, which is why most banks have their own definitions of how they target the market — generally as companies up to $3 million, $5 million or sometimes $10 million in annual sales, depending on the geographic area of the country.
The SOHO, or small office/home office, market is further distinct from the general small business market. These are “micro” and home-based businesses that may consist of just the owner or perhaps an employee or two. “Most SOHOs are informational or service in nature,” says Paul Edwards, author and nationally recognized expert on self-employment and working from home. “A key distinction for the SOHO market is: At what point does the owner delegate decision-making?”
What do they want from their banks?
When it comes to their banking needs, while credit is a major driver for small businesses, studies show that as few as 30 percent of small businesses actually borrow money. Given this, it may be wise for banks to change their thinking when it comes to making money from small businesses by focusing more on deposits and fee income from cash management (for larger small companies), retirement planning, insurance and merchant services.
When it comes to their banking expectations, the two most important things to small businesses are dependability and reliability — most small business owners rank these even higher than price. “They expect things to happen when they’re supposed to, the way they’re supposed to,” says Edwards. “And if there are problems, they want to be able to speak with a human being who is cooperative and helpful in resolving them.”
And they want long-term relationships with their banker. Small businesses hate being shuffled from one banker to another. This makes the role of the relationship manager especially critical with small business customers. The RM needs to be elevated in the eyes of the small business owner as more of a financial advisor, rather than just a banker. Owners should feel comfortable asking their banker questions without feeling like they’re going to get a “hard sell.”
Segmenting the market
Banks with experience in small business marketing are finding out how truly segmented this market can be. Using a revenue criteria (e.g., companies up to $5 million in annual sales) may help you define small business broadly, but there are many different sub-segments within the broad “small business” category.
In general, banks are finding that small businesses “behave” more like consumers than corporate customers, especially the lower end of the small business market. That’s why most banks are moving toward a consumer, rather than a corporate, marketing approach for small business. This includes using database technology to identify and profile specific segments across different sets of parameters, such as buying behavior and product and channel usage, to determine customer propensity for products.
Database marketing can help you determine which small business products are in greatest demand and which ones aren’t. It can also play a role in profitability analysis to help you determine in which segments you should concentrate your marketing efforts. For example, you might assign RMs to your top 20% of customers in terms of profitability, or send a newsletter or magazine to your top 50%.
Cross-sell opportunities
Another thing that makes the small business market so appealing is the fact that it presents so many opportunities for cross-selling. Once you land a small firm’s business checking account, you can cross-sell not only business loans and other fee-based services but also personal banking products and services to the owner (often a high-net-worth individual) and employees.
“For small businesses, top-of-mind marketing is crucial,” says Edwards. “One way to accomplish this is through a regular communication program, such as a newsletter (print or electronic) or other type of publication. Small business owners want to receive quality information from their banks if it’s delivered in a useful, attractive and non-sales format. And the more targeted and segmented the publication, the better. Think of custom publications as an investment in long-term relationship building.”
For help in creating a custom newsletter or magazine targeted to small businesses, contact Media 3 Publications. We’re “the business experts,” having specialized in small business publications since 1990. Our small business knowledge and expertise are unsurpassed in the custom publishing industry.
Send us an email at info@media3pub.com or call us at 800-540-0834. You can also visit media3pub.com to learn more about Media 3 and request a free sample kit.
Don Sadler is the Editorial Director at Media 3 Publications. Reach him at don@media3pub.com.
