Years ago, I invested in a flower shop. It wasn’t your typical corner flower shop filled with red carnations and yellow roses. In fact, we didn’t even have a shop. All we had was a van for deliveries.
I researched the flower industry and found that flower shops have very high margins, but very small profits. The main reason for this is the overhead cost and the fact that flowers are perishable. Since flower shops are typically in high traffic areas, their rent is often high. And they have to spend a lot of money on coolers and air conditioning.
We all know that flowers only last so long. If they don’t sell within a few days, you have to throw them away. So the secret, I believed, was to eliminate the overhead and sell the flowers before they wilted.
I hired a floral designer and we sent flower arrangements to all the top law firms, doctor’s offices, ad agencies, and insurance companies in town. This floral designer was also the salesperson. When one of our flower arrangements showed up to an office, our main salesperson got to meet the customer face-to-face. And because they came with flowers, the gatekeeper secretary always let them in!
We would deliver a large arrangement and let them know that we could deliver something similar every week for just $50. We started signing up customers. We would buy the flowers on Saturday from the wholesaler, make the arrangements on Sunday, and make all the deliveries before noon on Monday.
Since we knew how many arrangements we needed, we knew exactly how many flowers to buy. And instead of spending hours designing multiple arrangements, the designer would arrange all of them the same way. The best part was that when we delivered the arrangements on Monday morning, we’d pick up the vase from the week before, saving another $5. Our flowers were always fresh, and we had very low overhead and very high margins.
When you think about it, banks have similar challenges as flower shops. They are usually in high traffic areas, so their rent is high, and the money they collect in deposits needs to be invested in something quickly.
In banking, the secret is eliminating the overhead and utilizing the money instead of letting it sit in the vault. That’s why banks need to stop thinking about expensive branches and start investing in mobile banking.
People are spending hours each day on their phones, doing everything from e-mailing, texting and checking the weather to finding their way around a city or country. Most of these people, I suspect, would love to make deposits using their cell phones instead of driving through traffic to get to a bank.
And, chances are, they would also like to use their phone to pay their monthly bills as well as paying for the hamburger they are having for lunch.
Chipotle Mexican Grill has an app for the iPhone which allows you to order and pay for food right from your phone. You can use the app to find the nearest Chipotle and build your taco or burrito exactly how you want it. You can even include special instructions, like “easy on the beans” before you check out and pay for it. And yes, it saves your order so you can get your favorite burrito every single day without going through the process of rebuilding it every time.
Many banks haven’t even considered mobile banking. The market is still young and the time is now! Look at what PayPal, Ally Bank, ING and other internet banking services are doing.
My 25 year-old son and all of his buddies are using PayPal for almost all of their banking needs. When they all go out to dinner together, PayPal has an app that allows one person to pay the bill and then all of the others in the group can calculate what they owe and send the money to that person instantly. No need for pulling out a calculator or counting quarters, dimes and nickels!
My son doesn’t even open his monthly bank statement he receives from Bank of America. Everything is done on his phone or computer.
All you have to do is look at the sale of smart phones to see where banking is going.
If bankers don’t hurry up and find ways of cutting their overhead, they’ll be just like the local flower shop. They’ll be pushing daisies.
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Neal Reynolds has worked with hundreds of banks and credit unions around the country helping them to grow core deposits and market share without growing their marketing budgets. Contact him at [email protected].
