Revenue segmentation is a way to estimate how much revenue a customer is currently generating, as well as the additional revenue they have the potential to generate if they open additional products. Customers are then put into groups to make this information actionable.
Starting at the product level, the estimated value of each account is calculated utilizing a combination of spread and fee income. The estimated values are then rolled up to the customer and household levels and segmented into groups of high, medium, and low. This creates the baselines for the Estimated Current Revenue (ECR).
A proprietary model is utilized that predicts how profitable a customer who owns each product should be based on demographic factors that are relevant to each product type. This creates the Estimated Potential Revenue (EPR). High, medium, and low segments are created for each product, customer, and household.
Comparing the Estimated Current Revenue to the Estimated Potential Revenue of currently owned products—as well as additional products that are likely to be purchased—demonstrates the “profitability gap.” Customers that have low current revenue but medium or high potential revenue can be targeted for the additional products by utilizing an omni-channel communication program to increase engagement and product ownership.