Why is a suitable location for a bank very important for business?

A good location for bank business is vital, but choosing the right one can be something of a balancing act. Ideally, the location should be convenient for the customers, employees and suppliers - without being too expensive. We should weigh up the advantages and disadvantages of location when deciding on a business property.

1. Location. Location. Location. Everyone who has ever worked in real estate knows this concept. Your location and site selection have a big impact on your sales volumes. Not only do you want to locate in heavily trafficked retail areas, you want to make sure that you select sites that are highly visible and accessible. Hard corner stand-alone sites tend to out-perform mid-block or in-line sites. Both of those types tend to out-perform in-store or supermarket sites.

1. Don’t shortchange marketing. Spend some money marketing the new site, whether through a grand opening celebration with a contribution to a local charity or some other type of event. You need to make sure people know you are open for business. I’ve always been amazed at banks that spend $2-3 million building a new branch and $0 dollars marketing it.

1. Bridge to where you already have customers. About half a typical branch’s sales are from existing customers… so half must be from new customers. Opening a new branch as an infill point within your current footprint will likely outperform a new branch in a new market that expands your bank’s footprint. Building a convenient new location in an existing market where you already operate, the number of existing customers will influence sales performance.

1. New customers are critical, but not the only reason for expansion. Conversely, opening a branch in a new market where you don’t have an existing customer base will lessen initial sales and extend the payback time for the capital investment. In these cases, increase marketing efforts to promote the new location. Even spending $25,000 in marketing can have a big boost in sales and it’s a small incremental price to pay for a $2-3MM investment.

1. Will an ATM substitute for a branch? Consider deploying stand-alone deposit taking ATMs as infill points in markets where you have a decent branch network. They cost about 5-10% of a branch’s operating costs and can help boost local sales by as much as 15% in their trade area. Make sure you use the same site characteristics you would for a branch (e.g. highly visible, high traffic area, easy to access site, etc.). Also make sure the machines is available 24-hours. Avoid placing inside a retailer.

1. Be wary of supermarket branches. While they cost less to build they cost about 60-70% the cost of a traditional branch to operate, and will only generate 30% of the revenue of a traditional. Additionally you have limited control over the grocery story. If they close you close, often with little customer notice, which could lead to regulatory issues.

1. Heavy up on sales staff. A corollary to the supermarket note is make sure you have plenty of sales staff from day one. Never open a branch with only one seller, even if you have limited initial transaction traffic. Your sales volume in the early months have a big impact on the ultimate size of the branch.

1. Go big on signage. Wherever you build bank sure your signage is as big and bright as you can get it. Customers need to find you location. Some municipalities and landlords limits the square footage of signage so plan carefully and consider in-branch signage through the windows as a complement to your external signage.

1. Add drive up lanes, but not drive up tellers. Find a site that offers a drive-up lane if possible, especially in the colder northeast markets but place a drive-up ATM instead of a traditional teller. The long-term benefits of lower operating costs and increased transaction migration outweigh any potential customer complaints. It’s easier if you don’t offer manned drive up lane from the beginning than taking it away later by swapping in a drive up machine. Depending upon where you operate consider wider than normal drive up lanes if big pick-up trucks are common to your markets.

1. Get staff on board early. Hire the new branch’s staff early and get them into the market talking to local businesses to “pre-sell” accounts. First, it shows the firm is committed to the local neighborhood but it also helps ensure a good opening month.