If you’ve been at a commercial banking institution long enough, you’ve had plenty of deals that have failed to hurdle. It can be a painful experience.
After multiple quarters of calling efforts you uncovered the opportunity with the prospective customer and won the right to pitch the deal. You spread the financials and put together the term sheet. Everything was looking great and you were ready to go into underwriting, but now the deal terms have left you with a below-hurdle return, and you find yourself begging your boss for forgiveness, or worse, back at the bargaining table re-trading the deal with the client.
It’s a depressing story that’s destined to be repeated if your bank continues to rely on traditional pricing models. These tools are essentially calculators, and they’re typically only used after the relationship manager (RM) has completed deal negotiations.
But what if you had a pricing tool that can be used earlier, during the initial conversations with the client? What if the tool could coach you on multiple ways to structure a deal that works for both sides?
Having that sort of pricing tool would help you avoid the scenario above, as well as the three problems below.
1. You’ll Move Away From Binary Negotiations
You may be familiar with the binary negotiation method. It goes something like this: Your customer wants a certain rate, but it doesn’t meet the bank’s return requirements.
So, with a deep breath, you say, “Let’s see if we can’t make it happen,’’ and bring the deal to your boss. He agrees to seek approval for a below-hurdle return. Meanwhile, the customer continues to work with the bank during underwriting process, submitting financial statements and other documents.
Weeks later the bank comes back with a response. The deal was rejected, and the whole loan pricing process starts over again. Now you’ve got a frustrated client, who may take their business to a competitor – if they haven’t already.
This binary negotiation method – in which a yes/no answer on the rate is the only topic of discussion – often gets you stuck in that initial scenario we described.
But if you’re using a pricing tool that gives you multiple ways to arrive at an outcome that will work for the client and for the bank, you avoid all that inefficient back-and-forth. If you can’t agree on the rate, then perhaps tweaking the term will do. Or maybe bringing in some deposits can change the equation.
Because a calculator can’t give you those options, there’s no reason for a relationship manager to use it during the deal negotiation.
Because a calculator can’t give you those options, there’s no reason for a relationship manager to use it during the deal negotiation.
To learn more about the damage of over-simplified pricing tactics – check out “2 Painful Lessons Commercial Banks Keep Ignoring.”
2. You’ll Use It Before You Lose It
Let’s say you’re using a traditional pricing tool. The numbers on the deal you negotiated get plugged in, and they won’t hurdle. But your team leader walks you through another way of structuring the deal, one that could address the client’s needs while also making it past the calculator the next time around.
You call up the client to discuss the new proposal, only to find out they’ve already shopped the deal to the competition and are taking their business – and their relationship – elsewhere.
You need a pricing tool that allows you to follow this advice: “Use it before you lose it.” A pricing tool that can essentially play the role of your team leader, during the earliest stages of the deal conversation, coaching you through various options you can use to arrive at a structure that will meet the client’s needs while also meeting your bank’s requirements.
3. You’ll Act Like an Owner, Not an Order Taker
With a traditional pricing tool, you’re often left feeling like an order taker. You take the client’s request, then check to see if the bank can meet it. If so, great. If not … you commence the internal negotiations and back-and-forth with the client to (hopefully) develop an acceptable deal.
It’s hardly an empowering feeling. It’s little wonder that banks continue to struggle with finding – and retaining – talented commercial RMs.
But if you have a pricing tool that’s put in your hands, and that’s giving you freedom – within limits, of course – to pursue one of several paths to a deal structure that will work for all parties, suddenly your job description becomes different. Now you essentially become the owner of your own business – your commercial book.
A Texas-based bank recently implemented a pricing tool that could be used early in the sales process. They put it into their hands of their RMs and encouraged them to “think like an owner and act like an owner.” As a result, time-to-close numbers have dropped significantly, and the banks’ commercial line of business has expanded rapidly.
To avoid binary negotiations, getting outflanked by competitors, and low RM morale, you need a pricing tool that can be used earlier in the sales process.
That means re-thinking the capabilities of your pricing tool. When you do, you’ll arrive at the conclusion that the traditional pricing calculator just won’t cut it anymore.
Interested in learning more about PrecisionLender?
