Client vs product profitability

Very thoughtful paper from McKinsey on Capital Markets profitability: Moving from ‘product to client’ profitability.

The paper looks at what capital markets and investment banking (CMIB) businesses can do to improve profitability and return on capital in the face of higher regulatory capital costs and changing market structure.

The starting point is the need to measure, analyse and then optimise the drivers of client profitability, which means understanding client revenues and expenses across the business, and allocating capital accordingly – rewarding profitable client flows.

By creating client ‘profitability profiles’ the business can start to optimise the allocation of capital and resources for different client profitability segments.

Great quote from one head of sales…

“We need to know how much extra revenue we get from providing an extra touch point or an incremental amount of balance sheet”

As can be seen from the table below, paying ‘sales credits’ based on client revenue or flows is madness. As two clients generating the same revenue can have vastly different levels of profitability.

Client Profitability


Worth a slow read,

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