Few have the information to prove it. How Profitability is determined Profitability calculation is the heart of the system. It is complex, but it is computed for every product for every customer every month. To understand it, one must understand a few banking terms. It is worth taking the time, because the profitability determination is the foundation for all of these very profitable and advanced database marketing segmentation and behavior modification processes developed.
Banks obtain money from depositors and loan it out to borrowers.
They make money on the difference in what they pay depositors and what they earn from borrowers. The Cost of Funds is the amount of interest expense paid for the funds used. Funding Credit . The amount earned by the bank on the deposits employed. The difference between the interest earned and the interest expense.