Staying On Track

As of May 5, 1954, no human being had ever run a mile in less than four minutes. Everyone said it couldn’t be done–everyone, that is, except Roger Bannister, a medical student at Oxford. “The four-minute mile had become rather like Everest,” Bannister later wrote in his autobiography. “A challenge to the human spirit, it was a barrier that seemed to defy all attempts to break it.” But in the weeks prior to the race, Bannister increased the intensity of his workouts until he was running 10 quarter-miles in 59 seconds, with only two minutes rest in between. His mental and physical strength grew. And on May 6, 1954, as Bannister dashed through the tape at the finish line, the roar of the crowd nearly drowned out the announcer’s words, “Roger Bannister. Time: Three minutes, 59.4 seconds.” He had broken the unbreakable record.

Lots of people talk about setting goals and achieving them, but there’s more to it than simply dreaming big, vague dreams. I’ve developed a six-step process for effective goal-setting. Let’s look at each of these steps in the hopes that they will help you with your planning for next year.

1. Set SMART Goals

SMART is an acronym that means Specific, Measurable, Achievable, Relevant, and Time-bound. If you’re building a fee-based business, one of the key SMART goals you need to establish is assets under management. It’s best to do this based on a three-year time horizon. How many dollars do you want to have under management in three years, and what do you expect the average fee to be?

A simple model is a 1% annual fee. Establishing your assets under management and your annual fee will tell you how much recurring revenue your business will generate. Next, if you take the assets and divide that by your average assets per household, that will tell you how many clients you need.

Let’s say that your goal is $62.5 million under management. If your average household has $250,000, you’ll need a total of 250 accounts.

Next, you should create goals for your net income in three years. Develop a simple income and expense spreadsheet that shows income from all sources and all of your expenses. You will probably net out somewhere around 40% to 60% of your gross revenue, depending on your business model.

It’s critical to clarify your gross and net incomes. Many advisors simply work hard during the year and hope everything works out, but it’s much better if you start with a very specific goal for income and expenses and then work toward your goal.

There are a couple of other key numbers that are critical for you to identify. What percentage of your income is recurring? How many households will you be serving? How many new dollars for fee-based money management will you gather each year? Another important question is what percentage of the assets is controlled by the top 10% of your clients, and what amount of revenue is generated by these top clients.

Another good goal to establish is revenue per employee. It should be at least $100,000. If it’s not, you should be able to increase your efficiency. If it’s over $100,000, you’re doing well, but it could be as high as $400,000 to $500,000.

2. Get Emotional

So far, these goals are just numbers, but they can become compelling drivers of your behavior when the payoffs are important to you on an emotional level. So list three to five of your top business goals–probably your gross revenue, dollars under management, and so on. Write a paragraph or two explaining why each one is important to you and what the achievement of the goal will mean to you personally. This exercise will help you to stay focused, and tap into your subconscious motivators.

3. Create Activity Goals

When I was a wholesaler, I typically made between 15 and 25 office meetings every week. I made more than 125 phone calls and typically presented my offerings to more 200 people. Because I was so focused and consistently maintained a high level of activity, I was able to take my territory from last place to third place very quickly.

The best way to establish your activity goals is to determine how many new assets you want to gather and the average assets per household. Then divide the number of new assets by the number of new households, and you’ll know how many new relationships you need to establish each year. One to two new relationships a month in the $250,000 to $1,000,000 range is fairly normal. If you can open one new fee-based account per week, you’re really cooking.

Next determine the number of leads that it takes to generate one initial meeting with a qualified prospect. You typically must generate two or three leads to get one such appointment. Then, how many initial meetings with qualified prospects do you need in order to start one new fee-based relationship? Ideally this would be a one-to-one ratio: For each initial interview, you’d generate one new client.

In reality, you will probably have to see at least two prospects to get one new client. If you’re having to do three data-gathering interviews for one new client, there’s probably something wrong with your process, your service offering, or the way you’ve gone about choosing who to talk to.