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Life Health > Running Your Business

Case study- maximizing client value

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Janet has grown her practice to a level admired and envied by many. So why was she sitting across from me looking so stressed?

The cause was a benchmarking study her sponsoring firm commissioned us to do that compared individual participants to their peer group, the entire company and the industry at large on a wide range of business metrics and best practices. As expected, Janet’s production, average sale size and AUM ranked her near the top of her firm. But those weren’t the statistics that were causing Janet such consternation.

Janet is one of the most successful advisors in her firm, but production alone doesn’t equate to overall success.

She scored extremely well on the revenue scale but ranked in the bottom quartile for profitability. She was being effective, but not as efficient as she should be. Her total expenditure per dollar of revenue is much higher than her peers. The biggest cost item is her time, which we have calculated at about $300 an hour.

Let’s look at her client base and compare expenditure per client to the revenue she earns from them. For example, her top 20 clients receive a great deal of attention. She meets with them quarterly for a review; takes them to lunch on their birthday; invites them to her “Top 20 Dinner,” a golf tournament, a client appreciation event and a portfolio manager meeting. They receive her newsletter, a gift at Christmas and personalized cards from her at all other holidays. She estimates that she spends approximately 12 hours per year with each of her top 20 clients.

Her top 20 clients pay her well – an average of $12,000 each per year. But she also estimated that her staff devotes approximately nine hours per year to each at an average wage of $50 per hour. Direct costs for material, client appreciation, etc., come to approximately $450 per year. Add all that up and she spends in excess of $5,000 per year on each of her top 20 clients for $12,000 of revenue. That’s an impressive 140 percent margin.

However, let’s look at her 45 A clients. They generate $150,000 of total revenue, or $3,300 each. She isn’t quite as lavish with them as with her top 20 clients. Add up all the costs, and the average expenditure per A client is $3,200, compared to $3,300 per year of revenue. They’re great people to have as clients, but she is simply spending too much for the revenue they generate.

The story is very similar for her B clients. They generate, on average, $1,300 per year and she is spending about $1,100 a year on them.

It is essential to appreciate the value of each client and then allocate her resources commensurate with that value. She needs to create a service level agreement and marketing activity schedule appropriate for each client segment. Calculate the costs and compare them to revenue by client segment. Look for ways to cross-sell, move up-market, increase share-of-wallet, increase introductions and so on.

Janet and I worked together to redefine her client experience to ensure it yielded a fair margin at all client levels. We designed a marketing, sales and service matrix to increase the value of each relationship. One year from now, we will conduct the benchmarking survey again to measure progress. My guess is that Janet will rank very high in all categories.


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