In 2007, I took my first trip to Ghana, Africa, where I spent more than a week with my professor, Dr. Senyo Adjibolosoo. He is from a small fishing village called Akatsi, which is where he has started a school to give back. On a hot and humid day during this visit, he said we were off to go sightseeing. When I asked where, he replied, “We are going to take a tour down the Lotos River.” I asked him what “Lotos” meant, and he replied, “alligator.”
As we approached the river, I saw I was about to hop into a small wooden boat that seemed to have been built 100 years ago. I boarded the boat with four others, and then we were off. I began to realize the gentleman behind me was shoveling out water as we moved down the river. I also realized that this river was full of alligators we could not see.
I had two problems:
1. The problem I could see (boat taking on water)
2. The problem I could NOT see (the alligators swimming below the boat)
In your practice, there are many daily issues you face to maximize every opportunity you have. It’s fairly easy to identify the obvious problems, but often the ones that are lurking below the surface cause the most trouble.
During the past several years of traveling the country and mentoring advisors, the top three problems I have noticed are the following:
1. Not knowing the business numbers
2. Not knowing the business numbers
You guessed it …
3. Not knowing the business numbers
It is very easy to start off and run seminars, bring in prospects, engage new clients and then repeat that process as many times as possible. You know you are spending money and money is coming in, but do you really know the ROI on the marketing?
Do you really know what your acquisition costs are? Do you know what your conversion is?
All of these business metrics are necessary for you to be able to properly manage your business. I was told once, “Someone who does not know their numbers does not know their business.” So what can we do to get better?
Know what to measure
Here’s a list of what to measure:
• Growth: New amount/percentage of revenue from 1) new clients, 2) existing clients
• Retention rate
• Average revenue/client
• Cost of client acquisition
• Closing ratio
• ROI on all marketing venues
Hire a virtual CFO
You can set a CFO up for as little as $1,500 a year. Basically, you identify the different business metrics you’d like to know about your business and give the CFO service access to read-only financials. This is where the fun begins because you can then begin to establish how you plan to manage your business and automate the feedback.
For example, let’s say you want to know the ROI on the seminars you are running, and as the year goes on, you have one that gives you a lower-than-expected ROI. A good system will alert you, so you can then further explore the reasons behind the situation.
Find benchmarks to compare against
Most of us believe we are pretty good at what we do, but without a measuring stick, we really do not know for sure. Find resources that can help you see all aspects of your business, what your peers are doing and how you measure up. The one I am most familiar with is from Charles Schwab, which puts out an annual RIA Benchmarking Study.
I hope this topic inspires you to grab hold of your business in a deeper way. As always, I look forward to continuing to share different strategies that will help you grow your practice.