For many years, our data has shown that firms with over $2M in annual revenue tend to grow twice as fast as those with $250K in annual revenue. Contrary to how it might seem, this is actually a function of their structure, not necessarily their size. These firms have cultivated efficiencies in cash flow, capacity, expenses, and operational systems to support scalability and growth. These sophisticated structures are accessible to most businesses–in a wide range of revenue levels–if they’re willing to explore and dedicate time and resources to improve.
Revenue and business growth are impacted by five key areas–sources of revenue, team capacity, technology and systems, expenses, and marketing for client growth. Together they encompass a collection of metrics that, when targeted effectively, can maximize your success in both the short and long term.
SOURCES OF REVENUE
Revenue growth is, of course, impacted by the amount of revenue collected by the business. This is not only the number of households you service, but the concentration of assets within those households. Increasing households serviced will increase revenue, but fewer households with greater assets allows for more revenue with less strain on capacity and team expenses. The ratio of assets to household can be improved by focusing on recruiting clients of higher affluence. Additionally, diversifying your client base to include younger clients in the process of building wealth who are investing larger percentages of their income can offset older clients who are drawing from their investments to support retirement.
Another impactful factor here are fee percentages. These percentage levels should be evaluated on a regular basis and strategically applied variably based on asset range. Going hand in hand with this, firms evolving service offerings and entering new markets can optimize success in attracting new clients or gaining additional client assets by assessing fee structures. Benchmarking your fees against your peers should be done annually, as it’s vital to staying competitive and retaining clients.
One way to manage capacity and expenses is to maintain a favorable household to asset ratio, therefore controlling your professional to household ratio. An evaluation of your team’s productivity can help you determine what’s most effective for your current business. This ratio can be optimized through team organization and culture, role specialization, and implementation of technologies and other operational efficiencies. This centralization of service paves the way for the most qualified, and typically most expensive, employees to focus only on those highly-skilled tasks they were hired to accomplish. For most firms, we’re talking about their advisors. By removing all other tasks from their plates, these employees are completely freed up to meet with clients. The advisors don't place client trades, or fill out their paperwork, or potentially even complete the financial plans. These critical tasks remain in the capable hands of your operations employees in your home office.
Organizing a team to simply service clients as they come through the door misses the opportunity to leverage individual strengths and operate more smoothly. Support staff coupled with clear workflows are two ways to improve capacity. Focusing on building a talented, multi-generational team can also increase revenue and growth by opening up new service offerings, creating operational efficiencies, and improving client relationships.
TECHNOLOGY AND SYSTEMS
Internally, technological and systematic efficiencies benefit team capacity and your ability to acquire clients and revenue. These tools can help increase growth by optimizing your business’ ability to adapt quickly to market changes, communicate with your clients, and to improve client satisfaction and boost referrals. (Things like your CRM, financial planning software, and investment portfolio managers.) Leveraging intelligent solutions that talk to each other helps you provide a more holistic approach to wealth management and opens up additional revenue streams.
Externally, advisors are stepping up their game. To remain competitive, as well as attract and retain clients just entering or currently in the accumulation phase, a seamless client experience is no longer a nice-to-have. Expectations are that all platforms are working together through one simple client interface. This last decade saw incredible expansion of fintech solutions. Considering the number of direct-to-consumer platforms now offering investment management, alternative asset classes, and integrated lending solutions, advisors are really starting to button up their client interfaces. If you haven’t assessed yours in a while, it might be time to take a closer look.
Evaluating your overall business expenses–included in the areas above and others below–to make strategic investments and reductions will preserve incoming revenue and turn it into profit. Make sure your expenditures are in line and that you’re not overlooking any redundancies or cost-savings that could greatly impact your overall cashflow. It’s important to make an ongoing assessment of these expenses and their benefit to your business as it grows.
MARKETING FOR CLIENT GROWTH
Finally, a common mistake is to immediately start marketing and trying to grow without first addressing team capacity as well as technology and systems. We intentionally addressed those items first to underscore the optimal approach. It’s well documented that marketing can greatly influence your client growth rate. But where you spend, when you spend, and how you adapt those efforts will ultimately determine your success.
Selecting the most beneficial strategy and tools depends on your growth goals as much as it does your budget. Efforts that have less of an impact on your expenses, but can be powerful in attracting new clients, are your online presence–like social media, website, and e-newsletters–as well as your community outreach including community sponsorships, volunteering, and educational content. These areas can support your brand, raise awareness, and build trust with potential clients. They also require a lot of time and effort to manage and produce. This is where making smart investments in talent, or knowing when to outsource, makes all the difference.
High impact marketing is expensive but can produce more results swiftly. These include areas like paid advertising and client appreciation events. These can be smart investments that will expand your reach to new audiences – both through awareness and through arguably the best source of new clients: client referrals. To maximize these strategies, be sure that you’re offering events that resonate with your clients, using language that mirrors their own, and continually weighing your resources and expenses against some measurement of success.
Understand that market-driven growth rates will buoy your business’ overall growth rate as it will for all financial services businesses. Separate the growth you can control from that which you can’t to gain a more accurate picture of success year over year.
So, where do you start to cultivate exceptional and on-going growth?
Step one is a professional assessment of your business and its current metrics in all these areas discussed above–and more. Then, benchmark that data against businesses of similar size to determine strengths and weaknesses and where your efforts can have the most impact. From there, compare with larger businesses who represent your intended growth trajectory and understand how they got there so you can emulate it. Lastly, turn these insights into action with a focused strategy for improvement, complete with action plans, quantifiable goals, and regular check-ins.
Controlling growth and maximizing your business potential is a matter of knowing what to tackle when and looking ahead to evolve your strategy regularly as you achieve growth.
FP Transitions has guided more than 20,000 firms over the past 20 years through growth consulting, succession planning, and M&A transactions. Firms interested in more content like this article are encouraged to join the Equity Management Solutions®️ membership program to gain insights and access to FP Transitions' team of coaches, analysts and lawyers who are here to help you through every stage of your business.