In general, there are three primary strategies, or pillars, that provide the foundation for building your business: client acquisition, client retention and increasing your share of a client’s business.
“Each strategy has its own merits,” says Mahesh Dwarkaprasad, project manager with Octane Capital Inc. in Toronto. “But choosing the right strategy, or combination of strategies, can make a big difference in how successful you are.”
It is difficult to separate one strategy from the others completely, Dwarkaprasad adds. For example, referrals often come from existing clients, thus linking retention and acquisition activities. As a result, you must be flexible in implementing the most effective strategies, given your costs and resources constraints.
Your growth strategy should focus on various types of costs rather than on just dollars, says Dan Richards, CEO of ClientInsights in Toronto. “Cost” refers to the full range of factors, such as time, effort and energy, that you will have to expend to increase the size of your business.
Existing clients are the easiest to work with. Richards recommends giving priority to increasing your share of their business. Says Richards: “It is the best opportunity to earn revenue in the short term.”
Dwarkaprasad agrees: “You already have access to them, making it easier for you to talk to them about their needs that you do not currently fulfil.”
To implement this strategy, which is part of retention, George Hartman, president and CEO of Toronto-based Market Logics Inc., says that you must offer a full range of products and services. He notes that the more products and services that clients own, the “stickier” and more loyal they are.
Indeed, if you don’t do this, Hartman says, someone else will. He suggests “engaging clients in the process over the years,” but cautions that it may take time for you to satisfy all their needs: “You must understand the total financial affairs of the client, and recognize that you do not have to do it all at once.” But, he adds, persistence pays off.
Richards recommends starting with a financial plan to gain an understanding of where opportunities may exist and where your client may have assets that you can add to your practice.
Dwarkaprasad suggests explaining to clients the benefits to having all their assets and services with you, such as simplified reporting, less paperwork, potentially lower fees, and more efficient and effective asset allocation. For example, he says, you can explain to your clients that it is more efficient to manage their portfolio if all their assets are in one place, especially when it comes to matters such as maximizing income and minimizing taxes.
Joanne Ferguson, president of Advisor Pathways Inc. in Toronto, also links retention to client acquisition and increasing your “share of wallet.” She emphasizes that happy clients trust their advisors and will provide “the right kind of referrals.” She views the business-building cycle as a progression: acquisition, followed by good service, leading to retention and resulting in increasing your share of a client’s business.
Regardless of which approach you take, there’s no doubt that client acquisition is central to building any practice. You must, however, note that it costs much more to acquire a new client than to retain an existing one. There is no consensus on how much more acquisition costs, but estimates range from five to 10 times the cost of retention.
Ferguson says the true cost of acquisition depends on the service platform on which you operate. For example, the expenses incurred by advisors working for a large corporation would be different from those of independent advisors.
However, says Hartman,”most advisors do not understand the metrics of their business.” They have no idea of what they are spending, he says, and need to track new clients and new dollars to get a sense of the efficiency of their efforts.
Hartman recommends that the cost of retaining a client be compared to the revenue generated by the client. He notes that the longer you keep a client, the more likely it is that you will eventually receive more of that client’s business.
In fact, looking at the long term can be a highly profitable strategy. Hartman suggests assessing the potential value of a client if he or she is retained for their lifetime: that value can be far greater than the initial compensation received from the client. Hartman notes that there is a “multiplier effect” when you also consider referrals and greater share of wallet. Indeed, the primary source of new business for most advisors is from referrals.
It’s key for you to settle on the best fit for your own, unique practice from among these three basic pillars of business growth: acquisition, retention and increasing share of client business.
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