The Necessity of Growth

As a firm develops, it expands its capability to serve bigger and more demanding clients by bringing on technical specialists and other non-professionals, allowing professionals to better focus on client relationships. Concurrently, the firm establishes more delineated career paths that serve to better attract and develop talent. All of which contribute to rapidly expanding owner income that is capable of supporting a larger base of owners.

Standout Firms Reveal Best Practices
As demonstrated by their unwavering commitment to achieving sustainable growth, it is the industry's "Standout" firms, as defined by FA Insight, that perhaps best understand growth's rewards. Standout firms are distinguished at each of our four stages of development. We define these firms according to two key criteria related to building firm value:

• The ability to generate income for owners
• The ability to grow (as measured by revenue)

The top one-third of firms ranking highest across both factors in each of the four stages of firm development were distinguished as Standouts. Both the owner income and growth criteria received equal weight. By definition, our Standouts achieve sustainable growth—they simultaneously demonstrate strengths in growing revenue, as well as converting revenue to income.

This performance advantage stems from Standout firms having a solid understanding of the clients they are best suited to serve and the valued outcomes they are best positioned to provide these clients. This understanding, in turn, leads to other best practices of Standout firms that support a variety of operating advantages.

Rigorous Retention
Standouts demonstrate a keen ability to attract new clients across most aspects of marketing. Their ability to market to existing clients in order to strengthen retention and limit turnover is also a notable differentiator, however.

This superior ability to retain clients correlates with an actively managed and rigorous retention strategy. In particular, Standout Innovators pay special attention to a wider breadth of retention activities relative to all other Innovator firms. Leading retention-related activities include implementing client appreciation events and ensuring staff are compensated for client retention via incentive pay.

Charging for Value Delivered
Pricing decisions are an important component of any solid marketing plan, with the ability to effectively implement a premium pricing policy increasing with firm size. Protecting profitability via pricing, particularly during a market downturn, is a practice more effectively executed with firm scale. This is largely a result of the confidence that comes with being perceived as dominant within the industry. Additionally, larger firms are less likely to feel compelled to work with prospects that are not suitable, particularly where there is an inability to pay.

The industry's smallest firms are clearly challenged to implement an effective pricing strategy. Value-based pricing refers to a firm's ability to determine and charge clients based on the outcomes achieved. Not only are smaller firms less likely to charge based on the value delivered, they also struggle to implement a minimum fee—only 48% of Operator firms use a minimum fee compared with 65% of Innovator firms. Value-based pricing is a practice most comfortably deployed by the Standout Innovators, with 70% of this group using a value-based pricing structure. This compares with 63% of all other Innovator firms.

Timely Service Delivery
A firm's operational capabilities place a heavy impact on both direct and operating expenses. One way in which Standout firms demonstrate an operational edge is in their ability to more quickly and efficiently service clients, demonstrating operational excellence from the prospecting phase through to the implementation of the recommendations. As illustrated in Figure 4, Standout Accelerators and Standout Innovators are the most efficient in delivering advice to clients.

The speed of client service of these larger firms is no doubt attributable to a range of operational practices including deploying staff in a more coordinated manner and ensuring greater planning around the use and implementation of technology.

Optimizing Productive Capacity
The productive capacity of support staff can be gauged through an assessment of a firm's operating expenses and revenue per head count. Innovators, the largest firms within the study, experience less idle capacity of their support staff. Moreover, 22% of the Standout Innovators reported that support staff is "under capacity," compared with 30% of all other Innovators.  

Habitual Growth
Many firm owners naturally inclined to pursue growth do so to enjoy the financial spoils of increased revenue and owner income. For others, business growth provides a sense of achievement and is a motivating driver for delivering personal satisfaction. These are valued owner outcomes, but are just the beginning of what can be achieved through a strategic growth plan. Whether you are an owner who is just starting out, considering your business succession, or somewhere in between, growth is a necessity, yielding valuable outcomes that extend to clients and team members, as well as owners.    

Eliza De Pardo is the principal who oversees FA Insight's consulting services. Dan Inveen is the principal who oversees FA Insight's research services. They can be reached at [email protected] and [email protected].