What to Do If Your Lead Rate Is Falling

A good place to start is communication, although not quite as fun as the creative process of marketing. Review your client service processes and delivery. Has it changed recently? Is it being done by all your people consistently? If not, what are you going to do about it? And, what training can you put into place to ensure it is? Do the advisors need more training?

This is an area where leaders must set their attachment to marketing aside and take a hard look at the people they are developing. We all want to be offering the best service and training, but, a key to running a successful business is the ability to honestly access the results of other people's work — and then use it to make changes in the business to make your employees better.

Also, look at your own motivation as a leader. Did you get so focused on growth that you neglected employee development? Are your advisors and/or staff overloaded?

As your business grows, so does the workload of you and your team. To maintain a high level of client service in a recurring revenue stream, there's a limit to the workloads that you and your people can handle effectively. This is an area where owners often fail to see things the way they really are.

Often this blindness results from the desire to keep revenue high, expenses low and profits higher. You have to ask whether it's really prudent to save a few (or a lot of) dollars, but lose the power of your primary lead source, which is referral rates, for future growth.

Owners tend to have a blind spot when assessing whether their staff is overworked. They may ask the question but often don't want to know the real answer or take responsibility for it. Employees tend to want to please the boss. And, the good employees tend to complain least.

Great business owners and leaders keep a keen eye on their people first and do what they really need to do to keep their employees balanced, energized and happy. As a result, they are serving the people, not their growth goals alone. And they do this because falling client service is never a position you want to be in as a business.

Inside the Numbers

Let's say you have the people part figured out and client service is great, but you want to increase revenue at a faster rate. The answer is to look inside the numbers.

The fastest-growing firms in the RIA space are the ones that have the highest referral rates. Unfortunately, we don't hear much about those firms in the media. While the trade media today likes to talk about issues such as M&As, marketing and advertising, a story about referral rates is less appealing.

But here's what we know from the data we've collected: Over the course of the past 20 years we have analyzed thousands of firm P&Ls, and there is a key expense line item that stands out in the best, fastest growing firms. That line item is "marketing expense," but can be deceiving if you don't dig deeper into what it really includes as typically it acts as a catch-all area.

In reviewing what the outperformers spent their marketing dollars on, we found they spent roughly 3% of revenues on client appreciation (i.e., newsletters, events, tools, helpful guides, reading and educational materials, etc.), which they categorized as marketing.

Only about 1% of total revenues was spent on true outbound marketing programs, such as advertising, events, seminars, podcasts, websites, brochures, etc. In other words, over 75% of what the firms call "marketing" is being spent on communications with existing clients.

What do these numbers really tell you? The way to grow an advisory firm is not a true marketing expense. Categorize it on the P&L however you want to. But, the bottom line is that client appreciation makes growth happen.

To keep it happening, you must back up that client appreciation with good people who deliver great advice. If you cannot do that, no amount of true marketing investment is going to make a difference.