Page 36 - Investment Advisor June 2023

If these firms’ current growth rate
is 10%, they’re hiring as though the
growth rate is 20%, for example, with-
out the capital to back it up in a sus-
tainable way.
What ends up happening in such
cases is that a firm will end up with a
combination of too much staff, inad-
equate results and growth that’s not
at a level that can correct this imbal-
ance. Before firms attempt to maxi-
mize their growth rate, it’s critical
they get staffing in line with their
actual growth rate. (Most advisory
firms today are not backed by a seri-
ous pool of private capital; if you’re
not, the goal is to ensure that staffing
costs increase at the rate of your over-
all business growth.)

3. CAreFully revIeW
MArketInG BudGets.
It’s also important to look at market-
ing costs. When staffing costs get too
high, often we see advisory firms dou-
ble down on marketing efforts to keep
their staff busy. When looking at your If you’re not getting at least one referral
P&L, it’s important to compartmentalize for every $500 you spend on client
client appreciation and direct market-
ing. These costs are broken out in most appreciation, you need to reevaluate how
firms’ P&Ls via both a client appre-
ciation chart of account and a marketing you’re spending the money and identify
chart of account.
What we’re looking for is informa- what needs to change.
tion about whether the money being
spent in these two areas is producing If you’re not getting at least one refer- ing strategy. If you do get this level
an acceptable return on investment. To ral for every $500 you spend on cli- of prospects or higher, then the goal
determine that, you can use some long- ent appreciation, you need to reevaluate should be to do more of what you’re
term industry averages to evaluate how how you’re spending the money and doing successfully in order to gain even
you’re doing. identify what needs to change. If you’re more leads.
For example, the average amount a spending less than $500 per year per Studying your firm’s P&L — starting
firm needs to spend on client appre- referral, do more of what’s working. with staffing, client appreciation work
ciation to earn a quality referral is $500. In direct marketing, the average cost and direct marketing — can be a great
Thus, if you spend $20,000 on client to generate a good lead is $2,000. This way to get growth moving for your firm.
events, newsletters and other client- is your initial ROI target. Again, the cost But you must be willing to heed what
appreciation efforts, you should expect of a lead should drop over time, as your this review tells you about your busi-
to reap 40 referrals. firm figures out the most effective forms ness. If you do the work that’s needed
As your firm grows, the cost of a of marketing, for instance. to improve growth, your profit margins
referral should fall due to the econo- If you have a yearly marketing bud- should follow.
mies of scale. Over time, it might drop get of, say, $100,000, then it would
to $400, $200 or even $100 per referral. be reasonable that you’d gain 50 new Angie Herbers is an independent consultant to
But the goal is to be earning an accept- prospects over 12 months. If you don’t, the advisory industry. She can be reached at Adobe Stock
able return on your investment today. something’s wrong with your market- [email protected].

34 Investment AdvIsor June 2023 | ThinkAdvisor.com