I had a great opportunity to talk with a group of advisers last week on the subject of business planning and the power of knowing you numbers. I won't reproduce all the material but understanding the basics before engaging in, say, a discussion about acquisition, replacing systems, hiring staff, I think is absolutely fundamental. These apply no-matter how big your adviser business:
Do you know your numbers?
- What capital is employed in your business?
- What is your margin?
- What is your cost to acquire a new customer?
- What is your cost to serve a customer?
- What is the cost of a new adviser desk in your business?
- If you have another $100k, $500k, $1m, $10m do you know what you would spend it on?
- How would that change what you do?
Sometimes you can have a great conversation with your accountant about these numbers, but they are more demanding than they may appear. The top question alone requires some thought to work out what the right basis for assessing the capital employed by your business is. We find that the number in smaller adviser business accounts is rarely a good guide - as it often undervalues or fails to consider the capital value of your client base.
Those questions about cost to acquire a customer and the cost to serve a customer can vary a lot. A less engaged customer with a product which does not need a lot of revision may be every low cost to serve. A demanding customer with a high-engagement product - such as a business client with a group scheme for staff - maybe in a different category altogether. That question is addressed really well by this post, which was brought to my attention by Tony Vidler: link.