You may have noticed - planners spend a lot of time around numbers: tax, investment, planning and business numbers. Clients may think we're quants and, for much of what we do for them, that's true.

Just as you set goals and measure progress with clients, benchmarking is a key part of your business success. I'm asked often about the right numbers to watch and whether those numbers will change over time.

Who should be looking at this data? Owners? Planners? Financial staff? Everyone? Certainly, the managers (usually the majority owners) need to be acutely aware of all the numbers, but it's important to share certain information with appropriate staff, especially when they are responsible for activities that generate the numbers in the first place.

Some consultants suggest growing firms need a CFO or COO. We've reviewed proposals to have our accounting managed by an outside CFO, but it's not necessary for our firm, or yours, probably.

Unless you are providing sophisticated financial consulting for clients, a CFO is way too much horsepower. However, if you have no expertise in this area, consider a part-time or full-time bookkeeper, with an annual review by a CPA firm. When you reach $5 million in annual revenues, you might consider a general manager with accounting experience.

All numbers in the financial services industry are not equally important. Key data have to be examined on a regular basis, and include operating capital, cash flow, profits, business activity and trends. Each month, we review a full set of financials, including income statement, balance sheet, disbursements and receipts.

Another major number is profit, but not just bottom line profit. In Jim Collins' book Good to Great, one key for great companies is to focus on one critical economic measure. A similar concept was a memorable scene in the movie City Slickers, in which Curly Washburn (Jack Palance) shares with Mitch Robbins (Billy Crystal) the secret of life: "One thing, just one thing."

Our "one thing" is net profit per employee, which we measure as EBITDA. This number is important because it indicates several factors: operational efficiency, staffing levels, overall financial health and the ability to compete in an increasingly competitive marketplace.

Our business model strives to keep that number at more than $80,000. If we do, it indicates all parts of our business are working effectively. When it drops below our target, we examine our operations, staffing levels, growth, capital expenditures ... everything.


KEY metrics

Our firm is a member of the Zero Alpha Group, a business consortium of leading RIA firms that share operating data and best practice ideas. We compile data and have it available 30 days after the end of each quarter. This is what we track:

* Net new AUM

* % AUM growth (excluding market growth)

* Average fee (bps)

* Gross revenue per client

* Profit per client

* Overhead as a % of gross revenue

* Benefits as a % of gross revenue

* Total compensation as a % of gross revenue

* Gross revenue per client team

* Clients per client team

* Profit per client team member

The importance of these numbers do not change over time, unless we set different organizational goals. What's critically important to you might change what the "one thing" is for your firm.

Important information also comes from tracking prospects: where they come from, success at each stage of the sales process and the conversion rate. We conduct trend analyses.

For example, in the past five years, referrals from clients have yielded 65% of all new clients. However, in 2011, that number may be about 35% of new clients.

Is this a trend? If so, it raises a major question: If our branding and media messages appear to be working, what do we have to do to keep the trend going while continuing to harvest client referrals, as well?

Is all this really worth it? Why not just wait for the phone to ring? Because most growing firms are setting targets, making plans, analyzing their efforts and adjusting their activities accordingly.

In these difficult economic times, if you don't set targets and analyze the results, you are likely to fall short of your expectations. This examination might be painful, but it's time to dig up these sorts of numbers and question their meaning and implication.


More Numbers for Success

Other important numbers that have an impact on your business success come from outside your firm. I require all CFPs at our firm to join the FPA, attend all local chapter meetings and get involved in committee and leadership opportunities when possible.

If you miss three meetings a year, you miss 25% of the learning opportunities. Looking at it another way, a 75% score in most schools is barely passing.

Statistically, those who regularly attend professional meeting and conferences have a better shot at business and professional success than those who don't. Even if you're confident you know everything, meaning you think you can skip these sorts of gatherings, what kind of example are you setting for newer professionals in your office?

Our career path program specifies the experience, training and education requirement for advancement. To become a senior client relationship manager in our firm, a capstone position, employees must be involved in the local FPA chapter and serve on the board or as the chair of a committee. Working on a committee or board gives our professionals experience they can't get otherwise.

Service broadens their perspective and gives them an exceptional opportunity to interact with other career professionals working to contribute to the profession. This builds relational competence to solve conflicts, build trust and communicate effectively. Working as the head of a committee or organization builds supportive insight, collaborative decision-making ability, and the skills to recognize and work with different personality types.

I'm not exempt from these numbers. I've served as president of my local FPA chapter, as has another senior planner at my firm.

Now yet another planner is in the FPA leadership pipeline. Two others will be serving on committees. I continue to attend local and national meetings, and serve on the board of trustees for the Foundation for Financial Planning.

All of this work continues to broaden our perspectives, which strengthens the profession while helping our firm. It also sets an example for younger professionals.


The Bottom Line

If you look at your numbers and they don't tell you a compelling story, it's time to think more like a quant. Dig deeper into your data. Look at the inside and outside numbers.

Don't have much data to work with? Start collecting it right now, and make some projections to compare with actual performance going forward.

If you aren't being counted in your local or national professional volunteer efforts, make a deal with yourself to attend the next local chapter meeting. Find someone at the meeting who is keeping numbers and ask them what you should be measuring.

If you really want to learn and grow, get involved. I'd also recommend investing in financial planning services for those in need, which in turn makes your business stronger, by making a pledge to the Foundation for Financial Planning.

How do you measure success? Start counting the ways.


Glenn G. Kautt, CFP, EA, is a Financial Planning columnist and chairman of the Monitor Group in McLean, Va.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access