I lost clients when I set a $10K fee minimum. That’s OK
My six-year-old practice may be out of the startup phase, but I’m still undertaking major transitions that alter the growth path of my company. I’m confident the changes will help me build the practice I really want, but it hasn’t been easy.
One of the biggest shifts I’ve made is to my fee structure. Obviously, every client has different needs but in trying to make everyone happy, I was becoming inefficient. A few months ago, I nailed down the exact service model that I want: Instead of working with ongoing clients at various price points, all of them should fit into a model where a minimum fee of $10,000/year to do financial planning, investment management and tax work is appropriate, given the assets I’m managing.
I then told my clients this change would affect all new relationships, as well as those who are transitioning into retirement. For some, it meant a big fee increase. Some left, saying the service was not for them. The departures mean my practice is losing thousands of dollars in revenue.
That’s when I heard something that really hit home: “The right client already values the result of the work you do. Not the wrong client, the right client,” said Sean McCabe, the founder of SeanWes, an online community for entrepreneurs, in a podcast. Applying those words to my business has changed the philosophy of my business design and the way I work with clients.
As I listened to to Sean, I realized the right client for me already values the result of this new service offering. My future clients, who haven’t signed on yet, will value this service and the results that it brings — I just need to be patient as we find each other. The message couldn’t have come at a better time. While my new approach isn’t out of the norm for our industry, my level of confidence wasn’t high enough to think I was worth the money.
I had to deal with that crisis of confidence quickly when I met with a prospect who had over $4 million of investable assets. Based on my fee model (which intentionally has no price breaks) I quoted my ongoing services at more than $40,000 a year. As I delivered the price, I had to show a face of assurance but inside I was wincing, expecting the reaction of sticker shock. It didn’t come.
I then had to have the same conversation with three other retiring clients who would be transitioning into my new model. Each time it got easier. Even when it got rejected, I hung onto the notion that they were not rejecting me but a service that wasn’t the right fit for them. As time has progressed the service model is now just a normal part of my business.
There was yet another worry that came with my new fee model: risk. As I came away from the prospect meeting quoting more than $40,000 in fees, I felt I was exposing my business to a danger I hadn’t encountered before. While the value would be delivered in designing and facilitating a retirement income plan, along with other financial planning and income tax tasks, I don’t want a large portion of my revenue to be generated by one client. It has great upside potential, but also downside as well.
Given the opportunities for growth in this person’s portfolio, it wouldn’t be surprising for the future fee to start dwarfing those of my other clients. If this person decides to leave in five years, my company’s revenue could be decimated. With that in mind, I instituted a maximum $30,000 fee. This accomplishes multiple things. It limits the risk that one client can have on my company revenue. Plus, once clients go over that maximum fee, they likely feel like they’re getting a deal because they’re not paying any more money. Also, it streamlines multiple parts of my business such as billing and income projections. Finally, when comparing it to other companies, the service was beyond what many are doing so I still feel that I’m providing clients with great value.
Being a solo, lifestyle practice, getting to this point makes me very excited. When I tell people that my minimum fee is $10,000, I get a wide range of reactions. Some existing clients say they are very happy to pay and when they find out that there’s more services included than they currently receive, they feel like it’s a bargain. Prospective clients frequently walk away — and I’m okay with that. Being a lifestyle practice, I don’t need 150 of these clients to support a team, multiple offices and other expenses.
I reverse engineered my practice to calculate the income number I need in order to meet my personal goals. Our household requires about $200,000 of gross income to achieve all of our savings and stretch spending goals. Between mine and my wife’s income — which doesn’t fluctuate much — we’re about $50,000/yr away from that. Now that I have a minimum fee, I know the exact number of ongoing clients I need if my practice design doesn’t change. When I get to capacity, I know I’ll have a lot of time to service these clients, provide a rich experience and travel the country to see them without having to focus on growing at all.
I’ve told clients that once this service tier is filled, I won’t be open to new ones. They know they’re securing a spot in a limited client roster. As long as they’re happy— and still fit as a client — they’ll get the service they’re accustomed to.
I’m sure my practice will evolve in the future. Businesses develop, dreams change and clients will move on. But I’m going to stick to designing services that I feel confident in offering, knowing that the right client already values the results of this work.Thanks Sean.