The lifeblood of every wealth management business and firm is growth in assets and in the number of clients.
Very often, advisors become so focused on these goals that they pay little attention to the process, time and costs in acquiring those new clients. Two concepts that advisors should pay attention to are client acquisition cost and client acquisition time.
The first measures an advisor’s acquisition costs associated with winning a new client, and the second measures the time frame from prospect/lead to a new client. Each is extremely important in running and building an efficient advisory business.
I always hear from advisors that it is much more expensive to get a new client than it is to retain an existing one.
Although I agree with the concept, the question I always ask is, what is your firm’s cost to acquire a client? I usually get a blank stare because they have never actually calculated the cost.
In reality, the concept and the math are not very difficult.
In the denominator portion of the equation is the total number of new clients in a given year. The numerator comprises all the costs associated with attracting and closing new clients.
For a little clarity, items that could make up the denominator are:
· All costs associated with prospecting seminars/dinners/lunches, etc.
· All marketing collateral material
· Prospecting lists
· Business development officers
· Service associate compensation or the percentage of their time dedicated to new client activities
I have seen benchmarking surveys that suggest that CAC could range from $382 on the low end to $2,900 at the high end. CAC will make firms more efficient and cause an advisor to focus on scalable, highly productive marketing processes.
The time that it takes to convert a prospect to a fee-paying client is equally important. The sooner a firm signs on a new client, the lower the cost to acquire that client and the faster they begin paying fees.
The key to this metric is proper tracking, and the key to proper tracking is a great customer relationship management system. And the key to a great CRM system is accurate data.
Most of the successful wealth management businesses with which I have worked do a great job in maintaining their CRM system, creating useful pipeline reports and analyzing the information they provide. Understanding the firm’s CAT allows an advisor to focus on those client development activities that produce the best results.
It is time to add some science to the art of client acquisition!
This story is part of a 30-30 series on savvy ideas on modernizing your practice.