Rod’s top three tips on what steps businesses can take to grow profitably:
- Understand the costs and revenues of your core business activities
- Identify the trends here
- Leverage these to focus on the biggest areas of profit potential
The increased demands on business owners and greater focus on governance, risk management and culture are driving the need to build more and more capability and for businesses to operate sustainably into the future.
At times it feels like we’re in big waves at the beach – we only just get our head above water, catch our breath, then the next wave hits. The Future of Financial Advice wave has hit, leaving a sea of whitewash. The Life Insurance Framework recommendations are just about to hit; and if we stand on our tiptoes we can see the next ‘set’ on the horizon, including higher education standards, accountants’ licensing and changes to mortgage broking regulation.
Sound financial performance is the lifeblood of any business. Growth is a necessity, but remember, growth needs to be profitable. If you are growing where you are not profitable, you are working harder and simply creating losses!
How do you know what is profitable and non-profitable growth? To answer this question, you need to understand the costs and revenues associated with the core activities of your business. Let’s look at a real-life example in use across the Infocus group in a financial advice business.
Infocus’ proprietary software uses a simple embedded timer in each work activity to track the time team members spend conducting client-facing and administrative tasks. Each team member has a charge-out rate (encompassing their salary and on-costs, as well as an overhead allocation for the total costs of their business), so in this way there is a defined cost attached to servicing each client.
On the revenue side, Infocus’ software has all client revenues for each business stored and available to each business owner. The touch of a button delivers a report that lists each business’ clients by revenue, service type or other parameters the user may select.
A simple report combines these two key parameters. The business owner can see their client list; and importantly, the revenues and costs associated with servicing each client. This report is a powerful tool in helping business owners decide where their team members should be spending their time from both a client service and business profitability perspective.
Secondly, now you know the relative profitability of your business, how do you drive more profitable growth?
While each client conversation and needs will be different, there are business-wide gains to be made from ensuring the services you deliver are consistent across your client segments. By standardising your service delivery by client segment, you can deliver service in a consistent way. This ensures less time is spent managing individual or non-standard activities in your business that are not aligned to that segment.
Based on your client revenue and cost analysis, you will have seen which individual clients and client types are most profitable for your business. To minimise the risk of losing these key clients, Infocus’ software has tools and content available to construct ‘drag and drop’ style newsletters and regular updates and issue these via email to existing clients. There is also an online ‘Client Portal’ to share information like market updates, client portfolios, advice documents and fee disclosure and opt-in statements, helping to increase engagement with your most important clients.
Your analysis will also have shown if there are any linkages between your clients, including whether there are any individual client types (e.g. of a certain profession) or segments that may be more profitable. Identifying trends in these segments is key, as you can then develop and implement marketing plans to attract and retain more of these types of clients in your business. Marketing is a critical tool for any business – but the strategies you implement must be targeted, managed carefully and implemented well to maximise the success of your expenditure. This is the subject of an entire separate conversation!
Rod Bristow is the Managing Director of Infocus Wealth Management. He has 18 years’ experience in the financial services, consulting and agribusiness fields, including over 8 years’ experience as a Director of public and private enterprises.
