When the revenue from your top clients is funding your bottom clients…
Are your top clients funding your bottom clients?
When you dig into it, the answer really is YES.
If you are constantly working in your business, you may never ever have to make the often times difficult decisions necessary to solve this problem. If you’re working in your business all the time, you may not even know this is a problem. But, as soon as you begin to work ON your business, this problem becomes very evident.
So let’s work on your business in this post.
I get it. When you first began in this business, you worked with anyone who could “fog a mirror”. You would drive to the ends of the earth for a new client. The focus was volume. This is what paid the bills. This is what mattered.
But then, one day, you woke up exhausted (and a little frustrated). You weren’t growing. You were plateauing. So, then you began to segment your business. A clients, B clients, C clients, etc… And if you really dug into the numbers, you realized that every time you met with a non- A or B client, you lost money on that meeting. The only way you were still profitable was because your A and B clients were funding your C and D clients.
Now, imaging this. What would happen if you didn’t have to worry about the C and D clients and were able to free up some capacity in your business to take on more A and B clients. What a wonderful life this would be.
So, what do you do?
Well, as I see it (and I welcome comments on this topic), you have two choices.
- Bring on a junior advisor to assist in managing these C and D client relationships to help in making them profitable again, or
- Sell this portion of your practice to another advisor who has the time and capacity to properly service these clients.
So, let’s analyze the pro’s and con’s to each choice.
Bring On A Junior Advisor
This really is the same business model that the Dental world has embraced. Here is what I mean. When was the last time your dentist cleaned your teeth? Exactly. Never. It was the dental hygienist. Isn’t this what the junior advisor is? A financial hygienist?
The logic behind this business model can be quite sound. The senior advisor brings on new clients, gets them set up with a proper financial plan, assists the client in implementing all of the recommendations and then, the client’s plan is now on “auto-pilot”.
So, what is required during the review meetings is to make sure that the clients plan is on track and that there are no major life events that need to be dealt with. In essence, the “financial hygienist” can review the clients plan, identify if there are any needs and if there aren’t, this means that the clients plan is on track and they are good for another six-months. And, the financial hygienist tells the client that if anything changes, that they are to call so you can assist them with the change. If not, they can look forward to their next review meeting.
In the event that there is a need identified, then the “financial hygienist” can book a meeting with the senior planner to make sure this need is properly analyzed and proper solutions are presented.
The net result is that the planner is only working on higher revenue generating activities and the client is always properly serviced. This may be a wonderful business model.
Now let’s analyze solution 2.
Sell A Portion Of Your Practice
The logic behind this solution is to sell the clients who don’t meet your “ideal client profile” to another advisor where they are the “ideal client”. The new advisor pays for the right to service these clients and the old advisor get’s compensated up front and instantly creates capacity in their own practice to be able to take on new A and B clients.
The clients are then better serviced by an advisor who’s business model supports these clients and everyone is happy.
Both solutions accomplish the following key points:
- Client is better serviced
- Practice capacity is created
So, which one do is right for you? The answer becomes revealed through the cost of implementation.
Let’s take a look at the costs associated with option 1.
For this solution to work, you need to bring on a capable junior advisor who is motivated to work with your clients and has no aspirations on opening up their own business. Someone who is truly looking to to be part of a team as opposed to creating their own.
My experience has been this. To find someone who is qualified, they are very expensive. This added expense can only be seen as an investment if you are able to translate the extra time (capacity) into new A and B clients. If not, you have added a major expense to your practice. If this person is reasonably priced, they usually don’t have the experience required to properly manage these clients and will not represent you well during the client meetings and take up a lot of your extra time (which goes against your ability to properly utilize the extra capacity). At the end of the day, you have added to your problems, added to your payroll, added to your liability and your clients begin to resent working with the new advisor and want to keep working with you.
Now, option 2 allows you to “partner” with another qualified advisor who will actually bring some value to the table when working with your old clients. These clients will quickly understand that you are no longer available but will also feel comfortable working with the new advisor.
You will have received some revenue up front and truly created capacity in your practice to bring on the new A and B clients. You have extra cash available to put towards marketing for those new A and B clients and at the end of the day, everyone is happy.
So, as a business owner, what are we really trying to create? The answer is a profitable business which we are passionate about that allows us the freedom to do what we want, how we want with whom we want. Which of these options provide you with this? That is for you to decide. However, I’m sure you can see where my bias lies. I’ve done them both. I speak from experience.
Let me know your thoughts. Have you ever had to solve this problem? If so, what and how did you do it? Please comment below.