This is your Biggest Problem and Solution
I was speaking with an IFA about his ideal client and he said something startling “The minimum fee or revenue per client that I need is Rs.10000”. I asked him “Who told you this?” He said he had read it somewhere or attended some workshop. I am sorry to say but this is an absolutely suicidal piece of advice. Let me rant a bit about avoiding this and then get back to the core of the post. You can skip the next few lines if you wish too. I told him to first stop reading such nonsense from people who have never practiced or built a world class business themselves. Even if they have built a mediocre business does not qualify them to dole out such nonsense. The best part is that there are too many people masquerading as experts just like there are experts who dole out stock market tips. Avoid them at all costs. This type of crap advice has led to the biggest problem that I see today with most distributor and advisor practices & businesses.
What do you think is the problem?
I am not sure if you are going to like the answer, but the biggest problem is “You have too many clients?” (I am not talking about people who are just starting out but people who have been in this business from 2 – 30+ years.)
Surprised! Don’t be. The biggest problem is that “You/ We have too many clients”.
We have done this analysis of hundreds of practices. This always stands out. 60 out of 500 clients are generating 80% of the business. 150 clients out of 1200 clients are generating 85% of the business. Your ratio could be different, but your problem will exactly be the same. Now why is this a problem.
a. You do not have time for the other 70-80% of the clients. They are either too small or inactive.
b. Thus, they receive a sub optimal level of service and needless to say their client experience is poor.
c. Because of the above, they are not happy with you as well as their investments. In short, they are not happy with their overall investing experience.
d. You might not even care if they leave as you are in the rush to add more clients.
e. The same circle continues, and this becomes the equation.
Unhappy Inactive Clients > Happy Active Clients. However, you still must service them. This increases your overall costs, and stress while dents your Brand (not ARN or your company name). Some of you do not even realize how big this problem is and how much it is costing you. This also makes you do another stupid thing – chase more clients. This then leads to a sub-problem that many of you have: Non-Ideal Active Clients > Ideal Active Clients.
The problem that you have created above will not be solved by more clients. The only solution can be summarized in 2 principles:
- You need Fewer Clients
- You need Better Clients
How many clients can a Solo Practitioner or an Advisor of a team handle? The numbers vary depending on the comprehensiveness of what you do and your client experience overall. However, the numbers are not as high as many of you have. A 2500 client firm actually needs only 250-300 considering a couple of advisors. A Solo Practitioner might need not more than 100 clients. Carl Richards says “Imagine you have 100 seats in your bus or flight. Who do you want to be seated?” You have limited capacity unless you scale up your capacity with processes, technology, and people. Even then the capacity is always limited because of the number of hours in a day.
Ask yourself “How many clients can I realistically handle and deliver a world class experience?”
Memorize the above 2 principles as they will change your entire way of looking at your practice/ business. The need of the hour is to look at your overall firm with fresh lenses.
Let us say you can take only 100 clients. You now must think of who your Ideal Clients are going to be. I am not detailing Ideal Clients here as I have done that in the past (There are qualitative as well as quantitative factors) but just highlighting one quantitative part of the equation (minimum revenue per client). The IFA I spoke about at the start of the column, Rahul realized that for the kind of service he was providing, he can only handle 100 odd clients. He needs a minimum income of X and factoring his other costs, he needs a minimum revenue of Rs.40000+ per client. Thus, he realized he needs better clients. Though this line means Better Ideal Clients and not Better Non-Ideal Clients, in general, getting Better Clients will move the needle for you.
I must quote Seth Godin giving an example of firing his biggest client years ago to give you a perspective on better clients. Seth was getting around 33% of his revenue from this one client however the client was an abusive one. The client was unrealistically demanding, rude to the team and put them in real stress. One day they asked themselves “Is this the kind of business that we want to run?” An honest answer to this question got them to let this client go and lose 33% of their revenue overnight. They managed to get new business and were back to their previous revenue levels in a few months with better clients. You must understand that a better client does not necessarily mean the highest AUM or revenue. Yes, a minimum revenue is one of the metrics of a better client, but it is not the only one.
Rahul understood that he had limited time in a day and the answer to his problems did not lie in chasing more clients. We took a hard look at his business and Rahul changed his strategy, fixed his ideal client profile, defined his client experience, developed client communication (in a different way), lowered his costs, and lowered his stress (while bringing more clarity and increasing his confidence tremendously).
It is time to note Architect I.M. Pei’s quote “Great Artists need Great Clients”. Do not settle for mediocrity and instead attract all the better clients that you so deserve.