Unlocking the Metrics of Success

Amar Pandit , CFA , CFP

Amar Pandit

A respected entrepreneur with 25+ years of Experience, Amar Pandit is the Founder of several companies that are making a Happy difference in the lives of people. He is currently the Founder of Happyness Factory, a world-class online investment & goal-based financial planning platform through which he aims to help every Indian family save and invest wisely. He is very passionate about spreading financial literacy and is the author of 4 bestselling books (+ 2 more to release in 2020), 8 Sketch Books, Board Game and 700 + columns.

Let me ask you a simple question – What are the metrics of success in our industry/profession?

Just answer this instinctively.

The most common answer – Assets Under Management (AUM)…The second one – Revenue…The Third One – Number of Clients or the kind of clients.

Does anything else come to mind?

In our business, success is not just measured by the assets under management (AUM), revenue or the prestige of the client list. At the heart of a thriving firm lies a more dynamic and telling indicator: the sales productivity ratios. These ratios serve as the pulse, revealing the health and efficiency of a firm’s sales (client acquisition and organic growth) activities.

In our business, success is not solely measured by assets under management (AUM), revenue, or the prestige of the client list. It is most importantly reflected in our organic growth – the ability to expand from within by growing our ideal client base and increasing the AUM through strategic client relationship management and superior service offerings. At the heart of a thriving firm lies a more dynamic and telling indicator: the sales productivity ratios. These ratios, which serve as the pulse of our firm, reveal not only the health and efficiency of our sales activities but also our capacity for organic growth.

Understanding Sales Productivity Ratios

Sales productivity ratios compare the inputs of a sales force against the outputs they generate. The ratios are equally applicable to all sizes of firms including single financial professional firms. This typically translates to the ratio of costs related to the sales force (inputs) against the new assets brought in or revenue generated (outputs). These ratios can be nuanced, varying from the cost per acquisition, AUM per financial professional, revenue per contact, and more.

Why Do Sales Productivity Ratios Matter?

The importance of these ratios extends beyond mere numbers. They encapsulate the effectiveness of sales strategies, the potency of client relationships, and the proficiency of financial professionals at translating opportunities into tangible results.

So, what are these ratios?

While there are far too many (covering areas such as referrals, relationships with Chartered accountants, and others), here are the ones that you must measure.

Key Ratios of Your Business:

1. Closure Ratio: The “closure ratio” in the wealth business refers to the percentage of prospective clients that are successfully converted into active clients over a given time period. It’s a specific type of conversion ratio that focuses on the final stage of the client acquisition process – the actual signing of a contract or commitment of funds by the prospect, thereby closing the deal.

To calculate the closure ratio, you would use the following formula:

Closure Ratio =

(Number of Prospects who Became Clients ÷ Total Number of Qualified Prospects) × 100

Here’s how you interpret the components of this formula:

Number of Prospects who Became Clients: This is the count of new clients who have agreed to start a business relationship with the firm within a specific timeframe.

Total Number of Qualified Prospects: This is the total number of prospects who were approached or who expressed some level of interest in the firm’s services and are considered qualified leads.

Qualified” typically means they meet certain criteria set by the firm, such as having the requisite amount of investable assets.

For instance, if a firm had 100 qualified prospects in a quarter and 25 of these prospects became clients, the closure ratio would be:

Closure Ratio = (25 ÷ 100) ×100=25%

A 25% closure ratio would mean that one out of every four qualified prospects chose to become a client. Monitoring and improving the closure ratio is vital for the growth of a wealth firm, as it directly affects the firm’s client base and revenue. It is also a reflection of the effectiveness of the firm’s sales approach, first meeting client experience, and client onboarding process.

This number is as high as 70% for the best firms globally.

What is your closure ratio and that of your firm (if you have multiple people responsible for signing up clients)?

2. Median Client Size (instead of average client size): The median client size is a metric that represents the middle point of your client base in terms of assets under management (AUM) per client. Unlike the average, which can be skewed by extremely high or low values, the median gives a more accurate picture of a ‘typical’ client, especially in cases where client asset sizes vary widely.

To calculate the median client size, follow these steps:

a. List all clients according to their AUM:  Arrange each client’s AUM in ascending or descending order.

b. Identify the middle value: If you have an odd number of clients, the median is the AUM of the middle client in your sorted list. If you have an even number of clients, the median is the average of the two middle values.

For example, suppose a wealth management firm has 5 clients with the following AUMs: Rs. 1 Crore, Rs. 2 Crore, Rs. 3 Crore, Rs. 4 Crore, and Rs. 5 Crore. Arranged in ascending order, the AUMs are Rs.1 Crore, Rs. 2 Crore, Rs. 3 Crore, Rs. 4 Crore, Rs. 5 Crore. The median client size is Rs. 3 Crore, as it is the middle value in the list.

If the firm had one more client, making it an even number with AUMs of Rs.1 Crore, Rs. 2 Crore, Rs. 3 Crore, Rs. 4 Crore, Rs. 5 Crore, and Rs. 6 Crore, the median would be the average of Rs. 3 Crore and Rs. 4 Crore, which is Rs.3.5 Crore.

The median client size is a valuable metric because it provides a realistic representation of the client base and helps in understanding the core demographic of the firm’s clientele. It’s particularly useful for wealth firms to tailor their services and client relationship strategies effectively.

3. Sales Cycle Length: The Sales Cycle Length refers to the duration from the initial contact with a potential client to the moment they become a client, which is typically marked by an agreement to manage their assets or an initial investment. This metric is crucial for wealth firms as it reflects the efficiency and effectiveness of their client acquisition and onboarding processes.

Factors Affecting Sales Cycle Length:

  • Client Decision Process: High-net-worth individuals often take more time to decide on wealth management services due to the complexity and personal nature of the services.
  • Trust Building: Building trust is a fundamental part of our business. It often requires multiple interactions over time, which can lengthen the sales cycle.
  • Due Diligence: Potential clients may engage in extensive due diligence, reviewing the firm’s track record, investment philosophy, and regulatory compliance.
  • Complexity of Services: The complexity of the proposed investment strategies or financial planning services can also affect the length of the sales cycle.
  • Internal Processes: The firm’s internal processes for client assessment, proposal generation, compliance checks, and account setup can impact the sales cycle duration.

Calculating Sales Cycle Length:

The Sales Cycle Length is calculated by taking the average time taken from the first point of contact (like an initial meeting or inquiry) to the time when the prospect becomes a client.

For example, if over a period, the firm starts the process with 10 clients and it takes 60, 45, 30, 90, 50, 40, 70, 55, 35, and 65 days respectively to convert each into a client, the average sales cycle length would be the sum of all these durations divided by the number of clients.

In this case:

Average Sales Cycle Length = (60+45+30+90+50+40+70+55+35+65)10=540÷10=54 days

This average gives the firm an idea of the typical time it takes to convert a lead into a client.

Importance of Optimizing Sales Cycle Length:

Optimizing the sales cycle length is crucial for several reasons:

  • Improved Efficiency: A shorter cycle can lead to higher efficiency in client acquisition.
  • Better Planning: Understanding the sales cycle helps in forecasting and resource allocation.
  • Client Satisfaction: A streamlined, and predictable process can enhance the client experience.

However, it’s important to balance efficiency with the need to build relationships and trust, which are cornerstones of successful wealth businesses. Therefore, while shortening the sales cycle can be beneficial, it should not come at the expense of the quality of client interactions, client experience, and service. There are times when some customers move too fast into an engagement that later blows up because they had not fully thought through about what it takes to work with you.

The key use of this metric is not about how fast you are; it’s to become aware and smart about whether your current deals are on track or in trouble. This will help you ask some questions such as – Why is a prospective client taking four times longer to sign up? Are you missing something? Do you need to course correct?

If your head is spinning by now, I understand…But we are not done yet.

As we wrap up this exploration of key metrics that drive success in our industry, it’s clear that the journey is as intricate as it is personal. From the revealing insights of closure ratios to the nuanced truth behind the median client size, and the strategic implications of sales cycle length, we’ve only just scratched the surface of understanding the metrics of success.

Get ready to uncover the metrics that matter, and the wisdom that wins in the world of wealth. Part II promises to equip you with the insights you need to not just understand but master the metrics of success.

Stay Tuned for Part II…

Releasing February 6th, 2024, in your email box…