My friend John Pollock tells a story about how after his first few years as a financial advisor, he realized that compared to his neighbor, John had a pretty crappy sales job.
The neighbor also worked in sales, but at the corporate level. He had a support staff, a company car, an office, four weeks of vacation, free health insurance, and a free annual trip an exotic location. John had none of those things. The neighbor also banked more money than John, and probably lived in a nicer house too (okay, the last point is my speculation).
Sure, John was an “entrepreneur”. He had no staff, but he could have as much vacation as he wanted. Then again, his vacation wasn’t paid time off. There was no way he could afford to take off four weeks a year.
He paid for his own health insurance and his own car. He also worked much longer hours than his neighbor.
In reality, John was not an “entrepreneur.” He was anything but.
At some point, we all have the same awakening.
The problem with a sales job is its narrow focus. “Here’s your production goal. Now go hit it.” That works well for John’s neighbor. His business needs are all met so that production is all he must think about. Every commission dollar he earns is 100% profit. Sales equal profit.
But for the independent independent financial advisor, sales not only don’t mean profit, sales can actually diminish profit.
Unlike his neighbor, John must pay for his marketing, and his office, and his health insurance, and his ink toner, and his paper clips…… It’s not enough to just make a sale. He must overcome a financial hurdle before he can consider a sale to be a success.
As business owners, we cannot afford to just be a sales office. We need to run a business. For profit to consistently grow, it cannot be treated as the mathematical byproduct of Sales – Expenses.
Instead, we must rewrite the formula to Sales – Profit – Owner’s Pay- Taxes = Expenses. By doing so, we force ourselves to manage expense with incredible scrutiny while putting the needs of the owner first.
In short, a healthy financial planning practice transitions from a sales office to a profit center.
When I work with another advisor, we begin this process by first taking nine steps.
Step One: Know your numbers
This goes beyond your profit and loss, although that’s a start. You must also need to know how much does it cost to get you a new client. How much profit does a new client bring you? If you don’t these numbers, you can’t make profit based decisions.
Step Two: Move profit out first
You should begin each year knowing the amount of money you wish to earn as true profit. By profit, I mean after tax money that you don’t need to live on. You can invest it, pay down debt, take a trip. Whatever you wish. But it’s not going back into this business. This money, as a percentage of expected revenue, needs to be withdrawn from every check you earn. For example, let’s assume you expect revenue to be $500,000 and you have a profit goal of $50,000. In that case, 10% of every check you receive needs to leave your business account IMMEDIATELY and placed into a separate account (your profit account).
Step Three: Cut waste
You spend money on crap you don’t need. We all do. There’s software you don’t use that bills you monthly. You overnight packages that could be easily shipped via USPS. That golf hold you sponsor every year to give you “name recognition.” Every dollar of waste you cut is a dollar into your profit account.
Step Four: Lower client acquisition cost
I’m not against sending direct mail. I am against sending direct mail to strangers. It’s not necessary. Send mail only to people who have an interest in what you do. Create a lead magnet system for a Shock & Awe Kit
Step Five: Increase average client revenue
In a word, be holistic. Think of yourself as a doctor who diagnoses all problems your client faces and then offers to implement recommendations in all areas of financial services: planning for a fee, investments, insurance, tax planning. At the very least, form a team of professionals who can assist you (and share the revenues).
Step Six: Automate
You know you shouldn’t be doing $15/hour work. That’s for your assistant. But there’s also $5/hour work. And your assistant shouldn’t be doing it. That’s for your computer. Effective automation with a system like Infusionsoft can dramatically increase your office efficiency.
Step Seven: Delegate
If you’re spending your time serving as your own bookkeeper, SEO consultant, Infusionsoft campaign builder, accountant, etc…you are wasting your time and money.
Step Eight: Keep Cutting
Waste has a way of reappearing.
Step Nine: Establish recurring revenue
If you’re being paid only once, then you have a crappy sales job. Fix it.