It’s that time of the year when wholesalers/Sales VP’s/Product Pushers will be contacting you to discuss your production goals for the coming year. It’s understandable. It’s their job. I once did it myself.
And for the record, I like my FMO and TAMP. I personally work with some of the best.
It’s interesting, however, they never discuss profitability with you. If you were to announce tomorrow you plan to drop 100K on one marketing effort or another, they’d all give you a high five and congratulate you on investing in your business.
After all, they aren’t spending the $100,000, you are. Whatever you produce is pure profit to them. If you’re lucky, you’ll keep 60%. Probably less. And you’ll have to earn more than $100,000 to break even.
Recently an advisor called me to discuss such an idea.
Advisor: “DC, I’m ready to go big next year. I’m going to drop $100,000 on radio and seminars.
Me: Interesting. How did you arrive at that number?
Advisor: I’ve been saving it up the past three years and have decided now is that time to really invest in my practice.
Me: I see. So you’re going to take $100,000 of profit from the past three years to hopefully make profit in future years. Is that correct?
Advisor: I guess. I mean yes.
Me: Let me ask you something. How much was your profit up last year?
Advisor: Four percent. Remember, we studied that.
Me: Yes, we did. Question: How much was your portfolio up last year.
Advisor: It was a great year. About 13%.
Me: So, your savings grew by 13%, but you want to invest it in your businesses thinking you can grow it by even more than your portfolio?
Advisor: I see where you’re going. Are you saying I shouldn’t invest in marketing.
Me: No, I’m not saying that at all. In fact, as you know, I strongly endorse 10% of incoming revenue to be spent on marketing. In your case, $100,000 represents 20%. In addition, you’re not looking to spend part of your revenue for marketing. You’re looking to raid the success of the past three years.
Advisor: But I really want to get to $100,000,000 in assets under management.
Me: If you got to 100 million but had less owner pay and profit that you do now, would you be happy?
Advisor: Of course not.
Advisor: Because it wouldn’t be worth it. I’d be better off doing nothing.
Me: And you would be profitable?
Advisor: Yes. I don’t need to market to make money. I have recurring revenue. I just need to market to grow.
Me: But does growth guarantee profit?
Advisor: No. But are you saying I shouldn’t grow?
Me: Of course not. What I am saying is that sales growth and profit growth are two different things. Would you agree?
Me: The “sales goal” benefits the company that manufactures the product you sell. But as a business owner, the “profit goal” is all that matters. I want you to grow your profit. I could care less about you hitting a sales goal.
Advisor: Okay. I agree.
Dan: So, if what you really want to do is raise your profit goal, then that means we should look at expenses just as much as look at ways to grow revenue. Would you agree?
Me: You should probably also look at how to get more out of your existing marketing budget before increasing it. Only when we’re sure that a dollar spent equals two dollars of profit would it make sense to drop more money. Do you know for certain that your current marketing efforts will do just that?
Me: Do you also know if your are maximizing your revenue per client? Are you managing all of their money and meeting all of their needs for financial services?
Advisor: No. Okay…sounds like I’ve got some work to do.
Me: For $100,000, I would think you’d want to.