So, your practice is growing. But how much do you know about that growth?
Are you achieving optimal growth? Is the rate of growth in revenue or profits increasing or decreasing? What are the sources of growth? Are your expenses increasing at a faster pace than revenue? Is the productivity of your staff increasing or decreasing?
These are just some of the questions Aiman Dally, chartered professional accountant and president of Copia Financial Solutions in Toronto says you can answer by using simple business metrics.
“You might not be able to determine exact numbers,” Dally says, “but a good estimate can provide useful guidance for making strategic decisions to improve the efficiency of your practice.”
Here are some metrics you can use to track your growth and the efficiency of your practice:
> Growth of assets
Track the growth of your assets over a specified period, Dally says, measuring variables such as new accounts, average account size, retention rate and lost or closed accounts.
Identify trends, such as whether your average account size is dropping while your total assets might be growing. Look at the sources of growth to determine whether new assets are coming in from existing clients, client referrals, centres of influence or prospecting.
Measure how much of your growth is attributable to market performance, which can be a misleading indicator of real growth. You also might track the flow of assets during various periods, such as RRSP season, to determine seasonality of flows.
> Costs
Measure both your fixed costs and your variable costs. Fixed costs, such as rent and salaries, are easy to measure, Dally says, but variable costs can be a little tricky.
The cost of your time can be one of the largest costs to your practice. Estimate the cost of your time by dividing client revenue by the number of hours spent serving clients and other activities over a specified period.
“You would at least get a rough estimate of your hourly costs,” Dally says. “Don’t forget to measure costs associated with activities such as marketing, prospecting and client meetings.”
> Revenue
Measure the revenue you earn from each client.
This should be a straightforward process Dally says. You may find that client size does not necessarily mean greater revenue, he adds, because some larger clients may have negotiated lower fees.
Make sure you account for per-client revenue, which is based on other fee-based services, such as preparation of financial plans. You should also be able to determine what percentage of your revenue is recurring.
See: Three ways to boost your revenue
> Profitability
Calculate profitability by subtracting fixed and variable costs associated with each client from revenue generated, Dally says.
In an efficient practice, he says, profitability should increase as assets increase. But you might find that while your assets and revenue are growing, the profitability of your practice might not be growing at the same pace. Profitability comes down to how much in resources you are using to serve clients vs how much revenue is generated.
> Productivity
The productivity of your team is measured in revenue and clients per staff.
“By observing rising or falling productivity,” Dally says, “you would be able to determine how you allocate your resources and whether you should tweak your processes to improve efficiency and, consequently profitability.”