The Fact:
If the fixed costs of a practice are allocated across all clients, the average cost of a client relationship is about $200 plus any variable client appreciation costs.

The Implications:
In order to establish service levels (including direct contact and client appreciation) that are appropriate, advisors must have a realistic assessment of the cost of a client relationship. The real cost of a relationship includes an allocation of fixed costs. In an average practice, clients would have to generate $200 (plus a return for the advisor’s time) on an annual basis in order to be profitable.

The Idea:
Advisors can estimate total client costs in a reasonably simple manner. Start by looking at the total amount invested in the practice in a given year. From that total, subtract costs related to new business development and any costs that would vary from client to client (such as client appreciation). For the most accurate calculation, you should subtract a portion of your team’s salaries, if they spend time on new business development. That total is divided by the total number of clients in order to arrive at an allocation of fixed costs per client. The result represents your breakeven point.

The Next Step:
The Business Success Kit provides you with the tips, tools and templates that you’ll need to enhance practice productivity and profitability. It’s the most practical and comprehensive guidebook available for financial advisors. For more information, visit www.caifastore.com and click on the Business Success Kit.