Run your practice like a business: use metricsArticle added by Dave Scranton on February 16, 2012
Ranked: #86 (795 pts)
If you really want to grow your practice, you need to track a laundry list of number-related items.
When searching for ways to grow our practice, we sometimes fall into the trap of looking for the sexy new trend, the latest gimmick and the slick marketing approach. The fact is, one of the best ways to improve your output has more to do with accounting than advertising. I can’t overemphasize the importance of monitoring your metrics.
No, it’s not exciting, but it is essential. If you really want to grow your practice, you need to track a laundry list of number-related items:
I talk constantly with the advisors I coach about the need to attract clients instead of chasing them. I tell them the importance of using lead generating approaches that are warmer and cheaper than seminars. I also point out that by tracking your metrics, not only can you clearly measure the effectiveness of one lead generating approach against another, you can find ways to significantly improve the outcome of any strategy you decide to use.
- What is your cost of generating each lead (by source)?
- How many leads do you get every week (or at least every month) from each source you use?
- How many of these leads actually come in to see you for a meeting
- How many schedule a meeting but later cancel?
- How many of these do you convert to clients?
- What is your average case in terms of dollar amount?
- What is your average case in terms of commission?
A practical example
Let’s say you’re planning a seminar. You send out 10,000 mailers at a cost of about $5,000. You receive 60 positive responses, which represent 40 buying units. You’ve got to feed all 60, however, at a cost of $33 a plate. That’s just shy of $2,000 for food, for a total of $7,000 in upfront expenses.
Then, of those 40 buying units, 20 schedule appointments with you. Four wind up canceling, so you see 16. If you close 40 percent, you get 6.4 clients, and if your average commission is $5,000, you’ve spent $7,000 to make $32,000, for a net of $25,000.
That’s all well and good, but if you know your metrics, you’ll be able to make small adjustments that can lead to significant improvement in your outcome.
For example, let’s say the response to your mailing is the same, but instead of scheduling half, you improve that metric to 60 percent. That’s 24 appointments.
Next, you reduce your cancelations by 10 percent, meaning you’ll see 21.6 people instead of 16. Now if you also increase your closing ratio by 10 percent, from 40 to 50, you’ll close 10.8 clients. Finally, if you can bump your average commission by 10 percent as well, it will climb from $5,000 to $5,500.
Now do the math. Multiplying $5,500 by 10.8 gives you $59,400. Subtract your investment cost of $7,000 and you’ve got $52,400 left instead of your original $25,000. The point is, you don’t have to get 100 percent better at everything to increase your profits by 100 percent.
This example shows you can do it by improving by 10 percent in just four categories. That’s the power of knowing your metrics and of using that knowledge to make incremental improvements, which, collectively, can add up to huge gains.
But that’s not all
Of course, there’s another important point to be made here as it relates to those lead generating strategies that are warmer and cheaper than seminars. The way you verify the true value of these approaches is by keeping your metrics.
Let’s go back to the first example, where you’ve closed 6.4 people. Now let’s say you do a referral meeting seminar where you get 20 people — eight clients and 12 referrals. Let’s assume eight of these referrals are buying units, and, because it’s a referral event, you get 80 percent of them — 6.4 prospects — to come in for a meeting. There’s no falloff, and you close 80 percent for a total of 5.12 new clients.
Even though, in truth, your average case size is typically higher with referrals, let’s assume it’s the same as in the earlier example: $5,000. That means your total income from these 5.12 new clients is $25,600.
But, remember, in this case you didn’t have to print or mail invitations, saving you $5,000 in marketing costs. And you only had to feed 20 people at $33 a plate for a total food cost of $660. Subtract that from your income total and your net profit is $24,940.
That’s nearly identical to your net in the original seminar example, but you’ve spent a lot less money, had to see fewer people and invested less time — all because the referral event was a warmer approach. And your metrics have just proven that.
So the moral of the story is twofold:
1. In the first example, you were able to evaluate your process and make small adjustments to greatly improve your return on investment in a public seminar because you knew your metrics.
2. In the second, you saw clearly that you could invest much less time and money and get a comparable return by using a warmer lead generating strategy than the seminar.
And those examples illustrate just two of the countless ways you can (and should) be using metrics to improve and grow your business.
Exciting? No. Essential? You bet.
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