Business Health has shared six steps to calculating the price to deliver financial advice services in a profitable yet suitable way.
According to the organisation, the average revenue per client for Australian financial advice firms now stands at $3,850 – marking a 10 per cent increase over the last two years.
Meanwhile, the top 10 per cent of profitable practices have a revenue per client average of $6,055.
Reviewing fee structures has become critical as advice firms look to ensure they are not undervaluing their services. Business Health added that three in four Australian practices have reviewed their fee levels over the preceding 12 months, and 20 per cent of firms are now placing greater value on their expertise by charging for the first appointment with a client.
Earlier this year, Money Management spoke with five advisers on whether or not they charged for their initial meetings.
As pricing discussions come to the forefront, Business Health has provided a guide to determining suitable and profitable fee structures through six key steps.
These are:
- Determine each task required to deliver a service (i.e. make appointment, hold meeting, update file, submit paperwork, send confirmation, update CRM).
- Estimate the time it takes to implement each task.
- Decide who does each task and calculate the salary cost (hourly salary cost multiplied by time taken).
- Determine the firm’s hourly overhead cost (total business expenses less total salary costs multiplied by time taken).
- Incorporate the firm’s target profit margin (calculate: salary cost + overhead cost + profit margin).
- Once the cost to deliver each major service is known, determine if individual clients are “profitable” or if you are actually losing money on some clients.
The firm added: “You can then decide what to do with unprofitable clients, move them to a more suitable service category or increase their fee, for example.”
It strongly recommended advice firms to review cost structures each year as part of the annual business planning process. Moreover, Business Health urged advisers to never delay a fee increase.
“A small incremental increase to your fee structure each year is far more acceptable to clients (who are accustomed to this from other professional service providers), than a large increase that has been delayed for a number of years.”
The concept of value for money through the eyes of the consumer has become vital as more clients begin to question if current fees reflect the desired value.
As a result, it has become imperative for advisers to effectively communicate the worth and value of their service offering to clients. To do so, advisers have been encouraged to communicate the tangible financial benefits of advice where possible and also frame outcomes in terms of the emotional benefits.
