How Much Can Financial Advisors Spend to Generate More Clients?

November 18, 2020 by

Advisor Wealth Mastery Team

How Much Can You Spend to Generate More Clients?

Last month, I presented some ideas about how much you can afford to generate more clients. Let me lead you deeper into a couple more layers of complexity on this topic.

1. Budget to Generate More Clients

Keep your average marketing budget at approximately 10% of your gross. To do this, there’s one other factor to keep in mind: where you obtain your leads. How many leads do you generate? How many referrals do you obtain? How many walk-ins? How many add-ons? How many are from networking events?

If you obtain half of your client base from sources such as these, then you could double how much you pay per new client. You would still be within your target percentage of 10% of your total gross committed to advertising.

For example, let’s assume the practice has an average lifetime customer value of $4,000-plus. The owner spent $800 on paid advertising for each customer, but half of them were from free sources. The owner would still average 10%, or $400, per enrollment — even if his/her client acquisition cost was $800 for paid advertising-generated traffic.

2. Compare Marginal Costs to Generate More Clients

Compare costs at the margin with the ‘average’. If you spent $5,000 a month for advertising, then the next marginal expenditure is one more dollar, or $5,001. Often in marketing, you may encounter ‘declining marginal return’. In other words, for each additional dollar you spend, you receive less and less return per dollar.

A business spends $0 on marketing and advertising in any given month. For that month, it obtains five new customers as referrals and three as walk-ins. Thus, it has acquired eight new customers at $0 direct costs. If it then spends $1,000 in advertising and obtains two additional clients, then it now has two more customers at a marginal cost of $500 each. Its marginal cost per new client acquisition jumped from $0 to $500 immediately. Its average cost jumped from $0 to $200 per enrollment (10 new customers, divided by the total cost of $1,000).

How much are you willing to pay at the margin? What is the most you would be willing to pay today to receive $4,000 during the next 33 months? Ultimately, at the margin, you should be willing to pay a relatively huge amount of money for one additional client.

Lifetime Value of Your Clients

All the information above depends upon the lifetime value of your clients. This number includes all monies customers will pay your business, including down payments, fees, gross profit on retail items, monthly subscriptions, etc.

Use the following formula to calculate easily an approximation of this number for your business. Divide your year’s gross by the number of customers acquired. For example, $500,000 gross divided by 250 new customers equals $2,000 average value per customer. If your numbers have been changing rapidly (especially if you are growing rapidly), then look at the totals of the last three years’ numbers from the longer-term perspective.

You accomplish it with greater retention and cash transactions. Therefore, you increase your lifetime customer value with greater retention, retail sales, products, and services to sell to your customers.

Take the first step towards understanding these processes and successfully applying them to your practice. Schedule your free practice evaluation today.

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