Posts Tagged 'Metrics'

Profit per X

 

As Advisors, you face many responsibilities.  You must serve your clients, take care of your family, provide an appropriate work enviroment for your staff and most importantly – stay in business to do these things.

Many organizations in the advisory business will focus on metrics such as: gross revenue, net profits, revenue per client, hourly rate and many, many others.

For most, I would suggest that profit per client or profit per engagement is really the best measure.  This metric lets you know, “Can I afford to do this job?”

Are you serving your clients effectively by allowing some low profit per x clients be subsidized by you high profit per x clients?

What would happen if your high profit per x clients found out they were subsidizing your lower profit per x clients?

Would they be upset or happy?  What would happen to the margin pressure on those higher margin clients?  My speculation is that they would push for and likely demand lower costs as they do not want or deserve to be in the position of subsidizing that lower profit per x engagement.

So think about this as you build new relationships  – Is this engagement going to meet my profit per x hurdle and not cause my best clients to be under-served as a result?

Guide – Measure carefully the profit per x of all your relationships.

Action Item – Consider terminating those relationships that do not currently meet, or in the future are not likely to meet your profit per x hurdle.

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