What is a Practice Growth Multiplier?

Savvy advisors and team leaders break the growth number into specific and actionable components that roll-up to a PGM.

Controlling the PGM means you are on your way to proactively managing the business.

With more levers and control, teams can compound annual growth as much as 10% to 20% annually.

For the purposes of this article, let’s assume our PGM has three tiers or components. They are:

• Attracting lead advisors and teams;
• Multiplying new, ideal clients; and
• Increasing client lifetime value and client referral value.

Our example firm has 10 advisors with 1,000 total clients. The average client brings in $5,000 a year per client or $5 million in fee-based revenue.

Firm revenues are $5 million, and the firm added $500,000 to fees.

1. PGM 1 – Attracting lead advisors and teams

Let’s say in the typical year the firm does no acquisitions or hires and suffers no defections or advisor retirements.

A firm could look to scale inorganic growth by targeting, attracting and recruiting better advisors, teams, and employees.

With an acquisition the firm can add a new location or territory.

With a key hire the firm can gain a presence in a niche or add investment or planning expertise it does not currently possess.

Investing, planning, and managing clients are ongoing activities. Bringing on new employees and advisors should be an ongoing activity as well.

PGM in Action – Our representative firm adds one new producing advisor per year. A firm of 10 advisors becomes 11 and can increase its producing power by roughly 10% per year.

2. PGM 2 – Control growth by multiplying new, ideal clients

Many firms and advisors are vague about new client acquisition goals.

An advisor I interviewed today said, “My goals are to add four new clients a year with a minimum of $500,000 in assets.”

Define in detail the type of individual you desire as the next client to walk through the door, including both demographics and psychographics.

Clarity around your ideal client profile will improve the quality of new clients.

A custom marketing strategy that has multiple ways of getting in front of your ideal prospects will likely increase the quantity of initial conversations and number of new clients per year.

This is a massive opportunity for advisors because fewer than one in three advisors has a marketing plan.

Advisors who flip the switch on aggressive marketing can add one new, ideal client a month at 50% above the current, average annual fee per client.

PGM in Practice – Assume our representative firm focuses on increasing only the quality of their new clients this year so brings in five new clients at $7,500 a year. Remember this will now be 11 advisors so 55 new clients x $7,500 is $412,500 in new business.

3. PGM 3 – Increase client lifetime value and client referral value

Many firms have a client onboarding process and client referral process.

This is a good start.

A client value ladder is a more comprehensive communications and education process to turn new clients into top clients and firm champions.

For example, you may identify many behaviors and habits that make a great client and a champion for your practice.

Or your firm may do a great job of financial planning but not in incorporating investment management.

Tier your service model into levels like silver, gold, and platinum so that silver and gold clients aspire to be platinum clients and gain a higher level of client experience and success.

You can’t force all clients to adopt the behaviors of your best relationships, but a proactive plan will almost certainly increase client lifetime value.

A comprehensive referral system is a subset of your client development and communication system. It includes referrals, conversions and rewards.

Many firms can also extend the lifetime value of existing clients.

If, through better client identification, nurturing, addition of services, client management, etc., we can add one year onto the client life it means an additional $5 million in revenue over time.

Let’s assume for our model each advisor does a better job of stimulating referrals from all sources and each advisor generates an additional client per year of $7,500.

PGM in practice – One additional client or influencer referral means 11 new clients for our model firm at $7,500 or $82,500.

Here’s the PGM for our model firm year.

1. Additional advisor – $500,000 in annual fees added.
2. Increase the quality of new clients – $412,500 in annual fees added.
3. Additional referrals – $82,500 in annual fees added.

Our $5,000,000 firm added $995,000 in annual fees, a 20% increase through three targeted actions.

There are likely quick wins in one or more of these categories at your firm.

Solo practices or smaller firms can select one multiplier each year.

Larger firms can hire a fractional marketer to review their growth model and/or install one or more of these systems.

Most advisors are familiar with the power of compounding when it comes to investments.

The PGM formula can compound your practice growth and income and be a fun way to create a more rewarding practice over time.

Bob Hanson is a fractional marketer and author of Marketing Power for Financial Advisors. To get his new checklist, Nine Questions Advisors Must Ask Before They Hire a Marketing Agency, Fractional or Full-Time Marketer, click here.

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