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Do You Know Your Most Important Numbers?

After over 20 years working with financial and insurance professionals, I have learned that most of them don’t see themselves as business owners, so they don’t look that closely at their business metrics.

Usually, they can tell me about their gross income and their assets under management. Sometimes—but not always—they can give me a breakdown of what they earned in planning fees, advisory fees and other passive fees, and commissions on insurance products. But very few know some of their other important business statistics: the average lifetime value of their clients, average sale per client, their gross revenue per employee, the cost of acquiring a new client vs. the cost of doing more with existing clients, their profit margin, and their rate of growth.

It’s okay if you don’t understand these or what P&Ls, EBOC and EBITDA are.  That’s work for your accountant.  But at the very least, you should know your profit margin and rate of growth.

Your profit margin tells you whether you’re spending too much to get the results you get.  A profit margin of less than 30% might suggest that you’re spending too much to produce your results or charging too little (where you have control of the charges) to make a decent profit.

Your rate of growth shows you whether you’re bringing in enough new business every year. Author and artist William S. Burroughs said, “If you’re not growing, you’re dying.” Maybe that’s too dramatic, but if your annual growth is less than 5%, you may not be increasing your business enough to continue growing your income and the value of your business.

If you want your personal income to increase, you need to work on both these numbers. If you can lower your costs, your profit margin increases, and you can take home more.  If you can bring in more business or higher per client fees, you can take home more. If you take a close look at both numbers, you might see something that could be improved.  But if you don’t know them, you’re flying blind.

Knowing these numbers helps you set goals for the coming months. If your immediate goal is more net (take home) income, you might be interested in staffing up and automating, reducing your profit margin but increasing your sales and your ability to service more business. You might also be looking at acquiring practices, which is likely to put even more pressure on your profit margin.  My colleague, Bryce Sanders, recommends not allowing the profit margin to fall below 15% while you’re focusing on growth.

If, on the other hand, you’re focused on building the business to sell it, it is unlikely that a buyer would be interested in a business with a low profit margin.  It won’t be salable.

If you want a business that will get you the best possible offer, there are a lot of factors, but profit margin is critical. A business that sends the owner home with 5% of gross proceeds will bring a significantly lower offer than a business with the same gross proceeds that sends the owner home with 40% of the gross.

If the important issue for you is growth, you may just need a practice tune-up.  I take on two new clients each month at a special rate to work on tuning up their marketing to get them off that plateau we all reach and achieve growth into the mid-six figures and beyond.  Our goal is to increase income without spending a dime on expensive marketing programs.

If you’d like to talk for a few minutes about whether this would help increase your take home income while helping you grow, reply to this email.

And keep REACHING…

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