A Comprehensive Approach • Financially Simple


As Registered Investment Adviser (RIA) firm owners, we have a strange relationship with marketing. We understand that in order to achieve the growth required to have an eight-figure exit, marketing is necessary. However, because marketing doesn’t react in a linear sense, we often view our marketing spend as “wasted money.” I believe this is because we can’t immediately see a return on our investment (ROI). In today’s entry, I’m going to look at ways of maximizing ROI in RIA marketing, so you can be confident in your marketing spend.


Follow Along With The Financially Simple Podcast!

This week on The Financially Simple Podcast:

  • (00:50) Business Owners See Marketing As a Luxury

  • (02:55) The “Basics” Around Marketing

  • (04:27) Two Key Metrics

  • (07:03) Calculating a Break-Even Point for Your Marketing

  • (11:11) How Much Money Should You Spend On Marketing?

  • (14:20) Are Your Marketing Efforts Increasing Your CLV?

  • (17:22) The Unquantifiable Aspects of Marketing


Maximizing ROI In RIA Marketing: The Basics

Marketing often finds itself on the chopping block when it comes to budget cuts. It’s seen as a luxury rather than a necessity for the core operations of your firm. However, when executed correctly, marketing can be a primary driver of revenue. Consider the case of Reckitt Benckiser, a consumer goods company that increased its advertising spending by 25% during the 2008 financial crisis, resulting in an 8% revenue growth and a 14% increase in profits while other companies floundered.

The leadership at Reckitt Benckiser recognized that marketing isn’t just an expense; it’s an investment. So, how can you resist the urge to cut your marketing budget and maximize your RIA’s growth potential for an eight-figure exit? The answer lies in tracking the return on investment (ROI) for your marketing efforts.

To understand the significance of tracking ROI in marketing for RIAs, let’s consider some eye-opening statistics. According to the 2022 Kitces Report, the median client acquisition cost for advisors was $2,167 per client, with only about 30% attributed to “hard-dollar” marketing costs. The report revealed that the typical practice invests $1 in marketing to generate $1.20 in new client revenue, resulting in a marketing efficiency measure of 1.2. However, efficiency tends to decrease as the practice size grows, with a marketing efficiency of 2.5 for smaller practices under $250,000 in revenue compared to just 0.8 for practices of $1.5 million or more. This emphasizes the critical nature of your firm’s marketing ROI.

Key Metrics: Current Revenue per Client and Lifetime Client Value (CLV)

To effectively track and optimize your marketing ROI, it’s crucial to focus on two key metrics: current revenue per client and lifetime client value. These metrics provide the foundation for understanding the value of each client over time and assessing the effectiveness of your marketing efforts.

Determining your current revenue per client is as simple as looking at how much revenue each client generates for you. But there’s another way you could go about this. You could also look at the average revenue per client. To find this, simply divide your total revenue by your total number of clients. Now, if you track both current and average revenue per client, more than likely, you’ll find that the rule of 80/20 applies here. Essentially, the clients making up the top 20% of your book are providing 80% of your total revenue. Conversely, the bottom 20% produce 80% of the work.

Calculating Lifetime Client Value

The typical formula for calculating customer lifetime value is CLV = Client Value x Average Client Lifespan. Let’s break it down with a simple example. If the average client lifespan in your practice is five years, and they generate an average annual revenue of $1,000, your CLV is $5,000. In reality, this figure could be even higher, but we’re keeping it simple for now. Understanding this number enables you to determine the break-even point for your marketing expenditures. For instance, if you spend $100,000 on marketing, you’d need to acquire 100 new clients to break even in a year, based on the example provided. But the reality is that most of us can’t take on 100 new clients.

In that case, we can look at breaking even over the lifetime of each client. Therefore, if you’re spending $100K on marketing, you would need to bring in 20 new clients. Over the average lifetime of five years, those clients will generate $100,000, enabling you to recoup your initial marketing investment.


RELATED READING: 3 Ways to Determine Your Ideal Client and Use the Results


The Significance of CLV

Client Lifetime Value is all about customer retention and satisfaction. It’s crucial to retain existing clients and increase their lifetime value, as keeping existing clients is up to five times less expensive than attracting new ones. Moreover, the probability of selling new services to an existing client is much higher than with a new client.

As you gain clarity about the profit a client brings over their lifetime, you can make informed decisions about client acquisition marketing costs and the future revenue your RIA can expect. In fact, a recent study found that 86% of consumers are willing to pay more for a great customer experience. Conversely, PwC found that 36 percent of all customers will stop doing business with a brand they love after just one bad experience.

However, it’s essential to differentiate between current revenue per client and CLV. While current revenue per client reflects the immediate income generated, CLV offers a long-term perspective. Having a solid grasp of these metrics helps you determine the appropriate marketing spend for your RIA.

Determining Your Marketing Spend

Studies, such as the previously mentioned Kitces Report, suggest that advisors typically allocate 1-3% of their revenue to hard-dollar marketing costs, including website development, Facebook Ads, graphic design, and video production. Renowned advisor Tim Kochis emphasizes that firms should invest at least 2% of their gross revenue in marketing and sales activities. Kochis argues that even though 2% might seem significant for smaller RIAs, the return on this investment is substantial.

Kochis explains that acquiring “close to $1 million of (new) AUM might cost the firm about $4,000. If your revenue per $1 million is $8,000 at 80 basis points with a 25% margin, that’s $2,000 a year. What’s the life expectancy of a client—25, 30, 40 years? I don’t care what big discount rate you use, the present value of that $2,000 a year is at least 10 times the $4,000 it costs to acquire that client.” So, you can use these data points to make informed decisions, maximizing the ROI in your RIA’s marketing.

However, there are other things to consider. You must understand that marketing, indeed, has quantifiable aspects. But it also has some unquantifiable aspects that can impact the true value of your marketing ROI. Let’s take a look at the quantifiable side, first.

Quantifiable Aspects of Marketing

If your marketing spend is truly an investment, it’s essential to track ROI in a quantifiable manner. Your marketing efforts should target clients who can elevate your firm’s CLV. As illustrated by Michael Kitces, small changes in CLV can lead to significant improvements in your business. When the prospective lifetime value of a client is so high, there’s a lot of room for advisory firms to not only be successful, but to reinvest into their businesses to improve the situation further,” Kitces states.

Kitces continued by saying, If the firm can improve client retention rates from 95% to 97%, the lifetime value of a client skyrockets from $40,000 to $66,667 (which leaves a lot of room to invest into providing clients better services that can help move that retention rate by 2%!). If the firm can also run a little more efficiently, and boost its profit margins from 20% to 25%, the client’s lifetime value further improves from $66,667 to $83,333!”

You see, tailoring your marketing towards higher-dollar clients can increase your RIA’s profitability. Moreover, personalized marketing tailored to specific buyers in your community can yield a 40% greater revenue potential, as revealed in the 2021 McKinsey & Company Next in Personalization Report. So what of the unquantifiable aspects?

Unquantifiable Aspects of Marketing

Friends, there’s a piece that financial people (myself included) often miss. Marketing is not solely about a direct one-to-one return on investment. It also plays a vital role in establishing effective and efficient communication mechanisms with clients, which can be unquantifiable but crucial. Some unquantifiable benefits of marketing include client retention, referrals, local recognition, and employee recruitment. These intangible aspects of marketing can have a profound impact on your RIA’s growth.

When it comes to maximizing ROI in RIA marketing, we must think holistically. You see, a holistic approach to marketing in the RIA industry recognizes both the quantifiable and unquantifiable aspects of marketing. It ensures that your marketing efforts not only generate revenue but also build strong, lasting relationships with clients and stakeholders.

Wrapping Up…

Friends, maximizing ROI in RIA marketing can be a challenge. You must recognize it for what it is; an investment, rather than an expense. Tracking ROI through metrics like CLV and current revenue per client allows you to make informed decisions about your marketing budget. Tailoring marketing efforts to attract high-value clients and creating a personalized approach can significantly impact your RIA’s growth. Furthermore, the unquantifiable aspects of marketing, such as client retention and referrals, are equally important. By taking a comprehensive marketing approach, your RIA can thrive and achieve the coveted eight-figure exit.

Do you have questions about this or other business topics? Reach out to our team! We’re here to help you work toward your goals.



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