Understanding the client – Costs of Acquisition

Acquisition costs

Why is it important to understand the value of the services being delivered to clients?
In summary, it can help you to:

  • direct time and resources to the most valued clients
  • ensure that services satisfy client needs and are being provided profitably
  • clearly differentiate the value of the client to your firm through the value of the services offered.
  • Costs can be broken down into direct and indirect costs.
  • Direct costs include tangible items such as stationery, mail, printing, petrol and/or km cost.
  • Indirect costs include the value of staff time associated with the delivery of selected services.

Getting maximum value for your money

When looking at indirect costs, it’s important to ensure you get the most out of your investment. This is a key element in improving efficiency and business profitability.

The concept suggests focusing ‘high cost’ resources on activities that generate the highest returns. Business owners, the management team and senior financial advisers and wealth managers should consider the cost of their own time compared to the cost of support staff, and allocate activities accordingly.

For example, it may currently take five hours of a senior adviser’s time to develop a complex financial plan. A more efficient method of producing a plan may be to have the senior adviser assess the client’s needs and develop a financial strategy (two hours) and have a less costly paraplanner produce the details of the plan (three hours).

The business owner can use this concept to help ensure services are provided cost-effectively and where possible, lower value tasks such as administration could be either systemised through technology or allocated to lower cost resources. Higher cost resources, such as financial advisers, should concentrate on ‘high value activities’ such as providing financial advice and financial planning services and spending face-to-face time with clients.

The total cost of the services for each client segment should be less than the average income per client segment, to help ensure profitable operations. Consider substituting the method of delivery to reduce costs and increase value, relative to the segment; for example, adviser face-to-face time versus support team assistance, versus systemised delivery via email or client letters.

These would constitute the base costs only and the business should consider adding a profit margin of around 20-30% as appropriate.

The costing exercise may produce some surprising results and even more so once costs are matched to the value of the client receiving the services. In a business that delivers equal services to all clients, regardless of value, it will become apparent that in many cases clients are being provided with a service at a loss to the business.

  • To assist the development of service packages, we suggest you:
  • firstly determine the cost of individual services

then, working with the average segment income levels and preferred profit margin, select the various differentiated services required to meet segmented client needs.

Determine profit margin for each service package

Here is a method for determining the profit margin to be made for each client segment. This method uses the value of mandatory and desired services as its starting point.

  • Firstly list and cost the services you believe the clients in each segment both need and deserve.
  • Then subtract the total costs from the average income in the client segment.
  • The remaining figures will be your profit figures and margin.

Return to the whole process 



Support material

Business transition: the importance of understanding the customer

Business transition:

the importance of understanding the customer. By Mimi Pienaar

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Understand client

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