Got a call last week from an old client for whom we did benchmarking work fifteen years ago.
His son joined him in business about five years ago. Sensibly at that time, they made the hard decisions required to setup a sustainable foundation for their future making the commitment to totally transform their previous business model to become a ‘fees-for-service’ business.
They made contact seeking assistance to improve their new business opportunities.
“What sort of new business are you trying to attract?” I ask.
“Most of our active clients pay approximately $4k or so a year. That’s ideal for us. Attracting more of them is our objective.”
“What do you do for a client paying about $4k per year?” I ask.
“Everything we can. These clients depend on us for everything, except possibly their tax which we refer to a couple of the local accounting groups.”
“Are you making money?” I ask.
“Not as much as we’d like. That’s why we called”.
We head up the pricing committee for numerous advice firms and we see situations like this all the time.
Too many good advisers are doing and offering too much for too many clients and unfortunately make too little money in return.
If this firm trys to increase the number of prospects they can see, using the pricing they currently are ‘comfortable’ with, they are heading for a hard-working disaster.
We strongly recommend to any firm that finds itself in these situations to re-think the ‘cart and the horse’. If your perceptions of value are wrong, then your pricing is probably wrong. Based upon these wrong perceptions, any attempt to add new business is putting the horse before the cart. It’s vital for every financial advice firm to understand that any new prospecting project that adds more clients whilst still relying upon existing beliefs about the value they are adding could be like adding more passengers to an already sinking ship.
So many financial advice firms have lost sight and connection to the value they are delivering. They have become ‘price-takers’ rather than ‘price-makers’ thanks to their constant focus on ‘outside’ factors beyond their clients (e.g. competitive pricing, product pricing, historical pricing), rather than focusing where all value resides – in the minds and opinions of the clients they are serving.
The GFC was the trust-breaking point for consumers of financial advice around the world.
It’s imperative in today’s fundamentally changed economic order that financial advisory firms understand the value they offer.
My quick analysis of the services this firm was offering suggested a minimum pricing of approximately $6k. That’s a minimum. Their reaction was predictable (and normal) – “our clients won’t pay that”. Of course they’ll never pay it if you don’t ask for it. Until this firm is committed to ‘test’ their understanding of the value they are adding and therefore the price they are charging, any successful new marketing/prospecting campaign will only increase the speed of the tread-mill they are already stuck on.
What do you think?