8 Questions to HelpYou Calculate Your Goal for New Client Relationships.

A few months back, one of my coaching clients unexpectedly announced that he needed to land at least 50 new relationships over the coming 12 months to hit his goals.

This new relationship target was more than double his total for the prior 12 months. And to reach this mark, this already successful advisor figured he would have to start prospecting much more aggressively than he had in recent years.

He was considering changing the way he had been running his very successful practice.

I was surprised by this assessment; it was vastly different than anything we had previously discussed. Plus, this roughly $700,000 producer had just completed his second consecutive year with more than a 25% increase in production.

“A man flattened by an opponent can get up again. A man flattened by conformity stays down for good.” –Thomas Watson Jr.”

His goal of having his fee-based business revenues overtake his commission-based revenues had become a reality. By most accounts, this advisor was poised for another terrific year if he just continued to build on his past accomplishments.

After a few minutes of discussion, I decided to walk this advisor through a simple exercise to help him come up with a more realistic target for new relationships. I didn’t want to shortchange his production goal, but I wanted to be sure he understood the basic dynamics of growing his production — combining repeat business with new business.

I didn’t want him to abandon a system that was already working very well.

In the end, with a just a little nudge from me, my coaching client discovered 3 key facts about his new relationship goals:

As you set your sights on adding new relationships to your practice, it may be helpful to walk through a similar analysis. All you’ll need is a pencil and a piece of paper to answer 8 basic questions.

  1. How much business have you done over the past 12 months?  For most advisors, this is an easy question.  Don’t worry about products or payouts; just total all of your gross commissions and fees. For example purposes, let’s use $500,000.
  2. How much of this revenue is repeatable?  In other words, if you didn’t add any new clients in the coming year, how much business would you do?  Since no one can predict the future, you’ll have to make an educated guess based on your experience, business mix and assets under management. For newer or more commission-focused advisors this number probably ranges from 40 to 60 percent of production.  More experienced, particularly fee-based, advisors with solid asset bases might use estimates in the 70 to 110 percent range.  To continue our example, let’s assume 90% of $500,000, or $450,000.
  3. What is your gross revenue goal for the coming year?  Again, keep it simple. Don’t worry about categories or grids. How much gross production have you targeted for the coming year?  In my view, anything less than a 10 percent projected increase may mean you’re not stretching yourself enough. So, for our example, we’ll use 10 percent growth, or $550,000.
  4. How much new business do you need to generate to achieve your production goal?  Specifically, non-repeat business, revenues from brand new clients to your practice.  Your answer is the difference between your year-ahead target and your repeat business projection.  You’re simply subtracting your answer to question 2 from your answer to question 3.  In our example, $550,000 minus $450,000 equals $100,000.
  5. What is your current average revenue per relationship?  Take your answer to question 1, your trailing year gross production, and divide it by the current number of households you manage. Alternatively, if you have instituted a minimum relationships size for future clients, you could base your calculation on this requirement. For example purposes, we’ll assume 100 existing relationships, so our answer to this question is $5,000.
  6. How many new relationships will you need to achieve your production targets?  If you divide your average revenue per client (question 5) into your new, new business total (question 4), you’ll come up with a targeted number for new relationships. Continuing the computations in our example, our target for new relationships is 20, $100,000 divided by $5,000.
  7. How many referrals do you need to meet your new relationship target?  My work with advisors indicates that most close in excess of 50 percent of referrals.  So, if as in our example, you need 20 new relationships, you’ll need about 40 referrals. You can adjust your actual referral target based on your past success rate and the quality of referrals you receive.
  8. How many referrals do you need per client to hit your goal?  Divide your answer to question 7, referrals needed, by your total number of existing relationships. In our case, you’d only need .4 referrals per client to generate a total of 40. To take the example a step further, if you meet with your clients 4 times per year (in-person or over the phone), that’s 400 meetings. You’d only need to receive a referral one out of very ten meetings, 10% of the time.

At this point, if you’ve been running these types of calculations for your own practice, you may be thinking this exercise is too simple.  And depending on your experience as well as the quality of your client relationships, you could be right.

But, before you move on, consider two final points:

Prospecting is tough work, but when you realistically set a target for new relationships and work backward to your activities, you can produce better results with a lot less effort and stress.


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