Business Health has outlined six steps it believes all practices should follow if they are to get a realistic appreciation of what it costs to deliver advice.
Included in the firm’s June 2010 newsletter, Business Matters, the firm suggests that one of the most important considerations for advisers transitioning to fee for service models is naturally to determine how much they should charge.
According to Business Health, how much advisers should charge for their advice is based on:
- What services their clients need, want and are willing to pay for
- Whether the practice is capable of delivering these services in a way that is acceptable to the client and financially viable for the adviser
According to Business Health, many, and possibly most advice practices, have no clear understanding of what it costs them to effectively deliver their advice and other services. This has lead it to set out the following six-step process it says will deliver a realistic view on the cost to the practice of providing its services:
- Determine what actions are specifically required to deliver the service
- Decide how long it will take, on average, to implement each step
- Determine who actually completes each specific action in the process
- Calculate the direct salary cost of the person, per action
- Incorporate the cost of overheads
- Add in the target profit margin
Price is only an issue in the absence of value…
The newsletter expands on each of these steps, and also offers one of its ‘Business Health General Rules’, namely that “Price is only an issue in the absence of value (as perceived by the client).”
Turning its attention to the cost of conducting client reviews, Business Health suggests this is possibly the single largest cost borne by a practice in servicing its clients.
By observing these six steps, and based on ‘real life’ examples experienced by the firms existing clients, the firm estimates the average cost of conducting client reviews is around $2,500.
Business Health suggests full client reviews should therefore only be offered to clients who have the desire and capability to pay for each review they receive.
Advisers can click here to access a template offered by the advice and solutions provider to assist in determining their own practice’s cost of conducting a client review.
