{"id":82538,"date":"2026-06-02T08:38:24","date_gmt":"2026-06-01T22:38:24","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=82538"},"modified":"2026-06-02T12:19:05","modified_gmt":"2026-06-02T02:19:05","slug":"forget-cost-to-serve-models","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2026\/06\/02\/forget-cost-to-serve-models\/","title":{"rendered":"Forget Cost-to-Serve Models"},"content":{"rendered":"
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Jim Stackpool, MD of Certainty Advice Group<\/a>, argues that many advice firms rely too heavily on cost-to-serve models that look convincing on paper but fail in practice…<\/i><\/h2>\n<\/div>\n<\/div>\n

<\/p>\n

Nathan’s spreadsheet looked perfect. His cost-to-serve model showed a team of six costing $520,000, generating $1.4m in revenue, with a margin on every client segment.<\/p>\n

On paper, the firm was thriving. However, Nathan was drowning. His two senior advisers were maxed out. One has been approached by an institution offering higher pay, fewer hours, and a much shorter commute.<\/p>\n

Client review meetings were being pushed back. It was hard to find time to squeeze in new prospects, and even harder to determine how far existing workflows would be worsened if they engaged.\u00a0The team were good, but tired and had no time.<\/p>\n

Nathan did what any reasonable principal would do. He hired. A new associate at $105,000, including on-costs. His cost-to-serve model predicted that within 12 months, the associate would be looking after enough clients to be both productive and profitable. On paper.<\/p>\n

The most valuable people in the firm were now spending less time on what made the firm the most money…<\/p><\/blockquote>\n

Here’s what happened in practice. Nathan’s two senior advisers \u2013 the ones already at capacity \u2013 spent the next four months inducting, training, and supervising the new associate. They attended meetings together. They reviewed files. They answered questions. They corrected mistakes.<\/p>\n

The most valuable people in the firm were now spending less time on what made the firm the most money, i.e. client work, and more time managing someone who, according to the spreadsheet, was supposed to solve the capacity problem.<\/p>\n

Revenue didn’t grow. It flattened. The new associate left after eight months.\u00a0Better money and promises of less stress elsewhere.\u00a0Profits didn’t just exist on paper. They only existed on paper.<\/p>\n

Nathan\u2019s cash reserves were thin, remuneration conversations got harder to counter with offers from bigger firms, and the opportunity to buy an aligned accounting firm hadn\u2019t got any further since a great whiteboard conversation with prospective merger partner months earlier.<\/p>\n

Cost-to-serve does not serve<\/strong><\/p>\n

Nathan\u2019s experience is common. He\u2019s built a successful practice.\u00a0Advice firms can be excused for adopting cost-to-serve models as a primary planning tool.<\/p>\n

They reason it’s simple, easy to build, and a common measure for business planning, not just for financial advice firms, but also accounting, legal, valuation, and engineering firms.<\/p>\n

…cost-to-serve models are fundamentally misaligned with the purpose of advice teams…<\/p><\/blockquote>\n

Firms that sell trust.\u00a0Regardless of profession, firms that sell trust have to stop trusting the wrong tools. They predict paper profits rather than real profits.<\/p>\n

Regardless of whether someone costs $150,000 or a team costs $500,000, when that person or team is already overloaded, paper profits do not help principals make better growth decisions.<\/p>\n

Worse, cost-to-serve models are fundamentally misaligned with the purpose of advice teams. They focus on costs and margins.\u00a0But clients don’t care about your costs or margins.\u00a0Clients care about results.\u00a0Their outcomes.\u00a0Living better lives.\u00a0What is of value to them.<\/p>\n

A model built around costs, not client value, is, at best, an inward-facing diagnostic being used to make outward-facing decisions.<\/p>\n

What cost-to-serve misses<\/strong><\/p>\n

There’s another problem that cost-to-serve models don’t account for. Adding new resources doesn’t just add costs. It consumes existing capacity. When Nathan hired his new associate, the model added $105,000 to the cost side and projected revenue on the income side.<\/p>\n

What it didn’t model was the reduction in productive capacity of Nathan’s two senior advisers. The weeks of shadowing. The file reviews. The corrections. The management. The firm’s most expensive resources became less productive precisely when the model predicted they’d become more profitable.<\/p>\n

This pattern repeats in every growing firm.\u00a0As more resources are added, leaders spend less time on client work and more time managing a growing team that, on paper, should generate more profit.<\/p>\n

The profits consistently exist on paper.\u00a0Less consistently, where they should be, in cash reserves, in remuneration packages, in savings earmarked for growth projects.<\/p>\n

The alternative: Capacity to serve<\/strong><\/p>\n

A capacity-to-serve model starts somewhere that cost-to-serve models never go. Client value. What are clients willing to pay for the value they experience?\u00a0This is not a cost question. It’s a ‘worth’ question. It changes every decision that follows. After client value, the next input is profit. What profit is required?<\/p>\n

Cost-to-serve sets expectations for earnings…<\/p><\/blockquote>\n

In times of accelerated growth, what super profits are needed to fund the growth within capacity plans?<\/p>\n

Then the model turns to capacity, the actual availability of every resource, full-timers, part-timers, off-shore, on-shore, off-site, on-site.\u00a0Not their cost but their capacity, their availability, their current and expected commitments.<\/p>\n

Then it maps the types of work. Existing clients, different propositions with different resource mixes, with expected new clients, and with cost and capacity ramifications of potential new resources.<\/p>\n

The difference<\/strong><\/p>\n

Here’s the distinction that matters most.\u00a0Cost-to-serve models produce estimates of profit. Capacity-to-serve models produce estimates of pricing. Read that again. Cost-to-serve sets expectations for earnings.<\/p>\n

Capacity-to-serve sets expectations about what to charge. These are the prices clients should pay, not only to generate the required profit but also to ensure the team’s capacity is managed.<\/p>\n

One model is cost-based. The other is capacity-based. One model treats the team as an expense line. The other treats the advice team’s time as the most valuable and finite resource.<\/p>\n

If time and capacity are not managed, teams start drowning. Drowning doesn\u2019t start at the bottom but at the top.\u00a0That is, Nathan\u2019s role. The most valuable resource in the firm. Nathan’s cost-to-serve model told him hiring was profitable.<\/p>\n

A capacity-to-serve model would have told him his team couldn’t absorb a new hire without reducing the productive capacity of his existing team, and would have shown him what his clients needed to be paying before that hire made sense.<\/p>\n

What are you using?<\/strong><\/p>\n

If your current planning model tells you what you might earn but not what you need to charge, it’s measuring the wrong thing.\u00a0If it shows healthy margins on paper but your cash reserves, remuneration, and growth plans don’t reflect those margins, the model isn’t broken. It’s just not measuring what matters.<\/p>\n

These are among the core discussions that my July 2 & 3 Certainty Conference<\/a> will be facilitating among great advice teams transitioning themselves and their client bases to a value-based growth model.<\/em><\/p>\n

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\"\"During 30 years of consulting, training and facilitating growth strategies with entrepreneurial financial advisory and accounting firms, Jim Stackpool has built a significant profile in the financial advice profession.<\/p>\n

He built Certainty Advice Group<\/span><\/span>\u2019s development curriculum, written numerous white papers on the evolution of financial advice, and created the largest business performance database and benchmarking system for Australian financial advisory practices.<\/p>\n

Stackpool has published four books, judged numerous advisory practice of the year awards, and chaired the development committee for the Securities Institute Practice Management Curriculum.<\/p>\n<\/div>\nBack to Adviser Focus Main Page…\u00a0<\/a>\n\n","protected":false},"excerpt":{"rendered":"

Jim Stackpool, MD of Certainty Advice Group, argues that many advice firms rely too heavily on cost-to-serve models that look convincing on paper but fail in practice…<\/p>\n","protected":false},"author":23,"featured_media":82545,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6868,3,4474,4],"tags":[],"class_list":["post-82538","post","type-post","status-publish","format-standard","has-post-thumbnail","category-adviserfocus","category-general","category-practice-management","category-products"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/82538","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/users\/23"}],"replies":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/comments?post=82538"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/82538\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media\/82545"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=82538"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=82538"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=82538"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}