What are your clients REALLY worth to you?

by Tony Vidler.

How much do you really think a good customer is worth to you?

Most financial advisers will easily (I hope!) work through the basic formula of the average fee/sale per customer multiplied by the number of transactions they have with you each year, and then multiplied by the number of years you expect to work with them (see graph below).

That is all simple enough - if you know these averages and key business metrics for your firm.

But is that the total measure of what a good customer is worth to your business?

How many referrals to other great customers could you get from a really happy customer over the expected lifetime of the relationship?  What extra value can be attached to your brand, or business value, from having great advocates in your clientele?

How about a working example for a typical adviser who looks after their clients well and provides great value....

Let's assume that your client pays monitoring and service fees of $500 in fees each year (not all that much really) to you, and on average your customers require (significant) new advice every 3 years or so at about $2,400 per time.  So that's another $800 p.a. on average - meaning that the average annual revenue is about $1,300 p.a. for a happy client valuing your advice.

If you provide good service and advice they will be working with you for the rest of your working life - call that another 15 years for this example.  

So far this happy client that paid $2,400 in initial planning fees and provides ongoing revenue of $500 p.a. has an apparent lifetime value to your business of $19,500 - which in itself is pretty impressive.

However if that happy client refers other good clients to your business then their value to your business exponentially increases.  It is not as simplistic as using the same formula above for each additional referral, because over time (if your expected business time frame remains the same) then each new client in subsequent years has a lower incremental value, and it would be wildly inaccurate to attribute every new customers own "lifetime value" to the referring client .  But the acquisition cost per referral will be lower than most other forms of marketing, so that saving can in fairness be attributed to the lifetime value of the original referring client.

A typical advisory firm might spend (say) $250 in marketing for each new client it brings in each year.  so using the client example from above, there is another $7,500 in "value" in that client providing the referrals.

Not bad really....that $2,400 initial client is now looking like they have a lifetime value of $27,000 to your business over the next 15 years.

But the REALLY big value is within the impact these advocate customers have on your overall business valuation.  To illustrate the point let's continue with some further really simple assumptions.

If an adviser business had 500 clients, averaging $1,300 p.a in revenue (as above), it has a nice little turnover of $650,000 p.a. gross.  Depending on what valuation methodology is used, and what market conditions are prevailing, that business valuation might typically be (say) $975,000.  However, premium value is attached to those businesses where there is strong loyalty, constant referrals, and turnkey business operations.  The valuation on such a business (in comparison to one with little referral business and strong client loyalty) could be expected to be closer to $1,600,000 - a difference of $625,000 in this example.

That can be the difference for a retiring advice firm business owner between having a great boat to play on in their good retirement, or just having a retirement.

The concept of "lifetime customer value" is not just a simple one of how much revenue they generate for your business.  You should also be thinking about how much those engaged and happy customers can SAVE your business.  Get it right though, and it really becomes a matter of how much more your business is worth because you have happy and engaged clients that love dealing with your firm. 

That's where the real value is.

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3 questions you must answer to define your Uniqueness

by Tony Vidler.

The difference between a good (but not spectacular) salesperson, and a truly magnificent salesperson is the ability to succinctly articulate what makes them special. 

This is often referred to as having a "Unique Selling Proposition", or USP.
 
A good USP is the thing that in a moment makes a potential customer think: "Aha! - I am interested in talking to YOU".

That moment can be the difference between merely making a living, or making a mint.

So how does one go about defining their USP?

Well, it's hard work. You have to think honestly about what makes you different, and how you deliver value, and then be able to capture that in a simple statement that people can get, or get intrigued by, in moments....it is not a 5 minute job to work out for most people.  In fact it is something that you might be constantly thinking about and working on for many many months.  

To get on track with defining your own USP there are just a few questions that you need to be able to answer.  So here are the questions you have to answer in order to distill the essence of what makes you special, and why somebody should deal with you.

1. What do I really do?

(Note:  not what are the mechanics or functions of my job, but what things do I achieve for others)

2. What am I genuinely passionate about? 

(Note: "passionate" is an over-used word, but think about what you would do for no financial reward (if you could), because you genuinely love doing it)

3. How does what I do, and what I am passionate about, combine to make a fantastic difference to another person?

(Note:  This is the toughest one to work out - and is the essence of a great USP)

Some good (but not GREAT) examples:

"what makes me unique is my ability to grasp complex technical information REALLY quickly, and provide practical simple solutions straight away that clients can benefit from."

"what makes me unique is my ability to positively influence people to change their thinking on how their financial future can be, and then help them make it happen the way they want it to."

"I am great at being able to to stay focused on the end goal for my clients, and to be able to adapt their plan for them as the world changes so they are always on track to achieve their big goals."

There is a common structure here in articulating the USP.   Identifying immediately that you are able to describe something different about you in comparison to others, focusing then  on the key function that you perform better than others, and then translating that into the core benefit for the client.

Simplistically, the formula for a great USP could be described as:

My brilliance + my passion = Your gain

a final example....

"I am the best in the business at taking complex financial problems onboard, and delivering simple solutions that work for my clients.  I make their financial issues easy for them to fix."

It can be very hard work distilling all that you know, and all that you can do, into a simple sound-bite that people can grab, and understand, in moments.  If you are able to though, you will find that more prospective clients engage you.


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Underwrite at proposal time, or claim time?

 by Tony Vidler.

When does your client want to have the drama with their insurance company? At underwriting time, or at claim time?

An confusing facet of the life & personal risk insurance business is the perception that some companies are easier to do business with than others due to underwriting processes....and while that is true to a degree, it is not always as simple as it seems. To be sure, different insurers have different retention levels, make some different morbidity and mortality assumptions occasionally, and they definitely target different parts of the consumer-market with their pricing and underwriting terms. These factors undoubtedly make a difference to the underwriting process for any personal risk proposals.

However, regardless of different insurers views of the variables to be given particular weight during the underwriting process, there remains a comprehensive underwriting process that will be employed. The question is simply whether the risk will be fully underwritten at proposal or at claim time.

We have seen in recent years some insurers remove the barrier to business for advisers by streamlining the underwriting process - some even going so far as to do extremely simplistic underwriting of perhaps 5-10 questions. That type of underwriting effectively identifies only immediately impending claims, which of course are risks that are not taken on by the insurer. The insurer simply avoids taking on those immediately impending claims and declines the proposal outright. What about all the other policies it does accept with minimal underwriting though?

The reality is that the majority of the easily underwritten cases will be medically underwritten in the event of a claim. That of course is just the time that a client or an adviser doesn't want problems.

Contrast that with the philosophy of fully underwriting and assessing the risk in full at the time of proposal. In the event of a claim most of those types of cases do not require full medical underwriting to settle the claim - it has been done at the outset, the risks appropriately weighed up and priced, and a high degree of certainty provided to the client. Sure there will often be some medical evidence required to validate the claim, but the claims managers are not going through the entire medical history looking for problems to include in the decision on how to process the claim.

The difference between the two philosophies is a fairly stark one: higher claims certainty versus higher immediate convenience.

It may be that a client, or an adviser, will knowingly decide that immediate convenience is preferable to higher claims certainty, and therefore work with minimal underwriting to put some cover in place. They take their chances at claim time of course, but it makes doing the business easy.

For most clients, and for their advisers, there is greater merit in working with a full underwriting process at the outset despite the time it takes and the hassle it causes, and the difficulty in obtaining the required information or even reasonable terms for the client. Because in doing so right at the outset, before a contract has been entered into, the client can create greater certainty that the product will perform at claim time as expected. It makes doing the business harder, but will usually make handling the claim easy.

For the adviser, there is far greater certainty that their advice and process will stand scrutiny well with a full underwriting process at the outset.

In the underwriting battle between claims certainty or immediate convenience, The better bet is on taking the inconvenient path at the initial underwriting stage for better long term business relationships and product performance at claim time.


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