Manage profitability. If your gross profit is down, Tibergien said, it's a result of poor pricing or productivity, or problems with product or client mix. If your operating profit is down, it's from low gross profit, not enough revenue volume, or poor cost control. "Every practice I've looked at has trouble with creepers," he said. "Those are costs that conspire at night to cut your throat."
The very best practices look at strategies. "Strategy is not the market. It's a singular focus on how you commit your resources," he said.
In your business, where will you focus? Tibergien explained a firm should look at its client base. The best practices have a method of getting systematic feedback, and they tend to be more profitable and lose fewer clients, he said. A matrix is helpful in assessing your client base, he said. Down the side list your top 20 clients, and across the top create columns for their occupations and the services and products your firm provides to them. The idea is to try to identify whether a pattern exists in your client base, Tibergien said.
Then look at what issues those clients are going to face over the next five years and develop a plan for serving those needs. He added firms must weed out clients so they're left with the ones offering greater growth potential.
Tibergien, who has studied the best solo and ensemble firms, said advisory practices should examine their organizational model. The traditional model includes one advisor who is helped by an administrative assistant, but solo practitioners face more pressure from other firms and bring in less revenue per client, Tibergien maintained.
A better choice is the multi-discipline model, which recognizes core clients and then ties in specialists, he said. Better yet is the optimal model, in which an advisor serves as the relationship manager and works with three associate advisors. The clients are clients of the firm, not of the individual advisors. "Let the junior advisors focus on the tactical issues. You focus on making the greatest impact. Now you can multiply the number of families you can handle by three," Tibergien said.
Bigger firms have more revenue per client. They have deeper relationships and become more efficient. But most importantly, he added, they have a bigger market presence.
The best ensemble firms generated $500,000 in revenue per professional, while the best solo firms generated $420,396. Since each ensemble firm would have at least two professionals, that means they were generating at least $1 million in revenue, he noted.
The median revenue per client also was higher for ensemble firms than for solo practices: $5,708 versus $2,634, he said. But perhaps the most dramatic difference was Tibergien's comparison of the median pre-tax income per owner. In solo firms that amounted to $384,900, compared with $762,287 in ensemble firms.
"Most people in the business today are only getting rewarded for their labor. Those building ensemble practices also are getting rewarded for other people's labor," Tibergien said.