Five Steps to Improve Profitability
Not all clients are created equal
Like many businesses, private wealth managers often have a small number of highly profitable relationships that subsidize a vast array of marginally profitable and unprofitable clients. To focus revenue-enhancing efforts where they can yield significant results, we believe it’s essential to under¬stand which clients are most profitable and why.
Many different factors – client tenure, product usage and mix, assets under management, client advisor productivity, degree of price concessions, and service intensity – drive variations in client profitability. The multitude of contributing factors can make it very difficult to sort out how profitable various relationships are today, let alone how profitable they could become over time if they were managed more effectively.
Fortunately, powerful techniques exist that can help you understand client profitability patterns and target specific clients for improvement initiatives. A holistic, analytical approach can help answer questions such as:
- Which clients are underperforming relative to their potential?
- What actions in what areas – service levels, pricing, product mix – might enhance these clients’ performance?
- Which clients are beyond repair and need to be terminated to free up resources to focus on higher-potential prospects?
In addition to helping to improve profitable relationships and weed out unprofitable ones, a thorough analysis of client profitability differences can help you better understand business-unit performance at other critical levels – client advisor, office, region, channel. It can shed light on issues such as:
- Which units are performing better than others?
- Why do comparable units show different revenue or profit contribution? What underlies wide variations in margin leakage and productivity?
- What actions would help improve underperforming units?
- How can managers readily obtain the “right” information to improve their units’ performance?
Five steps to bigger margins
A five-step process of enhancing your understanding of profitability and its drivers can help your organization identify profit-boosting opportunities.
- Quantify client profitability: An analysis of individual client profitability forms the foundation for improving performance, allowing you to uncover the root causes of client performance differences.
- Benchmark and identify underperformers: Performance is driven by many factors – some easily controlled and others less so – which makes effective benchmarking a challenge. Traditional analytical approaches can be combined with predictive modeling to pinpoint under- and over-performing clients.
- Develop action plans: Client-specific action plans targeting the root causes of underperformance can help bring underperforming clients up to their profit-generating potential.
- Monitor results: Effective monitoring and tracking of results can allow you to provide feedback to client advisors and their managers, as well as to incorporate appropriate goals and metrics into client advisors’ objectives and performance incentives.
- Expand focus beyond individual clients: By examining aggregated client profitability information, you can gain insights that can help you improve client advisor, office manager, regional management, and channel management performance.
Profit improvement approach
Key considerations in designing a profit improvement approach should include:
- Accurate benchmarking and intelligent visualization
- Dynamic identification of over- and underperformers
- Absolute and relative views of profitability
- Customized alerts to guide appropriate actions
- Enhanced monitoring and management of sales activity
- A methodology applicable to all organizational levels
- Tighter alignment of performance incentives with company objectives
- The ability to track the bottom-line impact of strategic programs