As advisory firms grow, it’s crucial to both measure and manage the productivity of the firm. At the individual level, productivity is typically measured by evaluating the amount of time it takes to complete various key tasks. At the firm level, it’s measured through key “revenue ratios” that become Key Performance Indicators (KPIs) for the entire business.
The first key revenue ratio that all advisory firms should measure is revenue per client – literally, by dividing the total revenue of the firm by the number of clients. The significance of revenue/client is that it is the most straightforward way to understand an advisory firm’s “typical” clientele, to immediately identify clients that may unprofitable (i.e., significantly below-average revenue/client), and to determine which clients are so far above the firm’s average that it may be worthwhile to segment them and then provide additional services to them. In addition, given that the typical solo advisor only ever has the capacity for 50-100 clients in total, understanding the advisor’s revenue/client provides an indication of his/her maximum earning potential as well (at least until/unless lower-revenue clients are replaced by higher-revenue ones!).
As advisory firms grow, and become multi-advisor, so too does the next revenue ratio for productivity shift, from revenue/client (for an individual advisor’s clients), to revenue per advisor themselves. By measuring revenue/advisor, it’s quickly possible to see which advisors in the firm are more efficiently servicing their clients (and the associated revenue), by literally handling more revenue per advisor. On the other hand, extreme deviations in revenue/advisor can also provide an indicator of not just efficiency and productivity, but significant over- or under-servicing of clients as well.
And for the largest advisory firms, the key measure of productivity becomes revenue per employee, the most straightforward way to quantify, in the aggregate, how much staff it takes across the enterprise to service each segment of the firm’s clients and revenue.
In turn, advisory firms that measure these three Key Performance Indicators of advisor productivity can then evaluate how they compare to other firms at a similar size, using industry benchmarking studies. Which actually show that, when measured on these key productivity measures, advisory firms may not actually benefit much at all from growing larger and gaining economies of scale, as larger firms tend to attract more affluent clients (with higher revenue/client) that demand additional services which in turn fully offset any size-based efficiencies!
The bottom line, though, is simply to understand that as advisory firms grow as businesses, it is feasible to benchmark the productivity of the firm in the aggregate… and then take the necessary steps to manage it accordingly!
source https://www.kitces.com/blog/revenue-per-employee-client-advisor-productivity-kpi-metrics/
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