Client Retention and Organic Growth
Everyone understands the concept of compounding returns. Professional advisors preach this to their clients all the time. But in running our own practices, do we practice what we preach?
The compounding effect I am referring to is a focus on client retention and organic growth.
When I was running a professional services firm, our KPI for this was Net Retention Rate. This can be defined multiple ways, but the way we did it was take your book of business for a year and how much they produced in fees, then take that same book of business and see what they produced in fees the following year. Anything less than 100% means you have a leaky bucket (and trust me, there were times we had to do some patch-work), and new business is needed just to stay flat, let alone grow i.e. you’re on the hamster wheel. This metric works in wealth management as well, but just with assets under management, adjusted for market returns.
By maintaining your client base and generating growth within that existing portfolio, it allows for the foundation of your firm to be steady, and customer acquisition can the profit that comes from it, can be used to incentivize performance and re-invest in technology and L&D. Without this foundation on net retention (which organic growth pushes up), margin from new customers has to be used to cover existing operating costs.
According to Schwab’s annual RIA benchmarking report, the average organic growth rate was 5%, while the top firms produced 12% (meaning an additional 7% of revenue could fall to the bottom line or be re-invested). Similarly, client retention came in at 97%, so an average NRR would be just shy of 102%.
So, what are the keys to actually producing a high net retention rate? Here are a few primary practices to focus on:
- Talk about the future - the more the conversation with clients can be forward thinking and focused on their goals, the more they are tying you to their success and their future. Seeing you as someone who isn’t just reporting historical results but thinking about what’s next for them, is vital.
- Bring new insights - show that your firm is investing in gathering insights and information that they couldn’t get elsewhere. For example, if you are able to tell them an estimated value of a business they own, they are going to hold onto that as something valuable you taught them about.
- Integrate multiple offerings - the more services or products the client is buying from you, the harder it is for them to leave. Discussing all your offerings and identifying those opportunities for up-sell in a customer-tailored and organic way is challenging unless you have something to facilitate items #1 and #2 above.
- Solicit client feedback and actually action it - Gathering feedback through surveys such as a Net Promoter Score approach, sometimes feel forced and awkward, but it is valuable. One note here is to make sure you are , or at least stratifying the results, based on your ideal customers. Ensuring the customers you want to serve, and want more of, are the ones you are actioning the feedback from is important. Bonus tip: these can also provide great sales and marketing testimonials and evidence-based findings about what your customers think of your services.
At interVal, we focus on providing professional advisors a platform to facilitate items 1-3. By discussing valuation goals and timelines, it cements you as an advisor that wants to be along for the journey with your client, and along the way identify the needs you specifically can help them with to be set-up for that success. Identifying excess working capital to invest, discussing capital structure, mitigating risks that impact business value, etc all come through conversations facilitated through the insights in interVal.
As one wealth advisor recently told us “You talk about building a fence around the client – interVal is a pretty high fence”
By prioritizing client retention, fostering organic growth, and leveraging tools like interVal to deepen relationships and insights, advisors can build a stronger foundation for their firms—one that not only protects the client base but also drives meaningful, sustainable growth for years to come.
Author: Dave Bunce
