Too often financial advisers and business owners come out of pricing workshops with major epiphanies. Practices should not be having ah-ha moments when it comes to pricing.
Pricing has been a dominant topic of discussion inside advice businesses and at industry conferences, and the subject of many books and papers, for decades.
Every year, seasoned advisers and business owners walk out of pricing workshops having had a major revelation.
This is a concern given how fundamental pricing is to business success.
Business owners should intimately understand what they are selling, how much it costs to deliver, how much of it they can sell, and the margin required to make a decent profit.
In simple terms, cost plus margin equals price.
Ideally, advisers should know this before going into business. Realistically, they should have it finessed by the end of year one.
Yet, five, 10 and 20 years later, too many advisers still aren’t confident about their pricing. This suggests that advice businesses have not spent enough time and energy on their Client Value Proposition.
A compelling CVP is at the heart of every successful, thriving business. It separates the average from the exceptional.
It is one of five essential ingredients need to be a leading advisory firm of the future, alongside a compelling employee value proposition, shareholder value proposition, a defined enterprise architecture and a strong culture.
When it comes to developing a compelling CVP, there are three key factors to consider.
Who is my target client and what is the biggest problem they need solved?
Thinking about your chosen client segment, be they, medical professionals, retirees or middle class mums and dads, list the hardest challenges they’re facing. Which of those challenges can you help solve?
If the hardest challenge is managing teenage angst, there’s not much you (or anyone) can do about that so keep moving down the list until there is something you can fix.
The harder the problem, the more value you are creating and the more you can charge.
This exercise is relevant no matter what type of business you’re in.
For example, when AZ NGA was established in 2015, we did this exercise and at the top of the list of problems facing financial advisers and accountants was succession and capital for growth. We set out to develop a solution that solved those issues. We then started moving down the list to continue adding value for our business partners.
Now we are turning our attention to problems like production bottlenecks, staff shortages and technological change.
The most successful businesses are specialists
When it comes to a compelling CVP, being a problem solver is critical but being a specialist problem solver is the Holy Grail.
Businesses can specialise in one specific area or offer a range of specialist capabilities under the one roof.
For us the problem of succession and capital represented the highest degree of difficulty and solving it would make us specialists.
By nature, very few companies and people operate in this space. Building and maintaining a reputation as a specialist, requires capability and capacity.
Businesses can invest in specialisation by developing it in-house, acquiring it, or a combination of both. Businesses can use M&A as a tool to gain the capability and/or capacity they need to solve a problem.
While other professional services, such as medicine, accounting and law have carved out specialty niches, financial advice isn’t known for its specialisations yet.
There is a huge opportunity for advisory firms to build a strong brand around specialisation. A strong, respected and recognisable brand adds to a compelling CVP.
Think like an entrepreneur
To build a compelling CVP and price it appropriately, advisers need to think like entrepreneurs (business owners and entrepreneurs are not necessarily the same thing).
For example, if their target audience is doctors, surgeons and other medical professionals, then one of their clients’ biggest problems is likely to be managing their investment property portfolio.
Medical professionals tend to be overweight property relative to other asset classes, which means that in order to properly serve their needs, businesses need to obtain the relevant qualifications and licenses.
Historically, advisers have baulked at providing property advice because they didn’t have the necessary skills or permissions. But entrepreneurs aren’t easily deterred by obstacles, if they sense an opportunity to add value and lift profitability.
Entrepreneurs will do whatever it takes to solve their clients’ problems. The harder the problem, the more valuable their business.
The inability of many advisers to understand and articulate their CVP and price their services accurately has held businesses back from achieving their full potential.
While prudent business owners should review their CVP and pricing regularly to ensure it continues to meet evolving client needs and expectations, and keeps up with the rest of the market, changes should be incremental not radical. Advisers and business owners should not be having ah-ha moments when it comes to pricing.
Read more of Paul Barrett’s articles in Professional Planner.