What you need to know
Only 29% of practices implemented SEO, the top-rated tactic in terms of return on new client revenue versus cost of implementation. High-growth practices rely much less on client referrals than other practices at every stage of practice development. High-growth practices are typically twice as likely as others to have a structured marketing approach, including a chief marketing officer.
Kitces Research released a study this week aimed at helping advisors understand “what really works” when it comes to marketing.
The study found that successful marketing results from a combination of actions that are aligned with the practice’s growth strategy and synchronized with the preferences of the practice owners. Good marketers constantly refine their marketing approach as their practice and target markets evolve.
Search for Kitces based the study on data it collected online from April 18 to May 20 from more than 1,000 counseling practices, resulting in 457 usable answers. To be included in the study, respondents had to represent a company that provides financial advice or implements investment products. The practice must have been established in 2020 or earlier and actually served clients and earned revenue in 2021.
Customer acquisition costs
The survey findings showed that bringing on a new client in 2021 cost a financial advisor an average of $2,167, of which approximately 70% was the cost of the advisor’s time spent on marketing activities and sales, and only 30% in hard marketing expenses. .
The cost increased to $4,056 per client for firms with more than $250,000 in revenue, as the cost of advisor time increases as the practice grows.
The typical advisory practice spent 7.1% of its 2021 revenue on time- and dollar-based marketing, rising to 8.8% among practices with more than $1.5 million income, again, because the advisor’s time is more valuable as the practice grows.
Among the 25 different advisors marketing tactics researchers examined, a successful one attracted at least one new client for 55% of practices on average. The success rate was 100% for custodial referral programs and 96% for client referrals, while blogs and social media had success rates of only 20% and 39% , respectively.
Successful tactics had an average first-year revenue per new customer of $4,000.
The typical practice invested $1 in marketing to generate $1.20 in new customer revenue, for a marketing efficiency measure of 1.2, according to the study. However, marketing efficiency was 2.5 for practices with less than $250,000 in revenue, compared to just 0.8 for practices with $1.5 million or more.
Sustainable growth
Kitces Research noted that increasing costs and decreasing efficiency as practices grow primarily result from reliance on tactics that are difficult to scale, either because of the time required by the advisor or because of opportunities finite representing some tactics. “These results highlight the importance of evolving marketing tactics as the practice grows,” the study said.
The research found that many advisors may not fully understand the costs and returns of a tactic. Take search engine optimization, the top-rated tactic in terms of the highest return on new customer revenue compared to the cost to implement. Only 29% of practices in the study implemented SEO, and only 20% used drip marketing, the second most efficient tactic.
Instead, consider client referrals, the marketing tactic 93% of practices rely on. Referral marketing doesn’t scale well, according to research. The acquisition cost is low, but the cost is almost entirely the adviser’s time, a finite resource. Not only that, a customer will only make a referral so many times.
The study found that high-growth practices rely much less on client referrals than other practices at every stage of practice development.
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