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Successful advisers offer easy-to-implement advice for practices looking to improve and update their businesses.

The hidden cost of reducing your practice's marketing budget

Crunching the numbers proves it can cost advisers to scale back their marketing efforts

Apr 3, 2015 @ 10:45 am

By Shawn Sparks

When I ask advisers to tell me the biggest cost in their business, they usually point to things like the wages they pay their support staff, the monthly lease for their office space, or the dollars they pour into their marketing programs.

All these things can be expensive, but they often aren't the biggest costs in an adviser's business. Unfortunately, if advisers don't clearly recognize their biggest cost, they sometimes make decisions that hurt their businesses.

Here's an example: Many advisers use seminars to generate leads. But because seminars can be expensive and difficult to run, they are often the first thing advisers cut when they are looking to save money.

(More insight: How top advisory firms handle their expenses)

If you were to stop doing seminars and reduce your marketing budget accordingly, you might naturally assume that you'll save money. On paper, you'll see that you were spending so much a month, and now you're spending zero. Money saved, right?

Not necessarily. Let's put this assumption under the microscope to see if it's true.

Your biggest cost is not what you think

So what is the single biggest cost in your business? It is actually something you are NOT doing. It is not a hard cost. It is the opportunity cost of marketing less than you should be. And as you'll see in just a minute, this opportunity cost has a real dollar amount attached to it.

Most advisers don't fully understand this, which is why they're often quick to reduce their marketing budget and efforts. But by doing so, advisers are turning off the engine that powers their business. You can coast for a while after you turn off the engine, but at some point your business is going to slow down.

I understand that it might seem counterintuitive to say that “not marketing enough” is the single biggest cost in your business. But when you reverse engineer your numbers, it will become quite clear that marketing less than you should can cost you thousands of dollars a month in lost revenue.

Let's take a minute to calculate this opportunity cost. For the purpose of this exercise, we'll create a realistic scenario that you can easily tailor to your own business and calendar. Just tweak the numbers up or down accordingly and you'll have a clear picture.

(Related read: A numbers-based approach to bringing in new clients)

What is a first appointment really worth?

The first step in calculating the opportunity cost of not marketing enough is to figure out what one first client appointment is worth to your business.

Let's say that you make one sale for every five first appointments. It is an average-sized sale of $250,000 from which you earn $15,000 for your business. In this scenario, we find that every first appointment is worth $3,000 to your business ($15,000 per new case/5 appointments to get one case = $3,000 per appointment).

In other words, you make $3,000 in revenue every time you schedule and keep a first appointment. Now let's look at what it costs you to get this first appointment.

Let's assume you spend $7,000 to conduct and fill a seminar. This $7,000 includes the mailer, the food, the room, and all other associated costs. Let's also assume that every time you do a seminar, you book an average of 10 first appointments with qualified prospects. If you do the math, you'll see that each first appointment costs you $700 in marketing.

But remember, you earn $3,000 in revenue for each first appointment. After factoring in your marketing expense, that's a net profit of $2,300 ($3,000 per first appointment - $700 in marketing cost = $2,300 net profit).

We can also calculate the total amount you earn from each seminar. Ten first appointments at $3,000 per first appointment is $30,000 in new sales. Subtract your $7,000 seminar cost and you've netted $23,000 in profit!

For each of those 10 first appointments you make and keep, your business is ahead $2,300. If you miss just one of them, do you lose $2,300? Yes, but it's actually far worse than that. You actually lose $3,000 in revenue PLUS the $700 it cost you to get the appointment in the first place — $3,700 total.

Now let's take it one step further. By keeping an appointment, you'll be ahead $2,300 … but by not keeping that appointment, you'll lose $3,700. The difference between the two figures? A whopping $6,000! That is what it is really costing you each time you don't keep a first appointment.

Why you should never cut a profitable marketing activity

Now our scenario gets real: your business is looking for ways to cut costs. “This year,” you think, “I'll cut back on marketing, seminars in particular, to save money.” But will you really come out ahead?

For every seminar you don't conduct, you lose 10 new appointments. A seminar that would have cost $7,000 to conduct just cost you $23,000 in missed opportunity. Therefore, it costs you more to market less.

As long as your marketing is working, the biggest cost to your business is the invisible cost of not having appointments in the first place. Every week in which you don't have five first appointments, your business loses $15,000 in revenue while you sit around in your office — bored or frustrated by working on the wrong things.

The bottom line: three empty spots on your calendar where you could have had first appointments cost you $9,000 in revenue — more than it would have cost to put on an entire seminar.

Here's another way of looking at it: if you have just one week during the year where you have five fewer appointments than you intended to have, it costs your business at least $15,000 in lost revenue.

What do you do, then, if you don't have enough first appointments on your calendar? Guess what? You need to put more money into your marketing to you keep your calendar filled. The “cost” of marketing isn't a cost at all, once you realize how much profit you generate on the back end.

Do you see the massive opportunity here? Recognize the value of each first appointment, then make those appointments a priority.

Shawn Sparks is vice president of marketing at Advisors Excel.

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