Lots of books and articles have been written about business, some by those who have never started one themselves, but merely picked up where others have left off. So I thought I would offer my wisdom into the mix and give a bit of detail on my most important lessons so far.
When I first started I tried to undercut my former employer without understanding my differentiators or my costs.
Bear in mind your figures will all be guess work in the first year and not so great in the second year. So getting the pricing for the work correct can make or break a business, it can even break you later on in business as you try to expand.
I was far too cheap, I didn’t understand the level of extra work involved in the advice model I had chosen and I didn’t properly understand the costs to deliver the service that I wanted either.
I had come from a background where commission was paid on a product sale and I set up a business which was a Financial Planning business, that is to say a businesses that puts
advice first and the product second, so no commission.
So I was offering a level of service way beyond what my old firm offered and way beyond many firms that were well established. Their business models were based on quick in quick out, selling volume and trying to avoid seeing those clients again. So actually trying to be cheaper and offer a high level face to face service was financial suicide. Luckily Phil Grundell of The How Academy pointed out the error of my ways. He showed me the cost of my value proposition and that so few advisers offered Cash Flow Modelling and regular face to face visits at the clients home and office. I thought everyone did! I then learnt they sent letters out putting the onus on the client to make contact and just posted out a valuation instead. I also didn’t make provision for expansion. How can you pay for an office and support staff if you charge too low a price before you even have these things?
So I had to choose between the same as most advisers, quick in quick out, product based selling or charging for an actual service; I chose service led.
This immediately allowed me to offer a better service to clients, allowing full access without hidden extras. Clients’ circumstances change every year and so you need to talk to them all the time and see them. Deaths, births, marriages and home moves to start with. They retire, lose jobs, get an inheritance or have a family feud! If you’re not available and easy to access you will miss out on such important things, so a triannual review that many offer is good for them but not good for their clients.
You should not be afraid to offer a service that’s greater than that offered by others, you also need to charge an appropriate fee so you can deliver it. It doesn’t mean you
should be expensive, I have a cap on my initial advice fee, it means you price it so you can be fair and still deliver the service you offer. So if your business model is quick in and out then price for that, but make sure you’re not competing on price, if you are then there is always someone that will undercut you. Instead price on a service that you can deliver. My clients keep coming back with two things they value the most, trust and managing and delivery of expectations.
If your fees are so low that your business is at risk of failure, how is that good for your customers or clients, let alone you? Get a good business coach to help you price
correctly not just for the market you’re in, but what it is you hope to deliver. This will allow you to be profitable and not let down your customers. You should be in business to improve things for your family, but if you’re in a service led business, you’re actually in business to help your customers and clients; you do that by being profitable and secure so they can continue to rely on you.
So lesson five is get your pricing right to start with, so you remain in business for your family and for your customers benefit!