Lesson 2 | Defining Pricing Models (2:54 minutes)

One of the first questions we get when an advisor starts adding fees into their practice is often, “What should I charge?” The answer depends on a couple things. Here’s the framework to get some clarity around the right amount for you.

We look at two things:

  1. Number one is The average household income of your typical client. And then the fee would be 1-1.5% of that. So, say an annual household income is $300,000, the fee you’d want to charge for planning would be between $3,000-$4,500. We have found that this percentage works for ease of check writing ability because they have that level of liquidity available to them. Much higher than this and they won’t feel comfortable and much lower than this and they will question the value. So 1-1.5% of the average household income of your typical client.
  2. The second thing we look at is The time value of money, which looks at what it takes for you and your team to deliver the value and deliver the end product to that client? To do this, you’ll need to take a few things into account:
  • Number one is your time – how many hours of your time will it take to get that plan put together? This should include time spent in meetings and time collecting the data and creating the plan.
  • Then you’ll need to multiply that by your hourly wage.
  • You’ll also need to look at your team’s time. Everybody on the team who touches it or who sits in any of the client meetings.
  • And then you’ll multiply that by their hourly wage.

This will give you a sense of what it’s costing your business to put the plan together, so it’s an important thing to do as a business owner. This will also help you see if you’re creating $5,000 plans for $2,000 clients, meaning you are putting significant time into plans for clients who have lower household incomes.

So, come up with your number, and then commit to it. Charge a dozen people, get your language down, and see how it goes. You can raise your fee or begin to incorporate ranges once you feel confident, but when you’re just starting out, determine your fee using the calculations above and then stick to it.

And keep in mind that initially the fee revenue gained might not be overly exciting, but what will be is a change in the way your clients perceive you and the speed in which they react and participate in the process. This will be a game changer and the revenue will soon follow.

Here is your Action Task: Work through the pricing calculation and begin to determine what your planning fee might be.