3 practice metrics you need to know

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By Laura Neidert, Director – External Practice Development


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Advisors often overlook important practice metrics as they make business decisions. Understandable. Metrics can be complicated. The value and insight the numbers provide often isn’t obvious nor is knowing how to leverage that intel when making decisions.

As an External Director of Practice Development at Waddell & Reed, I’ve spent a lot of time with metrics. I get the hesitancy to face the beast. However, I’ve also watched advisors embrace their numerical stories and emerge with more in-depth practice knowledge and greater confidence in next steps.

The Practice Development team recommends you start with three categories.

  1. Client selection ratios
  • Earnings: Household
  • Assets Under Management: Household
  • Gross Profit: Household
  • Operating Profit: Household

These data points highlight the average type/level of client in your practice. Using those metrics to set a baseline will inform your client onboarding decisions, marketing campaigns and client experience model. Longer-term trends in these ratios will show forward progress or diminishment of your averages.

  1. Profitability ratios
  • Gross Profit Margin
    • Gross profit divided by total earnings
    • Measures earnings remaining after direct expenses (cost of compensating advisors)
  • Operating Profit Margin
    • Operating profit divided by total earnings
    • Measures earnings remaining after all expenses
  • Overhead Percentage
    • Measures overall costs of operating the practice, not including direct expenses
  • Average Income Per Owner
    • Measures total earnings, including direct income

Profitability ratios indicate the difference between the cost to create production (direct expenses) and to run the practice (operating expenses) and what remains for ownership (profit). These ratios provide true profit numbers to evaluate the return of every dollar invested across the practice and measure profitability of producers and non-producing personnel and their overall effectiveness in generating profit. While looking at year-over-year changes, it’s more important to have a wider lens and chart the trends than focus on one data point in any given year

3. Productivity ratios

  • Earnings Yield
    • Measures earnings per million under administration
    • A higher yield represents higher earnings per million AUA and indicates efficiency of creating earnings
  • Earnings: Advisor
    Earnings: Team Member
    • Measures advisor and staff productivity
    • Trend indicates whether appropriate personnel was added
  • Household:Team Member
    Household: Advisor
    • Indicates capacity of practice
    • Directly indicates who and when to hire
  • Operating Profit: Advisor
    Operating Profit: Team Member
    • Trend indicates return on investment in capacity

Growth in these ratios should trigger questions around your ability to capture new business due to increasing service needs and the ability of your team members to add value and accomplish what they do best. Monitoring these annually will help improve efficiencies, allow you to plan for growth and answer questions such as:  Am I at capacity? Do I need to hire additional team members? What role(s) do I need?

Similar to a client’s net worth statement or balance sheet, these three ratio categories reflect every business decision or investment you’ve made. While you should expect to see dips in some of these areas as you build out your organization, if it was the right investment, you will reap the rewards in the longer term. Change is ongoing, and being nimble is key in a competitive environment. A grasp of these ratios as well as other business metrics allows you to make decisions more quickly and confidently.

Waddell & Reed’s Great Practice Solutions program helps advisors uncover valuable insight about their businesses by knowing and interpreting their numerical stories. Learn more about the program and how the firm’s practice development team can benefit your business.


Laura Neidert is Director – External Practice Development at Waddell & Reed. The External Practice Development team works with financial advisors as part of the Great Practice Solutions practice development program to help them grow and strengthen their practices, providing deep generalist expertise, specialized areas of focus, and broad-based awareness of industry best practices.

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