Sales Projections And Your RIA’s Health • Financially Simple


Sales are a vital part of any business. Without them, your company won’t last very long. But what can we learn from them? It may be tempting to view sales projections as just a way of determining what your year-end revenue might look like, but you’d be missing the full picture if you do. You see, your RIA’s projected sales could give you an in-depth view of its overall health. In this post, I’m going to look at what your sales forecast could be trying to tell you!

Follow Along With The Financially Simple Podcast!

This week on The Financially Simple Podcast: 

  • (01:35) How your sales projections can help you

  • (03:05) What is a sales projection?

  • (05:05) How do we calculate run rate?

  • (08:43) Two key data points

  • (09:33) Estimated future sales

  • (14:16) Average Assets Under Management (AUM)

  • (16:42) A word of caution

Are Your Sales Projections Trying to Tell You Something?

Accurate sales projections are important to any business, but in the RIA industry, they can make or break a firm. You see, they give you an estimate of future sales revenue by analyzing historical sales data and using it to predict future sales patterns. However, these numbers can inform many different functions of your business.

For example, accurate projections can help you develop effective marketing strategies and allocate resources to attract and retain clients, ensuring your growth aligns with the projected goals. Similarly, realistic projections can provide a clear basis for negotiating terms and making informed decisions about your RIA’s value and potential growth. But they could also help you plan your operational activities more effectively. With accurate numbers, you will have a crystal-clear image of the people, technology, and processes your firm needs to accommodate the increase in sales. 

Friends, your RIA’s sales projections are trying to tell you so much more than you thought. With the information gleaned from your projected sales, you can quickly diagnose breakdowns in your sales processes. But, you can also determine whether your marketing strategy is delivering, who your best closers are, or if there are any gaps in your firm’s training.

Factoring Your Run-Rate Revenue

In order to make accurate projections, you’ll need to know your firm’s run-rate revenue. Essentially, run-rate refers to the financial performance of a company based on using current financial information as a predictor of future performance. This metric functions as an extrapolation of current financial performance and assumes that current conditions will continue.

To find your firm’s run-rate revenue, you’ll follow a simple formula. First, you must find your current revenue across a pre-determined period. Then you’ll multiply that number by the number of periods. So let’s say your pre-determined period is Q1. If you had $125,000 in revenue for Q1, your annual run rate would look like this:

$125,000 x 4 = $500,000

But why is your run-rate important? Well, it’s a forward-looking metric that can provide multiplicative increases in your firm’s value. You see, your RIA could have a decline in trailing twelve-month (TTM) revenue, yet see its multiple increase. Let’s take a closer look.

Run-Rate and Your Multiple

Recently, I found an interesting statistic from Mercer Capital. It said that publicly traded investment managers with less than $100 billion in AUM, trailing twelve-month (TTM) revenue for the year ended March 31, 2021, declined about 8% year-over-year. Likewise, they saw TTM EBITDA decrease by about 20% on a year-over-year average.

However, as the markets began to recoup in 2021, these firms saw their median multiple more than double in value. This is because market values are based on expectations for the future rather than the last twelve months’ performance. Therefore, if you can meet the demands of keeping up with your run rate, you could significantly outperform market values.

But, as a business owner, you don’t want to be passive about your firm’s growth. You can take an active approach to growing your business and increasing its run-rate revenue. In turn, this increase could improve your multiple.

Sales Projections and the Numbers RIA’s Track

Okay, friends, we know that sales projections can tell us more than we thought. Likewise, we understand the importance of run-rate revenue in our businesses. However, it’s important to realize that a number of factors can and will affect your sales projection. Fortunately, you can use these factors to inform your firm’s approach to improving your run-rate revenue. So, what are they?

Average Number of New Clients

One factor you can look at to influence your sales projections is the average number of new clients your firm will onboard in a given period. In fact, the 2022 RIA Benchmarking Study from Charles Schwab indicated that between 2016 and 2021, RIAs saw an average of 13.6 new clients per year. Is your firm seeing similar growth? 

At this point, you might be thinking, “Justin, brother, I just don’t see how tracking the number of new clients and projected sales in my RIA can help me understand its health.” Consider this… knowing if your firm is aligned with the industry average can give you valuable insights into your sales processes and help you troubleshoot problem areas.

For example, the average close rate in the RIA space is 20 percent. Best-in-class firms are closing on 30 percent of their qualified leads. If you’re not winning new clients at the same rate (or better) as the rest of the industry but still coming up short on your sales projections, there’s a problem in your sales process. On the other hand, if you’re not converting leads into clients because the leads you have aren’t qualified, you have a marketing/screening problem.

By the Numbers

According to Erica Pauly, Founder and Owner of Track That Advisor LLC, the Ria Industry benchmark for the prospect to qualified lead conversion rate, is 70%. Therefore, in order for your RIA to maintain a new client run-rate that is in line with the Charles Schwab Benchmarking Study, your marketing team needs to attract roughly 100 prospects to the top of its funnel each year. How did I arrive at that number? Let’s take a closer look!

At a 70% conversion rate, you could reasonably expect 70 qualified leads (those who have interest and means to use your services). If the industry average close rate is 20%, 70 qualified leads should yield 14 new clients. This is directly in line with the average annual new client growth rate shown in the 2022 report by Schwab.

Friends, having this data at your disposal can help you determine how your team’s efforts could achieve strategic sales goals beyond your current sales projections.

Assets Under Management

Now, I know some of you are saying, “Justin, we don’t really focus on the number of new clients. Instead, we track AUM growth.” That’s fine. We can yield similar results with AUM. Looking back at the 2022 Benchmarking Study, RIA firms saw average AUM growth of $66MM per year between 2016 and 2021.

Not all firms are going to be in a position to see AUM growth like that year-over-year. That’s okay. It’s important to remember that benchmarks are a tool, not a rule. If this is you, look back at your AUM growth over the previous five years to find your own benchmark. Using that benchmark, you can compare your AUM growth to your current sales projections. Does it align with your average annual growth? If not, what is the cause? Are you closing at a rate that is in line with the industry average?

If the answer is yes, you have an issue in your funnel and need to make adjustments to attract qualified leads with greater investable assets. If it’s no, then you need to look at your sales processes and your team.

A Word of Caution

Friends, as you approach your eight-figure exit, there will be disruption. There will be difficult periods of transition. It’s just the nature of the beast. Therefore, any sales projections you made before transitioning the firm run the risk of being inaccurate. The reason is this… you and your team will be hyper-focused on integrating systems and ensuring a smooth transition from buyer to seller. Because everyone is focused on the change, your sales will decline. More than this, it will take longer than you think to make up that ground.

I know this and I have experienced it firsthand, folks. When I made the ultimate sale, we saw a slight decline, and we were well-prepared to make the eight-figure exit. We were following the exit plan to the letter. So imagine what can happen if you’re trying to navigate such a task without a well-conceived plan in place. You’ll have to be prepared to right the ship or risk losing some of the hard-earned equity you’ve created.

Wrapping Up…

Look, friends, when you’re making sales projections for your RIA, consider the expected number of new clients to be acquired, the size of their portfolios, and the anticipated growth of AUM from existing clients due to market performance or additional contributions. These factors contribute to estimating your firm’s future revenue. However, it’s important to note that projections are based on assumptions and market trends, so they may not always align with actual results.

Hey, I know life is hard. Believe me, I do. But when I look around and see all that I’ve been blessed with, I’m reminded that life is good. Looking beyond the surface of your sales projections to determine the health of your RIA can be frustrating, but it doesn’t have to be. With some careful analyses and reliable data from your firm (and the industry as a whole), you can make your RIA’s health and accurate sales projections at least financially simple. Let’s go out and make it a great day!

Interested in learning more about how your projections can provide a pathway to a more valuable RIA business? Reach out to our team to learn how we can help!

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