Calculate Variable Costs
[Calculating variable costs] tells you the amount of revenue you will need to generate from a client to break even, which allows you to create an effective client selection strategy. --Julie Littlechild
Variable costs are any costs that vary by client segment. Client appreciation is an obvious example, and some advisors will also include staff costs in this category. Here's a three-step process for calculating variable costs:
1. Identify the total variable client costs in your practice;
2. Allocate that investment by segment; and
3. Divide by the number of clients in each segment.
Once you have analyzed each component of cost, you can calculate a total cost per client household simply by adding the three costs together for each segment. This information provides you with most of the data that you'll need in order to maximize profitability. It tells you the amount of revenue you will need to generate from a client to break even, which allows you to create an effective client selection strategy.
-Julie Littlechild in The Profit Problem
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