“Revenue acquisition cost” is a great barometer for weeding out marketing channels that suck up spend and distract from genuine asset-raising.
TL;DR: re-assess social media marketing spend.
With fund marketers operating a whole ‘engine room’ of disparate outreach channels, finding out which ones are actually generating revenue relative to what they cost can be a convoluted process.
A recent study from Kitces Research, though, looked to measure the revenue acquisition cost (RAC) at more than 500 advisor practices: the marketing dollars spent per dollar of new client revenue generated.
As suspected by many asset management firms, there is a disconnect between channel spending and ROI. Online advisor directories were the cheapest at $0.28 per dollar of revenue, client referrals cost $0.34, and SEO $0.45.
At the other end of the spectrum, client appreciation events cost a whopping $4.54 and newsletters were almost as expensive at $4.14. Topping the list, however, was social media; at $4.88, firms are evidently pumping five dollars into social marketing for each dollar of new client revenue it leads to.
Equally, it seems that overall client acquisition costs have fallen the past two years, down 33% to $2,551 per client. But that improvement is largely concentrated at firms who have diversified away from being dependent on referrals. In fact, the study’s identifiable high-growth firms invest about 7% of revenue in marketing, and only generate about a third of new revenue from referrals, against 80% of slow-growth firms.
So, what does this mean for fund marketers?
Firms are likely to drown if they coast on word of mouth alone. And just as the advisors studied here need to identify their most performant marketing channels, so too do distribution teams need to evidence the ROI their channels do or do not account for.
Social media channels and newsletters have often been seen as low-effort line items, despite their negative results on an outgoings spreadsheet. They are easy to produce and their open rates metrics are simple to analyse, but budgets pour out without their repeated use leading to qualified investor meetings (let alone raise assets!).
This is why tracking costs per dollar of revenue generated (rather than per lead or click) may provide a more actionable route to decide the success or failures of certain marketing channels. If posts or newsletter can be traced to a booked call or subscription document, excellent. If not, it is necessary to make some changes.
The most reasonable places to allocate spending could lie in the channels found to be cheap and easy to apply – directories, referral programs and SEO – rather than cutting all spend on strategies that still work to pull in prospective audiences.
Sources
Kitces Research, “Winners and Losers in Financial Advisor Marketing ROI,” reported by Financial Planning and American Banker.
