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Which Clients Are You Paying to Serve?

Spread your firm’s costs across the hours each tier of client actually takes. See what every tier earns after the cost of serving it, and the account size where a household breaks even.

Your Costs

Annual operating costsEverything, including all salaries — and your own pay at what you'd pay someone to do your job

Costs are spread across tiers by the hours each tier takes. A household that takes twice the hours carries twice the cost.

Your Tiers

Hours per household are everyone’s hours across a year: meetings, prep, paperwork, calls and email. The rows below are a sample; replace them with your own.

Tier	Households	Avg managed assets	Fee	Team hours per household per year

Cost to Serve the Average Household

—/yr

Break-Even Account Size

—

Your Cost-to-Serve Report

What each tier earns after the cost of serving it, where the profit comes from, and where your minimum should be.

Every Tier, After the Cost of Serving It

Tier	Revenue / HH	Cost / HH	Profit / HH	Margin

Where the Profit Comes From

Total profit or loss from each tier.

Break-Even Account Size by Service Level

The managed assets a household needs, at that tier's fee and hours, to cover the cost of serving it.

If you serve a household like Tier…	Hours	Break-even assets	Households below it

Illustrative. Costs are allocated by hours, which is a simplification. Margin bands are this tool's own: Profitable 25%+, Thin 0–25%, Underwater below 0.

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See what each tier earns after the cost of serving it, where your profit really comes from, and where your minimum should be.

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Reading Your Cost to Serve

Revenue per household shows what each client pays. It does not show what each client costs. Spreading the firm's costs across the hours each tier actually takes gives a profit figure for every tier, and the account size below which a household costs more to serve than it brings in.

Hours Are Where the Cost Lives

For most advisory firms, people are the largest cost, and people's time is spent on clients. Allocating costs by hours makes a household that takes twice the time carry twice the cost. It is a simplification, but it usually lands close enough to show which tiers support the firm and which ones it supports.

Include Your Own Pay at a Market Rate

If the owner's pay is left out of operating costs, every tier looks more profitable than it is. Use what it would cost to hire someone to do your job. That keeps the result honest and makes it useful for decisions about hiring, pricing and service.

A Minimum Is a Service Decision

The break-even account size depends on how many hours a household takes. A firm can lower it by serving smaller households with a lighter service model or a different team member, or it can set a minimum that matches the service it wants to give everyone. Either way, the decision becomes deliberate.

Common questions

How do financial advisors calculate the cost to serve a client?

One practical method is to total the firm's annual operating costs, including salaries and a market-rate figure for the owner's work, divide by the total hours the team spends serving clients to get a cost per hour, and multiply by the hours each client or tier takes in a year.

How should an advisor set an account minimum?

An account minimum can be based on the managed assets a household needs for its fee to cover the cost of serving it at the firm's intended service level. Firms often set separate service models for smaller households instead of, or in addition to, a single minimum.

Why are small accounts often unprofitable for advisory firms?

Smaller accounts pay smaller fees, but many service tasks, such as meetings, paperwork, compliance and communication, take similar time regardless of account size. When the hours are similar and the fee is smaller, the cost of serving the account can exceed the revenue it produces.