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How
the Hudson Institute turned its hyper-efficient sales
process into a sustainable competitive advantage
"Incredulous.
"Yep, that’s the
best word for it", concedes Phil McGann.
Phil is struggling to describe the reaction of fellow financial
planners when he explains how things work at the Hudson
Institute.
"When they find
out that our financial planners perform 8-9 consultations a day … that
these consultations are all conducted over the telephone … that our
small team in Brisbane services 8,000 members all over Australia … and that
almost all of these members have paid upwards of $1,500 just to access this
service … well, they just don’t believe it!
Phil goes on to explain
why this doesn’t make sense to a traditional financial planner.
"Even the busiest of
traditional financial planners has time to conduct only one or two consultations
a day. The rest of his day is consumed with clients’ portfolio planning,
research and administrative activities.
"Even if this
financial planner had time to conduct more consultations than this, he’d have
no one to talk to. The fact is, when practice growth is dependent upon word of
mouth, it takes years for a planner to build a decent clientele."
Phil concludes by
ruefully admitting that if convincing a traditional financial planner that it’s
possible to perform 160 appointments a month isn’t hard enough, his next
challenge is all but impossible.
"Financial
planners assume that, at these volumes, customer service suffers. But, I’ve
seen both environments, and the Hudson quality of service is far superior!
"The fact is, our
low cost structure enables us to provide a level of service that a traditional
financial planner simply couldn’t afford."
Phil’s dilemma provides
a tremendous introduction to the Hudson Institute — a truly incredible
business.
In turn, the Hudson Institute provides a great case study of the
successful application of our Relationship-centric Marketing methodology.
From publishing company to full-service financial planner
It’s generally accepted
that paradigm shifts emerge from the fringes of particular industries — and
not from the well-established incumbents.
The Hudson Institute may well be evidence of this phenomenon.
Hudson started life ten years ago, not as a traditional
financial planning firm, but as a publishing company.
Its First Class Ticket program was a budgeting and
do-it-yourself investment toolkit.
To add value to its original paper and ink products,
Hudson allowed members to access a telephone support service, as well as
regular capital city investment workshops.
Over time, Hudson realised that members were placing more value
in these services than they were in their printed publications. As a result,
Hudson increased the frequency and the quality of its events, and replaced its
unqualified budgeting coaches with a team of fully qualified financial advisors.
To fund the cost of these additional services, Hudson gradually
increased the price of its First Class Ticket program from an initial
$395 to $3,995. It acquired members by selling tickets to introductory seminars.
In its first eight years, over 100,000 people attended these
seminars. Eight thousand subsequently become First Class Ticket members.
Three years ago, Hudson’s
sales process began to suffer from rapidly diminishing returns. A number of
other financial services providers had begun promoting public seminars (many
inspired by Hudson’s very obvious success).
Hudson realised that it could no longer regard the sale of First
Class Ticket memberships as its core business. It had to find an alternative
source of primary revenue.
The transition to a full-service financial planning firm was the
obvious direction to take. Although Hudson had initially felt that independence
was its key point of difference, many members actually resented the fact that
they had to visit other providers to purchase financial services.
To make the transition, Hudson suspended its public seminar
program and set about compiling a suite of financial services. Today, these
services include managed funds, finance, direct property and personal insurance
(general insurance is outsourced).
Hudson’s marketing
manager, Noeline Packham, explains that sales of these new services came thick
and fast. "When we mentioned in our newsletter that we could now provide
financial services, our phones started ringing off the hook.
"We never had time
to consider selling via face-to-face appointments. Members were asking for our
financial services in their telephone consultations — and they were quite
happy to purchase by remote control.
"The interesting
thing is that, from our advisors’ perspectives, nothing much changed. Now,
instead of referring members to outside service providers, they simply transfer
them to our in-house specialists."
It’s taken Hudson just
over two years to make the transition from publishing company to one of
Australia’s most productive financial planning firms. In the process, they’ve
built a sales process that we hold up as best practice in Relationship-centric Marketing.
Relationships precede sales opportunities
If you ask any financial
planner where his sales opportunities come from, he’ll explain that
relationships are by far the most lucrative source.
In this respect, Hudson does not differ from any other financial
planning firm.
Where Hudson stands apart from its peers is in its scientific
approach to the acquisition and management of relationships.
It’s Noeline Packham’s
job to generate around 448 sales opportunities a month. These sales
opportunities will translate into 1,120 appointments (2.5 per sales opportunity)
— enough to keep Hudson’s team of seven financial advisors fully utilised.
Noeline sources every one
of these 448 sales opportunities from one location — Hudson’s database of
8,000 First Class Ticket members.
The greater majority of
these sales opportunities are inbound
— stimulated by Hudson’s automated communication program. The
balance are outbound opportunities — customer service appointments, set
by one of Hudson’s two member services staff — Aimee and Matt.
Hudson’s communication
program consists of a weekly e-mail newsletter The Hudson Report and a
program of specialist investment seminars (quarterly evening seminars in capital
cities, and twice-yearly, one-day workshops in regional areas).
The communication program also includes occasional special
promotions, consisting of offers relating to specific investment opportunities.
Cause and effect
Unlike many organisations, Hudson knows what the key drivers of
inbound sales opportunities are. The first is the content of its weekly
newsletter. The second is changes in the financial environment.
Tanya Nicholson is the
editor of The Hudson Report. It’s her responsibility to monitor the
relationship between the content of this newsletter and the volume (and type) of
inbound sales opportunities.
When pressed to disclose what content is most likely to make the
phone ring, she reveals that, "Specificity sells."
"It’s not so much
the subject of an article," she explains. "It’s more how it’s
articulated.
"If we present facts and figures and practical guidance,
the phone rings.
"Our members do love case studies," she admits.
"They love to hear what other members are doing. And currently insurance
and property stories are working well."
Right now, Hudson is
stimulating readership of The Hudson
Report (and accordingly, sales opportunities) with The Hudson Challenge
— a competition that asks members to answer questions relating to each issue
of their newsletter, for a chance to win a $5,000 managed fund portfolio.
Acquiring relationships
Hudson is not currently
running any relationship-acquisition campaigns. It’s having no trouble
generating the sales opportunities it needs from its existing member base.
However, it does realise that its continuing growth will require
the recommencement of these activities at some stage in the future.
Hudson has two classes of relationship: subscribers and members.
Subscribers are individuals who have subscribed to The
Hudson Report (and possibly attended events) but have not purchased a First
Class Ticket membership.
First Class Ticket members
have unrestricted access to events and, more importantly, to Hudson’s team
of advisors.
When Hudson does recommence its relationship-acquisition activities, its
first objective will be to convert existing subscribers into members. (Each
month, a number of subscribers already discover the benefits of membership from
the Hudson Website and become members of their own volition.)
Its next objective will
be to acquire subscribers to The Hudson Report. It’s likely to do this
via strategic alliances and the re-release of its popular book, How to start with no savings and get rich safely.
In the meantime, Noeline is about to launch an associate membership program.
This will enable existing members to add family and friends to their memberships
at a steeply discounted rate.
Converting sales opportunities into sales
It’s 8:00am and Scott
Adams is reading the Financial Review and sipping a cup of fresh coffee.
His six colleagues are doing the same. Their relaxed demeanour and
good-natured banter convey a sense of the calm before the storm.
At exactly 8:45 am, Scott
and his colleagues will plug in their headsets and telephone those members who
have been scheduled for the day’s first appointments.
At least by way of age, education and character, Scott is representative
of a typical Hudson advisor.
He’s 31 years of
age. He’s intelligent and well educated. (His qualifications include a
Bachelor of Commerce, a Bachelor of Arts, a Graduate Diploma in Applied
Finance and Investment, and a Graduate Diploma in Financial Planning.)
And, as is the case with all Hudson advisors, Scott is a member of the
Securities Institute of Australia.
Scott is passionate about wealth creation. Like his colleagues, he reads,
thinks and talks about little else. And he derives an obvious satisfaction
from counselling Hudson members on the formation and execution of their
wealth creation strategies.
Prior to these calls,
each advisor will have spent 15-minutes engaged in what Hudson calls pre-call
planning. Pre-call planning is a rigidly structured planning session that
precedes each appointment. Advisors review members’ investment strategies,
their histories, and their current financial situations, looking to identify
problem areas or opportunities for improvement.
This planning process is
streamlined by Hudson’s custom-designed computer system — which presents
this information in easy-to-interpret reports — and by Megan Armour.
Megan is a para-planner.
It’s her job to maximise the productivity of Hudson’s team of advisors. She
does this by confirming that members’ financial information is updated (if
necessary) prior to their appointments. Megan also takes responsibility for the
routine paperwork, literature fulfilment requests and follow-up generated by
advisors’ appointments — as well as for the project-management of the
transactions specified by advisors.
At 9:30, Scott saves his contact notes and completes his first appointment
for the day. His next appointment is scheduled for 9:45, allowing him the 15
minutes he needs for pre-call planning. With the exception of lunch and
occasional stretch breaks, Scott and his colleagues have appointments scheduled
back-to-back for the rest of the day.
Operate the process constraint at 100% capacity
"Our constraint is
our team of advisors," explains David. "My first priority is to
provide our people with the resources they need to keep our advisors 100%
utilised. If our advisors are not on the phones, we’re not making money."
David Heffernan is Hudson’s
financial controller. But he doesn’t talk like a normal financial controller!
That’s because David
manages Hudson’s accounts using throughput- (as opposed to conventional cost-accounting)
principles. (Throughput accounting is a derivative of Goldratt’s Theory of Constraints.)
"Fortunately, I studied throughput accounting at university,"
continues David. "When I got here I recognised that there was no way I
could apply traditional cost-accounting thinking.
"If I attempted to
manage this business for local efficiencies, I could save money by cutting the
excess capacity from the functions that support our team of advisors. But I soon
realised that this would be a Pyrrhic victory. Without this spare capacity, any
unexpected incident would result in unfilled appointment slots in our advisors’
diaries. And the opportunity cost of these unfilled slots is far greater than
the possible savings from these local efficiency improvements.
David devotes much of his time to looking for ways to increase the capacity
of the team of advisors (or to elevate the constraint, to use TOC
terminology).
"On average, each appointment is worth $255 to us in gross profit,"
David explains. "The key to making this business more profitable is simply
to conduct more appointments.
"We can do that by
recruiting more advisors — and we’re doing that now — but there are many
other opportunities to increase throughput."
David explains that the
appointment of Megan (Hudson’s para-planner) and of Aimee and Matt (their
member services staff) were two such initiatives.
He also details a recent discovery that has added another $355,000 a year to
the bottom-line.
"We always knew that the advisors had occasional no-shows. Just
four a week, on average. We never worried about these lost appointments, until
we calculated their opportunity cost. We realised that four no-shows per advisor
is actually 28 lost appointments a week, at a total cost of $355,000 a year!
"We now maintain a safety buffer of
members who have agreed to go on stand-by (just like the airlines do). These
members benefit, because they have the opportunity to speak to an advisor sooner
— and we benefit because we no longer have empty appointment slots."
Lessons
from Hudson’s sales process
We can all learn a number
of lessons from Hudson’s sales process.
Process means process!
The most obvious one is that Hudson has a formal sales process, as opposed to
a loose assortment of ad hoc and unsynchronised marketing activities.
As a result, Hudson can measure the cause and effect relationship
between the deployment of organisational resources (money and time), and the
resulting impact on bottom-line profitability.
This unusual level of
accountability is reflected in Hudson’s culture. Without exception, every
person I interviewed at Hudson understood the organisation’s key profit driver
(their team of advisors). And, everyone understood the direct contribution that
his or her activities made to this team’s throughput.
Create an environment that fosters consultative selling
In considering the
relevance of Hudson’s sales process to that of a typical organisation, it’s
helpful to substitute the word advisor for salesperson.
Even though Hudson’s
advisors would no doubt bristle at such a comparison, they provide a fine
example of the types of individuals that are well suited to a relationship-centric sales
process.
Hudson’s advisors’
key competencies are their product knowledge and their communication skills.
They are consultative in their approach — and comfortable to see each
point of contact as an investment in a developing (and profitable)
relationship.
While they are certainly ambitious, they are not the kind of
opportunistic, short-term thinkers that are attracted to a typical sales
environment.
Of course, Hudson’s relationship-centric sales
process provides the kind of environment where such an individual can flourish.
Advisors do not have to prospect relentlessly. (All of their appointments
are provided for them.)
They do not have to be opportunistic, self-starters. (The
constancy of their work volume, coupled with salary-based compensation
packages, provides the perception of job security that all employees
expect.)
It’s also worth
mentioning that Hudson goes to some effort to provide all staff with a
rewarding work environment. Any job-related education is fully funded by
Hudson, and some benefits that are not specifically job related are 50%
funded. The latter includes gym memberships and fortnightly massages!
Subordinate all management decisions to the constraint
You don’t have to spend
long at Hudson to realise that every individual views himself or herself as part
of the advisors’ support team. It conjures up images of a Formula One team,
where everyone is fixated on assisting the driver to win the big race.
Marketing personnel see it as their responsibility to maintain what they
call the opportunity buffer. The opportunity buffer is an inventory
of sales opportunities, established to ensure that advisors never have
an empty appointment slot.
Operational personnel
see it as their responsibility to maximise the efficiency of the advisors.
They do this by setting their appointments, ensuring all members’
financial information is current prior to appointments, preparing all
necessary paperwork and project-managing all transactions.
Contrast this with a
typical sales process, where salespeople are left to fend for themselves —
operating, as a result, at a fraction of their possible productivity. When you
consider that a salesperson is almost certainly a sales process’s most
expensive and highest-leverage resource, it’s a lunacy to allow salespeople to
operate at anything other than 100% of their possible productivity.
To use Theory of Constraints
terminology, your salespeople should most likely be your process constraint.
This means that everyone else in your sales process should focus on keeping your
salespeople fully (and productively) utilised. It also means that all management
decisions should be made with respect to their impact on your salespeople’s
throughput — and not with respect to local efficiency measures.
Recognise the true source of sales opportunities
In most organisations,
sales process output is constrained by a scarcity of sales opportunities, rather
than by salespeople’s capacity.
Most organisations’
attempts at generating sales opportunities are hampered by a failure to
recognise their optimal source.
Hudson understands that
it is counter productive to expect salespeople to generate sales opportunities
(their time is better invested selling). It also understands that it is
restrictive to rely solely upon clients as a source of sales opportunities (this
results in a self-limiting system — where future sales are dependent upon past
sales).
As discussed, Hudson appreciates that relationships under management are
its most lucrative source of sales opportunities. As a result, Hudson manages
relationships with the sole intent of generating sales opportunities (now and
in the future). It also understands that its future growth will ultimately be
driven by the acquisition of new relationships.
More than an effective sales process: a sustainable competitive advantage
Hudson’s sales process
provides more than just an efficient source of revenue. It’s at the heart of a
business model that provides Hudson with a competitive advantage over
traditional financial planning firms.
The incredulous response
of typical financial planners to this business model provides a clue as to the
sustainability of Hudson’s competitive advantage.
Another clue is the
reaction of Hudson’s members.
Even though the
Hudson model doesn’t enable members to have face-to-face contact with
advisors, it does provide far more frequent access than is provided by
traditional firms. Hudson advisors talk to members a minimum of two times a
year — although, more active members consult with their advisors, on
average, six times annually. This accessibility is the service attribute
most praised by members in Hudson’s annual member satisfaction survey.
I’m sure you’ll agree
that it’s likely that your sales process could benefit from the emulation of
some of these relationship-centric principles.
But this case study
raises the possibility that this approach could provide you with more than just
a more efficient sales process. The relationship-centric
methodology, when implemented in its entirety, might well contribute to your
organisation’s sustainable competitive advantage — just as it has Hudson’s.
[Feedback on this article?
Please drop me a line.]
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