Five ways to segment your clients

Segmentation improves service to a diverse client base

A good client segmentation strategy can help you serve a diverse client base, build a profitable and scalable business and improve client satisfaction.

Most advisors do not segment well enough, and when they do, they segment only quantitatively.

Some equate segmentation with discrimination, which is not a correct approach. Many advisors would like to engage in segmentation but get caught up in the day-to-day realities of serving their clients. As a result, they do back-of-the-envelope, rudimentary segmentation.

Remember that some might not meet your segmentation criteria when segmenting clients, so you must keep it simple.

With that in mind, here are some segmentation strategies you can use:

 Sort clients by size

Make a list of all your clients by account size. This will allow you to determine your typical A, B and C clients. You should note that size is not always a reliable indicator of your “best” clients. Some may have large accounts that generate low fees.

Sort clients by revenue

Rank your clients by the revenue they generate, one of the basic criteria for segmentation. This enables you to identify the clients most important to your practice’s viability.

Sort clients by profitability

Profitability is perhaps the No. 1 criterion in segmentation, but only 2% of advisors understand how to determine it. However, profitability is a function of revenue generated from each client minus the fixed and variable costs associated with maintaining that client. Determining client-specific expenses can be difficult, so this measurement is not widely used.

Apply both quantitative and qualitative criteria.

Balance the use of quantitative and qualitative criteria. For instance, in addition to quantitative variables such as asset size and revenue, you would also consider other issues such as client personality, number of referrals made, client availability and your influence on the client.

These “soft” variables introduce an element of subjectivity but can be helpful when determining the level of attention you give to specific clients.

Build a matrix of services

You can build a simple three-column matrix that identifies the services you offer, their frequency or level, and who is responsible for their delivery. This will allow you to structure your segmentation strategy.

This way, you will be able to calibrate your services to those who need them the most or help you focus on your top-end clients. You can also allocate your resources to provide the appropriate services efficiently.