New Ideas For Client Segmentation

August 11, 2015

by Beverly Flaxington

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Beverly Flaxington is a practice management consultant. She answers questions from advisors facing human resource issues. To submit yours, email us here.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Dear Bev,

We are embarking on a client segmentation strategy. We suffer from the typical 80/20 rule: 20% of our clients give us 80% of the revenue, and the low profitability clients suck us dry. They are very needy and we can’t charge enough to make serving them this way profitable. We have heard of the gold, silver and bronze levels or the platinum, gold and silver levels, but we’re struggling to decide what factor should determine our categories. Do we base it purely on asset size? Or do we do a profitability analysis? One of my advisors wants to categorize by “irritation factor;” those clients who call too much and ask for the world without paying for it would drop to the bottom of the list first. Any thoughts you have on how best to segment would be greatly appreciated.

Bob K

Dear Bob,

Have you thought about the other pieces of the equation? It’s not enough to consider what categories you will choose or even who falls into each category, you have to think about what you are offering each segment and how you will communicate changes to them. To define the clients by any criteria without having a link to what it means for them (and for you) could prove troublesome.

There are a few things to consider with a new segmentation strategy. Not knowing the details of your situation, I will outline a few here and you can decide what’s most important to your firm:

  1. Define the levels of service for the different categories. It sounds like a sensible idea to put those clients into a box who are currently draining your time. But what does it really mean? Whether it is “bronze” or a high level of “silver,” what are you going to do differently for these clients and how are you going to control the time-drain? Outline the service parameters, and be sure there are actually differences in each one.
  2. Consider adding some proactive components to the way you are currently doing business. The segmentation plan you outline is an effort to manage the clients differently, but what if you just changed the rules for dealing with them entirely? What if you segmented those clients who are the most needy and engaged in more outgoing proactive communication? One of our advisors who offered very high touch service found he could not keep up with the questions coming in from smaller clients so he started to record updates about the market and portfolio changes. He pushed these out via email to the segment of clients who needed them. The calls diminished considerably. We call this solving the right problem. Be sure of your objective and desired outcome at the outset.
  3. Consider organizing your clients by something other than assets or profitability. Are there themes you can identify with the needy versus non-needy? Can you put on a webinar or inexpensive event to address similar concerns the clients might have? Is there a way – similar to point #2 – to communicate to the needy group in a more organized group fashion?
  4. Can you segment the clients and assign them to different advisors? You don’t say how large your firm is or how many people you have, but one way to incorporate succession planning is to have your newer or lower-paid staff servicing the lower profitability clients. This allows the staff to get experience but aligns the cost component with the client needs.
  5. Create a menu of offerings for clients to self-select. Again, if you had more proactive means of communicating, you could invite clients to receive email updates, listen to webinars or access audio recordings. If you have a prepared list of options and clients can select the most appropriate for themselves, they may not select everything but it will appear as if you offer a great deal of choice. Separately, if you want to give a more elite level of service to your top-tier clients, you can do so without having these options appear on the list.

Managing clients in a segmented fashion takes a dedicated thought process. It isn’t as easy as picking who is most profitable and who is not. I encourage you to consider other ways to think about segmentation and then determine which route is best for your advisory firm.

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New Ideas For Client Segmentation