Client Segmentation

David Villa-Clarke - Business Management Consultant

Are you spending too much time working with your top tier clients and missing opportunities from the remainder of your client bank?  Do you have clients that you cannot service or clients who do not pro-actively contact you?

If you have not carried out a segmentation exercise on your client bank, you will have some hidden gems that may stay untouched for years or sadly disappear somewhere else.

As a Business Management Consultant I speak with many IFAs. I often hear about how they did not realise the true value of mining their client banks. They do not tend to conduct a segmentation exercise until they find a client that fits their top client bracket. This then prompts them to begin segmenting their clients.

So why segment?

Firstly, profitability is key when running a business, and as a professional service firm it is important to ensure that you are not giving away your professional expertise too cheaply.  If advisers are to be seen in the same light as solicitors and accountants then a professional charging structure is required, this is where segmentation helps.

I have found that many business owners categorise their clients based on the amount of investment they manage for the client, and these typically fall into three categories of Gold, Silver and Bronze (or Red, Amber and Green). This will then in part define their service proposition to their clients.  Conversely, some business owners make a strategic decision early on to have a finite client base and deal with clients who must meet a minimum threshold. For that they all receive a similar service irrespective of assets invested.

Firstly, profitability is key when running a business, and as a professional service firm it is important to ensure that you are not giving away your professional expertise too cheaply.  If advisers are to be seen in the same light as solicitors and accountants then a professional charging structure is required, this is where segmentation helps.

I have found that many business owners categorise their clients based on the amount of investment they manage for the client, and these typically fall into three categories of Gold, Silver, Bronze (or Red/Amber/Green).  This will then in part define their service proposition to their clients.  Conversely, some business owners make a strategic decision early on to have a finite client base and deal with clients who must meet a minimum threshold. For that they all receive a similar service irrespective of assets invested.

So, what is the best way to segment?
Which way serves the client well and is profitable for the business?

Consider the example of two clients that have made similar investments, both receive the same initial service and investment advice.  However, client one tends to take up more of your time post sale than client two, who you must only visit once a year for their annual review.

It may be that client one has genuine concerns over his investment advice, but he is still taking up more of your time, time that you have not charged or accounted for, therefore eating into your time and profits. It may be that this client does require more hand holding than client two and therefore these costs should be factored into your proposition.

The reason why I highlight this case is that too often advisers go above and beyond for clients and do not have a proposition that caters for the additional charge. This has the net effect of the adviser taking time away from other clients.

What we have seen are clients categorised the same but with differing levels of profitability for the firm. So how do you make that differentiator count? If you are truly looking at the value of your business you will need to consider the time spent with your clients.

The best and most true measure is to work, as some financial planning firms do, on a time costed basis. Make your charging system similar to those of accountants and solicitors. This will help your clients fully understand that expertise and time costs money and you will find that they tend to respect your time more.

Consider the example of two clients that have made similar investments, both receive the same initial service and investment advice.  However, client one tends to take up more of your time post sale than client two, who you must only visit once a year for their annual review.

It may be that client one has genuine concerns over his investment advice, but he is still taking up more of your time, time that you have not charged or accounted for, therefore eating into your time and profits. It may be that this client does require more hand holding than client two and therefore these costs should be factored into your proposition.

The reason why I highlight this case is that too often advisers go above and beyond for clients and do not have a proposition that caters for the additional charge. This has the net effect of the adviser taking time away from other clients.

What we have seen are clients categorised the same but with differing levels of profitability for the firm. So how do you make that differentiator count? If you are truly looking at the value of your business you will need to consider the time spent with your clients.

The best and most true measure is to work, as some financial planning firms do, on a time costed basis. Make your charging system similar to those of accountants and solicitors. This will help your clients fully understand that expertise and time costs money and you will find that they tend to respect your time more.

There are two main benefits

Firstly you begin to understand where your profits are coming from. You can define what client type you want and specify your advice proposition (and the fees you will charge). This includes the time that you allocate to each client.

Secondly, not all clients are the same. When talking with different client groups you are likely to get useful feedback as to what information they are looking for. I am sure you are aware that tailored marketing yields greater results than blanket marketing. By employing different strategies across a segmented client bank, you can test the different groups and solicit constructive feedback as to what is appropriate for each of your client groups.

Finally, if you have a large client bank and those hidden gems are not contacting you, you will need to reassess your target marketing. This is where segmentation helps.

David Villa-Clarke is Tavistock Wealth’s Business Management Consultant. He works with IFA’s to help increase the value of their businesses by utilising Tavistock’s range of investment portfolios.

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