Client segmentation refers to arranging your client base into smaller groups according to the level and method of service you provide them.
Each segment is categorized by different characteristics—characteristics that dictate staff expertise, delivery method, frequency of communications, and much more. The characteristics are defined by answering questions such as: How often will you meet with this client in a quarter or a year? Does this client require assistance and time from other office staff? Is the delivery accomplished through an online portal, email, or paper? Does the complexity of their financial situation require more time of your lead advisors?
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Client segmentation clarity ultimately comes down to this: how much capacity
does each client occupy. This capacity can be gauged by grouping your clients by the following attributes:
- Level of expertise provided to them
- Level of expertise you need to have on staff (newbie, associate, CFP, CFA, CLU, ChFC, etc.) to service them
- Response time to requests
- Frequency and venue of client review meetings
- Frequency and venue of client review calls
- Minimum revenue you can afford to earn
- Frequency of investment reporting
- Frequency of financial plan updates
- Perks – birthday card, birthday call, holiday card, holiday gift
- Invitation to client-only event
- Frequency of email dripped newsletter
- Content provided online (investments, planning, tax, insurance, etc. information)
Ideally, the clients that are and will take up more capacity and expertise are the clients paying more. Makes sense, right? And if you find a particular segment is not paying a fair fee, you’ll need to consider reducing the service level or offboarding
particular clients or an entire segment of the client base.
However, as any semi-seasoned business person has come to find out, it’s not always cut and dry. Some clients demand more time and attention than others. With the AUM fee model, it’s easy for lower asset clients to demand more capacity than the fee provides. The result? The client drains one or more of: your sanity, your time, your staff’s capacity, and/or your wallet.
some clients will demand more of your time and attention than others and that’s ok. But, it only makes sense if that time and attention are (a) commensurate with what they are compensating you and
(b) don’t crush you, your business, your wallet, your team, or your company culture. The goal is to identify and grow the client segments that provides the highest revenue and professional satisfaction while draining the least amount of resources.
More Segments, More Problems
Because each segment is unique in what they need, each client segment will require different:
- Sales Process
- Education Content and Delivery Method
- On boarding Process
- Ongoing Client Servicing Process
- Fee Structure
- Marketing for Referrals
This is not a list to take lightly. The above list details months of design work, trust in this transformation, and one year to fully implement and experience the benefits of client segment clarity.
The required dedication to client segment clarity is why many businesses hire more staff or junior advisors to “take over” some of the lower tiered segments. Businesses find it easier to staff than to change their method of operating and be brave through the uncomfortable off boarding discussions with clients. However, this is a slippery slope toward an obsolete business. Continually hiring new employees to service not-fit or over serviced client segments can reduce compensation, cause soaring payroll expenses, and unknowingly replace current staff and business development with new staff training duties. In effect, hiring more staff could ultimately undermine any profit made from the segment at all.
And this is only if considering individual clients. What of segments in your client base that are institutions? You have not only another segment, but an entire division or department of your business to address. This, lends to larger, more complex needs:
- A whole different marketing plan, tools, messaging, website
- Specific staff with totally different expertise, career paths, and development needs
- Different fee structure
- Different tech stack
- Different education content and delivery method
- Different, uniquely tailored sales process
- Unique onboarding process
- New ongoing client servicing process
And how will you handle the business spin-off from those institutions? For example, let’s say your firm handles a company’s 401 (k) plans and one of those employees would like individualized help but aren’t qualified to meet your fees? That will require its own set of processes in itself.
While client segmentation is natural to one degree or another, oversegmentation
leads to stagnation in business growth. Too many segments will place excessive drag on any business of any size. The logic is similar to the saying, “You can’t please everyone.” Well, you can’t service
everyone…without paying the price. When you divide your attention and resources into too many baskets:
- None of the clients receive enough attention—neither the ideal clients nor the not-fit clients
- Staff is constantly being trained and re-trained, unable to “become the expert” or master any one skill or task
- New staff are costly to train because there are so many segments and processes to learn and implement
- Everyone is spread too thin
- Workplace stress is elevated
- Conditions are more vulnerable to error
- Employee and client turnover rates escalate
- Increased probability of workplace burnout
Essentially, the fewer the number of segments you service, the better everyone can service them—including yourself, your staff, and new hires. You and your business can become the experts at providing the services you enjoy providing. Your company culture will improve due to decreased stress, helping to retain key employees and attract qualified candidates. You will also find that you have created more time in your schedule, allowing you to focus on multiple
areas of improvement in the business.
Preserving Resources, Creating Time Efficiency, and Creating Room to Grow
If you find that you have more than a few segments, you’ll need to ask yourself some tough questions. Which of these segments, if offboarded, would open up enough capacity to preserve staff income, sanity, energy, key employees, and passion for personal and business growth? Which of these clients could be better suited with another advisor or alternative investment management provider? How can we give more attention to our key clients? Our ideal clients?
We go through the process of client segmentation to preserve our resources and grant ourselves space and capacity to move in a positive direction both fiscally and mentally. Through segmentation, we can make the most use of our own limited amounts of time, offer an exceptional client experience to our remaining clients, and open up doors for more like them, ultimately leading to a more cohesive brand and quality referrals.
When it comes to this portion of the business transformation process, we employ Essentialism and say “no” to opportunities that would ultimately injure our business in favor of waiting for those that would contribute to its development. We forego not-fit clients so that we may be open to receive our ideal client. We limit our business, so that we can see it expand. Segmentation is the process by which we can catalyze these positive changes and evolve.