The Benefits and 'How-Tos' of Segmentation

By Krista S. Sheets
President, Paragon Resources

Maintaining an organized and segmented client base is critical to your long-term success. The practice of segmentation has a multitude of benefits and should be an ongoing best practice both throughout the year and during the business planning season. Benefits of the process include:

• A more efficient and effective way to manage your relationships
• A clearly defined client relationship definition which is vital for client acquisition and referral strategies
• Delineation of service levels to ensure the best clients are receiving the five-star service they deserve
• Wiser time use by spending the majority of your time with your most VALUABLE relationships
• Establishing client expectations and providing a benchmark to ensure that your team exceeds them
• Increased team awareness of each client’s PERSONAL characteristics
• Increased profitability by maximizing organic growth opportunities

Elements for Consideration

Many advisors segment based purely on revenues or assets under management. Although these are important criteria, advisors should use additional standards to segment their businesses. We believe there are three elements to consider:

• Quantitative: Consider assets under management, commissions, fees and total revenue for the current month, last two years and for the lifetime of the relationship. Other quantitative factors might include: the number of accounts within the household; ideal and minimum account requirements; average revenue per client; longevity of the relationship; profitability; etc.
• Influence: Consider the current impact of new business from each relationship: Do they actively provide referrals? How many and are they qualified? Does this client own a business or participate in any groups that could lead to qualified referrals? Does the client understand and articulate your total value proposition?
• Qualitative: Consider factors such as: likeability, the ease with which they accept your advice, how much they value YOUR relationship, their demographic, geographic location, knowledge of their non-financials, commonalities in how you met the clients, industries in which they work, and any other specific niche you serve.

The Segmentation Process

1. Preparation

• Based on YOUR business, create a scorecard template using the quantitative, influence and qualitative factors that are important to you. Think of the scorecard as a bio for each client that can be used and updated as the relationship progresses.
• Have a team member write the name of each client relationship on an index card or provide a spreadsheet listing each household name in column A.
• Call an initial team meeting, and using your GUT instinct, categorize each client as “Best,” “Middle” or “Rest” by indicating on the spreadsheet or by placing each card into an appropriate container.

2. Take Inventory

• Beginning with the “Best” category, ask one team member to complete as much of the scorecard as possible for EACH name.
• Call a team meeting to discuss these clients and to further complete their scorecards.
• During your discussion, make notes on:
  
  • Opportunities: Use this analysis time to identify organic growth opportunities with your existing relationships so that you transform a practice management activity into a business development opportunity. For example, you have a client who has a joint account and individual accounts for wife and husband, but no IRAs—their names should go on the opportunity list.
  • Migration Potential: You may uncover some clients who no longer fit your business model and who should be migrated elsewhere.
  • Personal Information: Be sure to share any and all PERSONAL facts with your team so they can be documented and used for future customized communication or appreciation initiatives (e.g., wine lover, fraternity brother, etc.)
• Once you have completed your scorecards and discussions on your “Best” clients, create scorecards for your “Middle” and “Rest” clients.

3. Define Segmentation Criteria

• As you review each scorecard, themes will begin to emerge and the definition of your IDEAL CLIENT RELATIONSHIP will become more obvious.
• From here you can define and commit to paper the criteria for each of your segments. (We do not recommend more than three.)

4. Name your segments

• Get creative and establish client-friendly names for each segment. (Avoid A, B and C.)

5. Categorize each Relationship / Household

• A team member should update your contact management system so that all clients and their segments are now documented and can be used in your servicing plans.

6. Implementation

• Create service deliverables for each of your new segments.
• Execute on your opportunity and migration lists.
• Use your newly organized segments in both your service and marketing initiatives.
• Upgrade clients throughout the year when appropriate.

7. Assess

• Repeat the process annually as part of your business planning strategy.

It may seem like a daunting task to review your entire current client base, but taking the time to do it now will reap great rewards and minimize wasted resources and frustration. Once you have thoroughly segmented your client base once, the process becomes much faster during your annual analysis. The result is a well-segmented practice will help implement service initiatives, sales and marketing campaigns, and lead to an extremely efficient business.

This article is a high-level OVERVIEW of our suggested segmentation process. If you are looking for additional resources, please visit BoundlessPublishing.com. Our Know Service Book includes complete instructional guidelines and tools including a sample scorecard, quantitative, influence, and qualitative questioning guide, sample segmentation criteria, etc.

Click here to request more information from Paragon Resources.