In my thirties, I learned some important time management techniques. I learned to block my days, plan my weeks and focus my time and, on that basis, I crafted my ideal week. It was a thing of beauty. Fast forward a decade (or two) and the techniques I use are the same, but my week looks very different. A growing business, a growing child and a re-think of my priorities means that how I spend my time is very different today than it was back then. The way in which I think about structuring my time is the same, but what I spend time doing has changed. If my week had remained static over the years, my career would have faced a similar fate. There's a lesson here when it comes to business fundamentals – all of those things we think we figured out years ago. Even the most basic processes need to be revisited to ensure they are current. Client segmentation is a good example. If you're like most successful advisors, you've already segmented your clients based on the value they bring to the business. And, if like most of those same advisors, this took place more than a few years ago, there is a good chance that both you and your business have changed to the point of making your model meaningless or, at least, outdated.

Is Your Segmentation Model Still Relevant?

The last time I asked a group of advisors if they had segmented their clients, 61% said they had segmented based on the value of the client. Not bad. The reality is, however, that that is probably the wrong question. The bigger or better question is whether the segmentation model is still effective or relevant. In a recent study from the Financial Planning Association, a majority of advisors (58%) said their segmentation process was something less than effective.

Segmentation: The Fundamentals

This post is directed at those advisors who may need to take a hard look at their existing segmentation models. However, it seems appropriate to start with a quick refresh on the core process.

1. Define client value. Identify the drivers of profitability, or value, in your client relationships.
2. Quantify client value. Create a rating system to gauge each client, on each driver of value.
3. Test rating system. Rate a subset of clients, in order to test the suitability of your rating model.
4. Rate clients. Rate each client on each driver and sum those ratings to generate a composite ‘value rating’.
5. Define segments. Create scoring ranges that link composite scores to individual segments (e.g. platinum clients).
6. Track segmentation data. Enter segment data in your contact management system.
7. Define processes. Create processes to update client segment ratings and to rate new clients.

These steps worked when you first segmented and they will work now. It’s the details that may have changed.

Segmentation: Then and Now

A good segmentation process should stand the test of time, at least to some degree. If you need to adjust the model every year, then the model is broken. However, there may be a point in your business when things have changed enough to warrant an update to the model. In speaking with seasoned advisors I’ve identified two elements of the segmentation process worthy of review and they take the form of two critical questions for you and your business.

1. Does my model account for deal breakers?

The longer we are in business, the bigger the gap between a deal breaker and a segmentation driver. Deal breakers are those things that determine if you will work with a client or not. Segmentation drivers are those things that determine the relative value of a client above some minimum standard. Segmentation drivers can (and probably should) include:

• Direct financial metrics (e.g. assets or revenue),
• Indirect financial metrics (e.g. referral activity, time to service)
• Fit metrics (e.g. personality, investment philosophy or values)

In my experience the thing that changes the most over time are the ‘fit’ factors; they shift from being segmentation drivers to deal breakers. We are no longer willing to work with people we don’t enjoy, like or trust. We want to focus on a specific type of client (e.g. a niche market). We want to emphasize specific services (e.g. comprehensive financial planning). And while there may always have been a preference for working with certain types of clients, the luxury of experience and success means we can remove them from our segmentation model. Personality is a good example. While some advisors rate clients on how easy they are to deal with (as part of the segmentation model) others view this as a deal breaker and it never makes its way into the model.

‍Take Action: Today, think about the kinds of clients for whom you do your best work, the kind of work you want to do and be known for, your core values and your tolerance levels. View your current segmentation model through the lens of these filters and determine if you are rating clients on the right drivers - the ones that reflect the kind of business you want.

2. Is my model still relevant?

Segmentation demands that we quantify the drivers of value. If we think about assets, for example, a rating of ‘1’ might be less than $50,000 and a ‘5’ might be $1m or higher. (The specifics obviously depend on your client profile but you get the picture.) There is a good chance that your client profile has changed over time so you may need to review your rating system.

‍Take Action: Today, does your rating system reflect the kinds of clients you work with now and the kind of clients you are trying to attract?

Segmentation Is More Important Than You May Think

While most see client segmentation as a relatively basic concept, it is deceptively so. At its core, your client segmentation model reflects your ideal client and the kind of work that you want to do. Those are weighty questions and you may not fully address them, in a meaningful way, until you have reached a certain level of success. So as you continue to grow, remember to revisit the fundamentals. I’d love to understand where you are with segmentation? Have you avoided it all together? Does your model need a refresh? Or, do you have segmentation nailed? Please use the comments section below to share your thoughts.

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Thanks for stopping by,

Julie