Defining Your Ideal Client

Defining Your Ideal Client

Last week, we spoke about Dave – a financial advisor who had a prospective client who sounded great from a quantitative standpoint but not so good from a qualitative standpoint.

I reminded him that just because you can serve a non-ideal client doesn’t mean you should.

Let’s dig a little deeper into the definition of an ideal client.

Quantitative Factors

When discussing ideal clients, most financial advisors and financial planners start with the quantitative.  And with good reason!  At the end of the day, serving your clients should be a profitable endeavor.  After all, you’re not running a non-profit, are you?

It’s common to use assets under management but you should also look at the corresponding revenue.  For example, $5 million in illiquid or highly appreciated securities is not likely to generate much revenue. On the other hand, your practice may charge a flat or hourly planning fee that makes AUM irrelevant.

By the way, it’s always better to focus on what you expect from an ideal client than what you will take as a minimum to become a client.

Qualitative Factors

From a qualitative standpoint, an ideal client is someone who:

  • Needs what you do,
  • Wants what you do,
  • Values what you do, and
  • Is a joy to work with.

There’s a clear progression from “needs” to “wants” that is predicated on the person’s awareness of what’s missing or what could be better.  For example, most people would benefit from the objective opinion of a financial advisor but don’t realize how much until they receive it.

The move from “want” to “value” requires an appreciation of what you do.  One easy measurement of that is their willingness to pay you.  But it also comes out in your conversations.  Do they quibble over your fees?  Or do they express their genuine appreciation for your help?

One quick side note: be careful not to assume you always know what they value.  The July 2020 issue of the Journal of Financial Planning discussed a survey that showed a notable disconnect between what advisors thought investors valued and what the investors said they valued.  Two notable examples were beliefs on maximizing returns and controlling emotions.

Japanese organizing consultant Marie Kondo is known for asking if something “sparks joy.”  You can apply the same principle when considering a client.  An ideal client is someone who is a joy to work with.  Do you look forward to a client meeting or phone call?  Or do you cringe when you see who is calling?

Your ideal client definition should include both quantitative and qualitative factors.  While there may be plenty of wonderful people who need, want and value what you do, not all of them will be profitable.  Similarly, lots of clients may meet your quantitative criteria but are not much fun to work with.

If you want to build the practice you’ve always wanted, make sure to define your ideal client.

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