Playing Favorites? Keep It Simple

A recent article in the Wall Street Journal discussed the topic of client segmentation (Playing Favorites 9/20/2010). Needless to say, online comments from investors were not terribly positive!

My observations on the topic? Here are three:

1. Keep your client segmentation simple. Some advisors use complicated formulas to determine segmentation and service levels. This creates confusion when you or your staff have to stop and check a list to determine whether a specific client is an A or a B or a C (or a D, E or F) and thereby “qualifies” for something…or not. A simple system of A = ideal clients; B = pre-ideal clients and C = exceptions works very well for most practices.

2. To develop your definition for each type of client, let’s start with three factors you can use to define your ideal client.

An ideal client is someone who is a good match for your business in three areas:

  • Business – sufficient revenue on an annual basis to enable you to profitably provide your highest level of service)
  • Needs – objectives, goals and concerns that are a good match for your experience, expertise and specialization
  • Compatibility – investment philosophy, style of communication, personality, respect and willingness to follow your advice

Now that you have your ideal client, pre-ideal and exceptions are easy to define:

  • A pre-ideal client is someone who currently may fall short from a business or needs perspective, but with whom you want to work because you have reasonable certainty that they will become an ideal client at some point in time.
  • An exception is someone who is not ideal nor even pre-ideal but with whom you want to work because they are someone’s relative, they actively send ideal or pre-ideal referrals, or this is a pro bono situation for some other reason.

3. Finally, when thinking about establishing segmented levels of service, always start with what you provide to all of your clients. Make the list as big as you can reasonably make it. This helps to establish in your own mind the value that you and your practice bring to all of your clients. Then add the “extras” that you want to provide for your ideal and pre-ideal clients.

If you start with what you do for your “best” clients and then reduce the list for others, you are communicating to yourself (and likely to others) that you take a lesser view of some clients. Better to create a high level of service for all clients with some extra perks for those at the top.

Remember – develop your client segmentation definitions from the top down, but your service standards from the bottom up!

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