Do insights gained from your business operations today help drive future growth for your firm?
It’s a difficult question to answer. Most advisors segment clients and prospects by AUM or basic demographics, but this data alone is not an adequate indicator of client needs.
Segmentation could be the key to helping your firm maximize profitability and grow in an efficient, strategic manner. Your firm undoubtedly has a variety of services and a margin of profit associated with each one. Every client and prospect does not have the same set of needs and by segmenting your audience you can more efficiently align your firm’s services with client needs. A natural byproduct of this process is stronger client relationships and a more efficient way to engage with prospects.
For segmentation to be successful, you must decide what you want to get out of it. Before selecting criteria or looking at data, articulate your goals. This involves three actions:
The cornerstone of successful segmentation is data. Data quality begins and ends with expert management in a Client Relationship Management (CRM) and any additional data warehouse you may use. Your CRM must be utilized properly with up-to-date, accurate information for a successful segmentation strategy.
Consider each client profile as it currently exists and conduct a gap analysis. Assess what data points are already collected and how they have been acquired. Educate your team on the expectations for data collection and procedures.
Your CRM is the catalyst for data collection; data itself can come from any method of client interaction. Remember, good data in means good data out.
AUM alone is not sufficient to have meaningful impact on your practice because it leaves out crucial information from a qualitative perspective. Adding layers to your segmentation strategy yields a much more sophisticated level of data that can be used to benefit your firm.
Decide which criteria to utilize based upon your firm’s strengths and opportunities for growth, as well as your identified niche market.
The benefit of selecting specific criteria is to uncover how each client’s individual characteristics, preferences, and factors impact your firm’s bottom line and the products and services delivered.
Extending your segmentation analysis beyond your current book will allow you to discover the elements that drove success during the prospecting phase. How does your ideal client profile relate to your prospecting methods and efforts?
Answer these questions about your most successful client relationships:
Use these insights to score clients, assign them into segments, and determine what success factors you can apply to continuously win clients aligned with your firm’s growth goals.
Steps three and four are the most time-consuming part of the segmentation process. Identifying the proper criteria can take a bit of time and tweaking to discover the right mix. Once you have identified your criteria that you’ll use to assign a score to each client, you can create a matrix offering insight into what engagement approach, solution mix and service model is appropriate for each client and prospect.
This method is valuable for current business efficiency with clients and for prospecting. Apply these same insights to your prospecting funnel to streamline your efforts. Prospects whose data indicates they are a good fit for your firm should inform how you allocate your time.
Through this process you can identify a prospect profile that is highly profitable for your firm. You can make valuable decisions about where to spend your time and your marketing dollars to discover even more prospects who fit this profile, or you can find a way to increase the value of your other prospect segments.
Every step of segmentation, from gathering data to developing insights, leads to this critical step: making better decisions for your practice. You might discover you need to provide additional training, shift clients or prospects to new advisors allowing for capacity and best fit, hire new staff, raise fees, or adjust your marketing messaging. For example, one study found that an average of over 50% of households served by a firm were not profitable for those businesses.
To help facilitate a successful segmentation strategy, remember to clearly communicate the value of the strategy with transparency. Be patient with your team, clients, and prospects, recognizing that change can be uncomfortable.
Utilizing segmentation can prove invaluable if you’re looking to scale your advisory firm. Work smarter by making better decisions about where to invest your time and how to invest in the future of your business that are driven and backed by data for the highest chances of success.