"Client segmentation just sounds like meaningless jargon to me. What does it really mean for financial advisers and how can it benefit our businesses?"
brett davidson, Fp advance
In my old IFA business in Sydney, we resisted client segmentation because we just couldn't see the benefits. It was only after we had segmented our client base, however, that we understood it was the single most important thing we ever did.
Have you ever had a broker consultant from a provider come to see you at your office and realised about five minutes into the meeting that they are going to talk about something that has no relevance to your business whatsoever? This could be avoided by the provider identifying who is actually working in the market that their product suits and going to see them instead. This would increase the likelihood of success, reduce costs, and improve customer satisfaction.
So why do advisers complain about this type of unprofessional behaviour and then do the same thing to their clients? If a new client arranges a meeting to see you and they are not the usual type of client you deal with, you will often speak to them anyway. There are numerous benefits from client segmentation, including the following:
lFocus By identifying who the business will work with and, most importantly, who it will not work with, you now have a clear focus. This increases service standards and reduces costs, generating hard cash benefits for your business.
lRevelation and expertise By looking for the groups and segments within your client base you can find the things clients have in common, rather than their differences. In my Australian business we discovered that about 80% of our clients ran, or had run, a small business. The retirees were not retirees at all; they were ex-small business owners. We then realised we had some expertise in the issues affecting them. By focusing on the right clients, building expertise in their issues, and reducing the numbers of clients that did not fit into our segmentation we were able to build a much deeper understanding of our clients' issues and add significantly more value to them.
lSavings We could stop any other marketing or sales efforts that were not aimed at our target clients. This generated considerable savings in time, money and mental effort that we had previously been wasting on unsuitable marketing strategies.
lImproved results By focusing our marketing efforts on attracting more of the clients we wanted - who were 'A' and 'B' class clients - we improved our success rates and financial results significantly.
www.fpadvance.comMike Godfrey, fs3 ltd
Speaking from firsthand experience, segmenting your client bank is one of the most significant steps that you can take in developing your business - but you have to be very clear what segmenting is really all about and what aspects you need to develop and focus on if you are to benefit from it.
My approach evolved over a number of years as my thinking developed and I benefited greatly from input from FP Advance, Brett Davidson's transitioning businesses, which has its roots in the Australian market. With what I now know, I would get to the end result very much more quickly.
Given my time again, I would start by first defining my ideal client - identify those clients within your existing client bank who fit that profile - and then consider what you provide them. In other words, what is your client service proposition - the added-value service you provide?
Look at ways of improving this, taking account of your remuneration basis, and ensure any new elements you add are commercially viable and sensible. It may be that you then realise that you need to revisit your remuneration basis or tailor your service accordingly.
Having achieved the above and satisfied yourself that you add value to the client at a price that is worth them paying - and that provides an acceptable profit margin for you - work at developing a service standard summarising what it is you are going to do for them and then give it to them. Tell them what it is you are going to do for them, and then make sure that you deliver.
The next step is to look at the next group of clients - even though they may not yet be your 'ideal' client - and develop their service proposition as above, again using the principle of adding sufficient value to the client at an acceptable price that is profitable. For those clients for whom you don't think you can add value at an acceptable price, tell them and let them go.
The benefit of the above strategy for your clients is that they will have a much clearer understanding of what it is that you do for them, why they pay you and, I suspect, a far more consistent delivery of the service. From the perspective of your business, this exercise will give you a much more focused business with, in my experience, more contented clients and an increasingly efficient and profitable business.
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