Scaling for Enterprise Growth with Client Segmentation -Dlight News

November 16, 2024

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Are you ready to grow your firm but want to ensure that you maintain the level of service clients expect and value from you? It may be time to take a more strategic approach to your client base. But where do you start?

Effective client segmentation can enhance your scaling efforts and support your enterprise growth ambitions. To start, we recommend four steps to help you evaluate your client base, effectively categorize them, build a dedicated client service model, and implement your strategy.

Step 1: Analyze Your Book of Business

When it comes to analyzing your client base, you can’t measure what you can’t see. Client segmentation gives you clear direction and insight into who your current clients are and what services you can provide them to help your business scale.

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Think in terms of both quantitative criteria (e.g., assets under management and revenue generated) and qualitative factors (e.g., level of trust, coachability, and referral history). Consider what you do for them; does everyone currently receive the same services, such as a financial plan, an annual review meeting, regular outreach, and invitations to client events? If the answer is yes, get ready to shake things up!

Step 2: Implement an ABSLN Segmentation Framework

Once you have a better understanding of your current clients, it’s time to start categorizing them. Commonwealth’s Business Consulting team often recommends a holistic segmentation method called the “ABSLN” method.

ABSLN Segmentation at a Glance

This method identifies your top clients as “A+,” “A,” or “B” based on the revenue they generate for your firm. For example, your high-net-worth (HNW) clients fall into the A+ category as they provide a valuable boost and increase of assets. These clients have specific and complex needs, requiring a higher degree of resource and time management from your firm.

Unlike the quantitative categorization of the top tiers, the bottom tiers rely on qualitative criteria. Clients in these segments are labeled “S,” “L,” or “N.”

S/Strategic: Individuals in this tier have the potential to become ideal clients. Consider young, high earners with strong savings, business owners with illiquid wealth, or HENRYs (high earners, not rich yet).
L/Legacy: These clients may have a legacy relationship that justifies providing continued service—for example, “A” clients’ children, widows, or personal friends.
N/Non-ideal: These clients don’t fit into any other segments. For them, you could continue offering a reduced level of service, transfer them to an associate advisor, or discontinue the relationship.

ABSLN segmentation offers deeper insight into the kinds of clients currently in your book, which you can then use to identify the types of services you’ll deliver to them.

ABSLN in action

I worked with a Commonwealth-affiliated advisor who was wondering whether to hire a service advisor to manage the bottom half of their book, as they were feeling at capacity with their time. Together, we used the ABSLN method to segment their clients, which revealed that a new hire would cost more than the revenue being managed and that many existing clients fell into the “non-ideal” category. The advisor decided to scale back the services being provided to that group, which freed up some of their time.

Step 3: Combine the Power of Segmentation with Service

Once you’ve finished the client segmentation exercise, you can build your client service model, where you’ll identify which services you’ll deliver to each segment—and how often.

Use these questions to help define and guide your service offerings:

Will each service level be suitable for your existing clients?

Your goal is to create a consistently outstanding client experience in each segment and minimize any exceptions.

Does each service level have profit potential?

The average Commonwealth advisor generates only 10 percent of their total revenue from the bottom 50 percent of their client base*. Although it may sound obvious, try spending most of your time on segments that generate significant revenue.

Is each service level sustainable for the long term?

Think about how many hours you’ll need to commit to delivering various services, and be sure to factor in time for business development and strategic planning.

Which services can you outsource?

The right firm partner can suggest options for delegating certain tasks—especially at the enterprise level, where resources must be streamlined to scale successfully. At Commonwealth, we help firms achieve scale and optimize efficiency through a range of outsourced business solutions, such as investment management, training and professional development services, and even virtual staff.

Your results may start to look like the following grids, which pair services—everything from investment management to client events—with client tiers. Be sure to consider the total number of hours you’ll spend to deliver service across each client category. If it doesn’t align with the average revenue earned from that category, you may need to adjust.

Sample Client Service Matrix

	Client Tier
	A+	A	B	S	L	N
Review Meetings
Proactive Outreach
Investment Management
Financial Planning
Special Experiences (e.g., client events, milestone recognition)
Other (e.g., 401(k) review, CPA and attorney collaboration)
Pricing

Sample Completed Service Matrix Segment

	Client Tier
	S
Review Meetings	1 in-person meeting per year (focus on topics relevant to younger clients: wealth accumulation, paying off student loans, buying a house, planning for family needs)
Proactive Outreach	3 additional text messages and/or Zoom meetings (vs. phone/email)
Investment Management	Outsource to firm partner’s managed account solution
Financial Planning	Use more turnkey financial planning software, reserving more customizable options for “A+,” “A,” or “B” clients
Special Experiences (e.g., client events, milestone recognition)	Gifts for life events (e.g., new home, vacation, new child)
Other (e.g., 401(k) review, CPA and attorney collaboration)	401(k) review Actively refer to CPAs/attorneys willing to engage with younger clients Assign new HENRY clients to firm’s next-gen advisors
Pricing	Charge standard investment management fees consistent with “A+,” “A,” or “B” clients Charge annual consulting fee to reinforce the value of proactive financial planning

Step 4: Put Your Strategy into Action

You’ve segmented your clients and created a service model. Now, it’s time to implement your strategy by systematically evaluating every aspect of your business and adjusting accordingly.

Here are some questions and example scenarios to consider:

Do you need to change any of your business’s internal workflows to align with your client segmentation and service model? If so, how?

Example Scenario: If you meet with “B” clients less often than before, you should adjust your scheduling process.

What infrastructure will set you up for operational success?

Example Scenario: Examine your current processes and audit what you can organize, delegate, and automate to increase advisor capacity and streamline efficiencies.

What training could help existing team members adapt to these changes?

Example Scenario: Make sure everyone understands how to onboard clients at different tiers.

How will you socialize your new model with clients who will be affected by it?

Example Scenario: If you’ll be outsourcing investment management for your “strategic” clients, be ready to share why you feel this is the right move for them.

How will you handle future business development and referrals to avoid working with non-ideal clients?

Example Scenario: Perhaps you share the name of another advisor who might be a better fit for them.

How will you make your client segmentation and service model visible to your entire firm?

Example Scenario: Depending on your CRM system, you may be able to set up workflows and add other key criteria in each client’s record.

Client Segmentation: A Launchpad to Enterprise-Level Growth

Implementing a thoughtfully planned client segmentation and service model isn’t just nice to have—it’s a must-have for advisors aiming to reach enterprise-level success. By following the four critical steps we’ve outlined—analyzing your book of business, implementing a client segmentation framework, combining segmentation with service, and putting your strategy into action—you’re laying the groundwork for sustainable, scalable growth.

*As of 11/1/2024