Understanding the client – Identifying your ideal client profile – segmentation

SegmentSegmentation is based on the principle that although quantity over quality might serve a business during the early phases of development, sooner or later the cost of attracting and servicing clients compared to the returns they might generate needs to be considered, as well as the need to ensure clients are satisfied.

Over time, a financial adviser firm could build up a base of anything between 600 and 1,200 (or more) clients. However, if there is a lack of resources within the firm, the firm might not be able to provide all clients with the appropriate level of service to meet their needs. This inevitably would result in client dissatisfaction and non-compliance with regulation and risk management principles.

The Pareto Principle

Research shows that just as the Pareto Principle is relevant in a variety of life and business circumstances, it is Revenuealso relevant to segmentation.

The Pareto Principle is known to most as the ‘80/20 rule’. It states that 20% of clients generate 80% of business profits. Businesses that choose to adopt this principle will provide a differentiated, more personalised, and better quality level of service to their top 20% clients. It further capitalises on the fact that the top 20% of clients from a correctly segmented client base have different needs and expectations and are generally worth more to the business than the remaining 80%. It makes sense, therefore, to deliver a more comprehensive level of service to this group.#

Initial segmentation

The segmentation process has two key stages.

Stage One 

Firstly, the segmentation criteria selected should be as automated and objective as possible. This is achieved by using specific criteria.

Based on the Pareto Principle, clients should be divided into the following segments:

Category A

Category  B

Category C

Category D

High Revenue, Strong Relationships (advocates  of the business who often refer new clients) – 5%

High Revenue, Weak
Relationships (no advocates)
– 15%

Low Revenue, Strong Relationships (advocates of the business who often refer new clients) – 20%

Low Revenue, Weak
Relationships (no advocates)
– 60%

There are many criteria you can use to segment the client base and segmentation should be based on more than just income, although average income per client segment will be the basis for determining the value of the services provided.

Stage Two

The second stage, referred to as individual segmentation, allows for personal input and individual client assessment.

Examples of segmentation criteria include:

  • age
  • profession & industry
  • annual income
  • family situation - for example, single, married, married with dependants etc
    asset value
  • number of policies

However, bear in mind that it’s important for you to determine what constitutes client value for your own firm when you set your own criteria. You may find the following guidelines useful when setting your criteria:

  1. Select no more than three or four criteria.
  2. Ensure that the criteria you set are easily understood by everyone in the business. Then everyone can clearly identify which criteria fits with each client segment.
  3. Segmentation criteria should be automated – in other words, set up on a Customer Relationship Management system.



Support material

Business transition: the importance of understanding the customer

Business transition:

the importance of understanding the customer. By Mimi Pienaar

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