7 Steps to Segment Your Book...and Boost Revenue
AUM is the most common gauge, but you may decide to focus instead on potential assets. This is a philosophical point of business that only you can decide. (But you must decide.)
Based on this measure, decide on a cutoff point for your top group. (For example, if you use AUM as the gauge, you may decide anyone with more than $1.5 million belongs in the top tier.) This threshold should be set so this top group captures 10% to 20% of your overall client base.
Decide on a minimum level of assets (or whatever gauge youre using) for the bottom of the second tier. The top of this tier will be wherever the first tier ended, of course.
Now comes the hard part: the third and fourth tiers. Neither will have much in assets, but the third tier will offer some other reason to keep them. Perhaps they are related to your best customer. Or they may be a good source of referrals. The fourth tier that youve identified, however, will be the people with low assets and a low relationship with you.
Now that you have segmented your clients, youre ready to determine each segments return on assets. Heres how to do it:
1. Determine your practices overall ROA (the revenue you generated divided by your AUM).
2. Add up the AUM in each of your client segments.
3. Multiply AUM figures in each segment by your practices overall ROA.
4. Divide that number by the number of clients in each segment. This tells you how much each client generates a year on average.
You will find that your top segment generates over $1,000 per client annually, with the bottom segments generating much less than that, often as little as $100 per client a year. Make sure that you are delivering a level of service that is consistent with the revenue each segment brings to your business.
Now comes the thorniest part of the client segmentation process: separating the wheat from the chaff. Here are several options:
1. Assign bottom-tier clients to a junior associate. This strategy is common, but has a big drawback. If you couldnt turn this into a top-tier relationship, theres a good chance they wont either.
2. Keep bottom-tier clients but provide them with a relatively lower level of service. Caution: They may complain to the branch managers, which wont do anybody any good.
3. Have them re-assigned by your manager.
4. Resign the accounts. Ask your branch manager about the best way to do this within your banks guidelines, says Colbeck.
5. Meet with the clients and explain the changes you have made to your practice and give them an opportunity to meet the standards you set to move up into another tier.
For more detail on all these points, be on the lookout for the April issue of Bank Investment Consultant. Youll find Colbecks story on page 19. In the meantime, you can contact him at email@example.com.
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Want to see your revenue leap within 30 days? Focus on the clients who produce most of your revenue. In our upcoming issue of BIC, you can read consultant Todd Colbecks advice on how to segment your book of business to do just that. Meanwhile, here is a high-level overview.