Slideshow 7 Steps to Segment Your Book...and Boost Revenue

  • March 27 2012, 2:29pm EDT

7 Steps to Segment Your Book...and Boost Revenue

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 Colbeck’s advice on how to segment your book of business to do just that. Meanwhile, here is a high-level overview.

Decide What Criteria to Use

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.)

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Decide on Cutoff Point for Top Group

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.

Define the Second Group

Decide on a minimum level of assets (or whatever gauge you’re using) for the bottom of the second tier. The top of this tier will be wherever the first tier ended, of course.

Define the Third and Fourth Tiers

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 you’ve identified, however, will be the people with low assets and a low relationship with you.

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Determine Return on Assets for Each Segment

Now that you have segmented your clients, you’re ready to determine each segment’s return on assets. Here’s how to do it:

1. Determine your practice’s 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 practice’s 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.

Align Service Level with Each Segment’s Return on Assets

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.

Separate the Wheat from the Chaff

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 couldn’t turn this into a top-tier relationship, there’s a good chance they won’t either.

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Separate the Wheat from the Chaff (con’d)

2. Keep bottom-tier clients but provide them with a relatively lower level of service. Caution: They may complain to the branch managers, which won’t do anybody any good.

3. Have them re-assigned by your manager.

Separate the Wheat from the Chaff (con’d)

4. Resign the accounts. Ask your branch manager about the best way to do this within your bank’s 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.

More Details in Article

For more detail on all these points, be on the lookout for the April issue of Bank Investment Consultant. You’ll find Colbeck’s story on page 19. In the meantime, you can contact him at