Client Segmentation & The Service Matrix

 

You’ve heard it  – Segment your client base!  But do you know why?

First there is the 80-20 rule: 80% of your revenues come from 20% of your clients.

So the first step is to determine who those 20% are.  These are your top clients.

In our firm, we use an “old school” naming convention – A, B, C, D & F – just like in grade school.

Others may use Gold, Silver, Bronze, etc.

Consider using a bell curve methodology.

Client A – 3%

Client B – 13%

Client C – 68%

Client D – 13%

Client F – 3%

But what is the point?  Why is this useful business information?

First, you may want to know which clients are profitable and which clients are not.

Clearly your A-client will be very profitable; your F-client may not!  You could actually be losing money on the F-clients.

We used to say that an F-client is your most profitable client until you do ANYTHING for them, then they quickly become your biggest money trap.

Can you really afford not to know this information?

Now consider this.  You have an A-client that pays you a fee of $10,000 per year and an F-client who pays you $500 per year.

You know the F client is costing your firm money.

How do you think saying this out loud would sound? “Dear A-client, thank you very much for paying me so much money that because of your subsidy, I was able to retain some clients that are not profitable and your service suffered because of it.”

Does that hit you in the gut?

How do you deal with this problem other than firing all your small clients?

The answer comes in the form of a service matrix.  You cannot deliver the same level of service to all your clients.

A-clients deserve the highest level of service, then B-clients and so on down to F-clients who, perhaps, should get the legal minimums.

The service matrix needs to be communicated throughout your entire organization no matter how big or small.

This needs to be a written matrix so that everyone is clear as to what should and should not be provided and why.

Develop rules, policies and guidelines that reinforce your matrix.

Practice what you preach.

If certain clients expect a higher level of service, they need to pay accordingly.

It will allow you to focus your efforts where they need to be focused and your staff’s efforts where they need to be focused.

If it helps, find someone who will hold YOU accountable to keep to the system.

This is a fair system.  Fair to you and fair to your clients.

Thank you and Happy Holidays to all.

Guide – Client segmentation is a valuable business tool that can be used to develop your service matrix.

Action item – Segment your clients with clearly defined profitability measures. Work with your staff to develop a well thought out service matrix to match.

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