Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Practice Management > Building Your Business

Categorizing Your Advisory Firm Client Base to Replicate Your Best Clients: A How-To

Your article was successfully shared with the contacts you provided.


In early February, I began posting a series of blogs about establishing and implementing a comprehensive list of processes and/or procedures.The following week I divided the business into three segments:  Marketing, Service, and Business Operations. Today, I'd like to discuss the latter category, and more specifically, categorizing your client base.

It would be interesting to look at your clientele and select the ones you would like to replicate. However, I believe it would be best to use a quantitative approach rather than guesswork. There are a few factors I consider to be important when categorizing your existing clientele, including profitability, personality and referrals received. Here's how I categorized my clients.

Percent of Total Revenue (from Direct Revenue)

First, I looked at the revenue generated from each client. My revenue base consists of:

  • asset management
  • indirect asset management
  • financial planning-initial plan,
  • financial planning-updates
  • insurance.

This exercise provided an accurate view of exactly where my revenue was derived and whether any single client constituted such a large percentage of my advisory firm revenue that a concentration risk exists. In this context, concentration risk may be defined as having too much revenue dependence on too few clients. In other words, if I were to lose one client how damaging would it be? In my practice this number ranges from a high of 7.93% to a low of 1.0%.

Percent of Total Revenue (includes Revenue from Referrals)

Next, I added the revenue derived from a client referral to the referring party's direct revenue to arrive at their grand revenue-providing total. For instance, if one client was paying fees of $5,000 annually and had referred two other clients who were paying $4,000 and $4,500 respectively, then I divided this total of $13,500 by the total annual revenue to come up with a total percentage.

For simplicity, let's assume a total annual revenue of $100,000. Using the aforementioned numbers, the client's percentage before referrals would be 5.0%. When referrals are included the percentage would be 13.5%.

Finally, I ranked each client by this "grand" total and divided them into three categories: A, B, and C.

Doing this provides an understanding of where my business is coming from and where I need to place greater focus.

Another issue to consider is the type(s) of client you enjoy working with the most. Their personalities and professions are two areas to consider.

I'll write more on this in future posts. 

Thanks for reading and have a great week!


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.