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As Operations consultants, a primary question often posed to us from RIAs is, “How do we service more clients without our level of service dropping?”  Technology and workflows, no doubt, can add scalability to an organization, but often the high-level answer to this question revolves around client segmentation.  Every advisor is only allotted 24 hours in a day, and it is therefore imperative that they spend that time wisely, especially if they are trying to increase the number of clients they serve.  However, some advisors may push back on the concept of client segmentation, feeling they must offer each client the same level of service across the board, regardless of the amount of fees they pay.  While a noble concept, in practicality, given the time constraint of 24 hours per day, it does not make sense to treat all clients equally. 

If an advisor tells us they are struggling to service additional clients, we will always ask for a breakdown of time spent on clients.  Which clients are taking up the majority of their time, and do the revenues associated with those clients warrant the additional time and resources?  Most advisors cannot answer this question. They never think to track hours per client because they do not bill on an hourly basis.  “If I’m charging clients based on AUM and not hourly, why would I waste my time tracking it?”  From a business administration perspective, we believe this data is invaluable and should be tracked at the client level.

You can track this very scientifically, or you can do it in more of a qualitative fashion.  The scientific method is to begin tracking at quarter-hour increments, exactly how much time your team is spending on each client.  We do this here at PFI Advisors — I have a weekly timesheet that sits next to me, and I jot down how much time I spend on each client every day.  Others track this directly in their CRM.

30-minute phone call with a client?  I mark it down. 

45 minutes of research for a client?  I mark it down. 

We then report our hours every Friday to Sandra on our team, and she loads those hours into Quickbooks.  Larissa, our COO and CFO, then calculates a profit margin for each client.  That analysis has helped us determine which service offerings are working, and which aren’t. It’s also helped us immensely in determining how to price our engagements with clients, to confirm the time spent on a particular project corresponds to the fees received.  Said differently, this assessment ensures we are spending our time wisely and efficiently.   

When a prospective client says, “Well, I really need all of your services, but I’m only willing to pay ½ price for it,” having these profitability numbers, based on previous engagements that were similar in nature, gives me confidence to say, “I’m sorry, that’s not going to work…but let’s figure out a way to work together.”  With this analysis in my back pocket, I’ve been able to say, “I can’t offer this amount of service at that price, but if that’s your budget, I can offer you this amount of service…does that work for you?”  I can also say, “Maybe you don’t need this, or maybe you can live without that; or maybe we can have you work with a junior person on the team more often than you work directly with me (because in our profitability calculations, other team members have a lower hourly rate than I do).” 

If the scientific method of tracking hours feels too daunting, but you want to come up with some kind of metric to calculate hours spent on each individual client, you can simply sit down with your team and ask them to rank every client on a scale of 1 to 5; 1 being a client that rarely calls the office, and 5 being a client that calls the office multiple times a week with money movement and other various service requests.

Once you have all clients ranked 1 to 5, look for discrepancies between their time score and the revenue they generate.  For example, are there some clients ranked a 5 that aren’t generating much revenue for your business?  If so, a conversation with that client might be in order.  You don’t necessarily need to cut ties with the client altogether, but a discussion around fees and/or the amount of time your team is able to dedicate to that client would be prudent.  Maybe you simply need to ask them to contact a different team member (someone who has a lower hourly rate), or you can show them how to access some of their requests by using your client portal instead of calling the office.

If you insist spending the same amount of time on every client, regardless of the fees paid, you will be drastically limited in the number of clients you can serve, and/or your level of service will undoubtedly drop as service requests begin to slip through the cracks.  By telling your lower-paying clients that they are limited in the amount of services they receive from your firm, you free yourself and your team to service more clients, or more complex clients that are willing and able to pay a higher fee.  The road to scalability runs directly through your firm’s ability to segment clients.