If you have a diverse client base you should consider dividing your book into segments. Segmentation can help you to improve the efficiency of your practice, enhance client satisfaction and build a more profitable business.

Most advisors already do some form of segmentation, but do not implement a formal process, says Ahad Ali, market analyst with Octane Capital Inc. in Toronto. The most common form of informal segmentation involves ranking clients by account size, from largest to smallest, to determine the level of service each client will receive.

“If done correctly,” Ali says, “segmentation can allow you to implement a structured process that simplifies your operations.”

Here are five segmentation strategies to consider:

1. Sort clients by size
Rank clients by account size. This will allow you to determine your typical “A,” “B” and “C” clients. Krystian Urbanski, vice president with HAHN Investment Stewards & Co. Inc. in Toronto, suggests that you also have a special category of clients based on “potential,” which might include young professionals who have the ability to grow their assets.

2. Rank clients by revenue
Per-client revenue is a key aspect of segmentation, according to Ali. “This measure allows you to determine the relative importance of clients to your practice,” he says.

It may seem logical that larger clients will generate the most revenue. But that is not always the case because larger clients have the ability to negotiate their fees.

Some clients might also generate revenue indirectly through referrals.

3. Segment clients by profitability
Segmenting clients by profitability can be useful, Urbanski says, but determining the profitability of each client can be difficult. Expenses can vary from client to client and you have to assess the cost of time you spend with your clients.

Ali suggests that a method of estimating profitability. Profitability, he says, is a function of revenue generated from each client, less fixed and variable costs associated with maintaining that client. Fixed costs, he says, can be determined by dividing total fixed expenses of your practice by your total number of clients.

4. Segment clients by level of service
Build a matrix of services you offer that identifies the frequency and level of services you offer and which team member is responsible for delivery of those services.

This type of matrix is based on the “value” of clients to your practice and is associated with your “A,” “B,” and “C” clients. For example, you might decide to meet with “A” clients four times a year and with “C” clients once a year.

This arrangement will allow you to “streamline your practice and make it more efficient,” Urbanski says. It will also help you to establish a process to ensure that you meet client expectations while facilitating efficient allocation of your resources.

5. Sort by product requirements
If your client base comprises of a range of clients, Urbanski says, you can segment clients based on the complexity of their product and service requirements. For example, the needs of a high net-worth client who may require services such as discretionary portfolio management and estate planning will be different from those of the typical retail investor who simply invests in mutual funds.