Last month we discussed the importance of analyzing your clients to determine those with which you have the greatest success and satisfaction and those that were less profitable and suck the energy out of you.

As discussed last month, for us it was working with middle market, entrepreneurial service companies.

Our challenges were twofold:

  1. What to do with the clients that no longer fit our business model?
  2. How to expand our target markets opportunities?

How does corporate America deal with these issues? It is not uncommon for companies to sell off operating units that don’t generate the minimum ROI as defined by the corporation. They may also sell off units that no longer fit their business model and/or business focus.
Why can’t we do the same thing? Are we obligated to be burdened by these underperforming clients? We chose to sell off 100+ clients to a local broker that had a more general practice. Our concern was to be able to have these clients receive the same level of service and to mitigate any concerns they might have with the transition.

The transition process consisted of the following:

Identifying the clients to be sold or outsourced.

  • Partnering with a local firm that has the interest and capability of handling the clients.
  • Negotiating an appropriate commission arrangement.
  • Assembling all the necessary client information to provide the new broker.

Creating and mailing an explanatory letter to the departing clients explaining that our business direction had changed and we wanted to be sure they received the same level of service and introducing the new broker
Scheduling introductory site visits with the new broker to aid in the transition. This was only done with the larger clients. The balance of the clients were contacted by phone and mail.

The client divesture was done in 3 blocks over a several year period. Our initial experience was somewhat stressful as we were not sure how the clients would respond. As is usually the case in life, the anticipation was worse than the reality. We did have a few calls from former clients asking for more clarification, but overall the transition went smoothly. Was there benefit to the divesture? Absolutely! We were able to relieve our organization from the burden of dealing with clients that were too small, didn’t value their employees and/or viewed us as a vendor.

Additionally, it allowed us to focus on our more profitable, target market clients. This was a win win situation . . . our former clients were pleased that they would continue to receive a high level of service . . . we were pleased we did not have to allocate our corporate resources to underperforming clients . . . our team was pleased because they were able to devote 100% of their time and effort to clients that viewed us as their strategic partner.

Is it nice to niche? This is for you to decide. Next month we will discuss how to expand your target market.

Torelli, CLU, ChFC, MSFS is president of Newport Beach, Calif.-based e3 Financial.

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