Is Your Customer Segmentation Too Basic?

This is a guest blog post by Jay Nathan, Founder at Customer Imperative. 

Most B2B SaaS companies know that not all customers are the same. The concept of segmenting customers, and building an account coverage model based on these segments, is not a new idea. At Customer Imperative, we often see early stage SaaS companies choose the customer’s ARR value as the primary segmentation metric.  On the surface, this is logical – but is often an area where we can do better.

Customer Success is all about driving outcomes and customer experience, and tailoring those needs by customer segment. Identifying the segmentation metrics that make sense for your business is critical to unleashing the power of the Customer Success organization. Consistently evaluating your customer segmentation strategy has many benefits, including:

• Finding opportunities for strategic upsell or cross-sell
• Identifying revenue and customer risk
• Aligning the organization around key pillars that represent your customer-base

 
Segmentation can also help align strategy and drive cooperation across the various parts of the organization. For example, other teams can benefit from:

1. Creating a feedback loop to let sales know the right-customers who will be long-term successes with your product
2. Developing more targeted customer profiles to deliver focused messaging through marketing
3. Understanding customer traits and high priority needs to create more focused products strategy that helps the customer achieve their key jobs to be done

Over the years, we’ve found that a shared view of segmentation with a common customer vernacular helps SaaS companies move faster.

Let’s take a look at the types of segmentation that may be applicable:

 

1.) Trait-based segmentation (most common)

Trait-based segmentation utilizes readily-available demographic characteristics about your customers such as industry or company size. These data elements are often available for purchase and are often part of the go-to-market segmentation used by the Sales team.

For example, one of our recent clients had a simple segmentation: they divided their CS team between small, medium and large businesses. The challenge was that their product offered various value props, and customers subscribed in order to get multiple, discrete jobs done. Although their mix of human touch vs. tech touch was appropriate, they were missing opportunities to drive the right outcomes within deeper segments.

Benefit: Easily identifiable and allow for industry-experts to become a part of your CS-team

Risk: Assuming that organizations who share traits share the same desired outcome

2.) Needs-based segmentation

Accounts for the key use cases each customer plans to use to reach their specific desired outcomes, grouping customers who may cross traits. These needs are often identifiable during the sales cycle.

We recently worked with a customer to categorize their entire customer base into the outcomes each client wanted to achieve from using the product. Originally, the client thought that most clients centered around one use case. With a deeper dive, the client realized that while they didn’t need to change account assignment, they needed to design separate customer journeys around each customer segment in order to deliver the unique value each segment needed.

Benefit: Align the organization around outcomes

Risk: May not show the economic value driven to your organization

 

3.) Value-based segmentation

Differentiates customers by their economic value to your organization, primarily focused on growth indicators that point to ARR potential. This may include existing ARR vs. whitespace ARR, adoption levels and product attachment rates.

We often see customers spending a lot of time firefighting with large accounts that don’t have much upsell opportunity, missing the opportunity to grow entire segments where current product attachment still leaves a ton of white space. Or, in reverse, we see clients with a generalist approach to their account coverage, missing the opportunity to build executive level relationships with their largest customers with the most revenue potential. Segmenting customers into the nurture vs. grow categories helps you drive the outcomes needed in each segment and maximize revenue potential.

Benefit: Understand the revenue potential within your customer base

Risk: Does not necessarily equate to the outcomes customers need

 

As you get started, is important to create and some assumptions around segmentation and discuss cross-functionally. The best segmentation models apply some elements of each of the methods above. This typically gives us a more complete picture than any one method alone.  

Over the course of the last two years, we’ve had the good fortune to work with 30 different B2B SaaS organizations. The successful ones tend to find multiple segmentation strategies. The ability to step outside of a static segmentation allows for a more curious Customer Success organization.

 

About Customer Imperative:
Customer Imperative helps B2B SaaS businesses drive Customer Success through insights, outcomes, customer experience and customer-centric product marketing. Since our inception in 2017, we’ve helped over 30 B2B SaaS organizations retain customers and grow revenue through Customer Success. You can follow the Customer Imperative on LinkedIn.

 

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