If you’ve been in the world of SaaS for any time at all, you’ve likely been told that customer segmentation is important. The idea behind segmentation is usually so you can build different touch models. High-touch for Enterprise, Mid-touch for SMB, and Self-Service for your lowest value accounts.
That’s all well and good. It makes sense in terms of allocating resources. But the problem is, it only considers your company’s point of view – not what the customer is trying to do.
The Big Picture
The right way to segment has three parts:
The use case determines the customer journey. The destination matters.
If you’re trying to bake a cake the directions are going to be different than if you’re trying to bake cookies, even though you’re using the same tools.
The vertical drives customer enablement, stickiness, upsells, and marketing. It’s the why.
ARR determines what to prioritize and where to get started.
Let’s dig in!
Customer Segmentation by ARR?
If you’re segmenting only by ARR, you’re missing a LOT.
ARR focuses on your company’s priorities, not the customers. Just because an account is spending a lot of money with your company, that doesn’t mean they want to talk to you every week. That may make you feel more secure, but they probably have better things to do.
Customers want to meet as much as they need to in order to reach their desired outcome. That’s it.
In fact, you may be giving your SMB customers the best experience – just enough human involvement to get them to their desired outcome, with logical self-service in place. They reach their goals efficiently, and the product has done its job.
I’m not saying you shouldn’t treat your high-dollar value clients like gold – just don’t center it around what YOU want, or what you THINK they want. Give them options. Always be ready to serve. But don’t force it on them.
Segment customers by use case
The right way start to customer segmentation starts with their use cases.
This is the fancy way of saying “What is the customer trying to get done?” Most customers aren’t trying to get the most they possibly can out of your product. They’re trying to solve a problem.
Our job in CS is to draw the cleanest line from A to B.
Don’t show them everything. Show them how to achieve their ONE objective. You’ll show them the bells and whistles later.
Driving adoption is about making the end user MOTIVATED to try something different (What’s in it for me?) and EASY to execute. If it’s too complicated, they’ll quit and blame you.
Segment Customers by Vertical
This is the critical piece that will really help you understand your customer and help them succeed. If you’re not already, start now. It will help you create accurate customer health, make the product much stickier, and develop community, thought leadership, and advocacy.
Different industries will use your product differently – even if they have a similar use case.
I like to think about an instance where I was working with a scheduling tool – we had plenty of different verticals using our product, but two of the most common were Education and Tech Sales.
Think of how different that usage is going to be.
In terms of customer health alone, the Education customers were happy with the product and found it successful if they used it 4-5 times a year. The sales teams were happy only if they were using it daily.
Segment by ARR
But wait, didn’t I say that was useless?
Well, it is if that’s your only engagement strategy. But ARR helps you determine where you should focus first.
Instead of looking at which customers bring in the most revenue, look at which VERTICALS bring in the most revenue. If my education vertical brought in the most revenue, I’d want to focus on what their specific use cases were for our product, look at the usage data to determine best practices from successful customers in that vertical, and talk to some successful customers in that vertical about the pain points our product helped them solve. Then start building a strategy for those. Start with your largest earning vertical and create a customer journey map to get them to their desired outcomes. Create custom enablement materials.
Your product isn’t as intuitive as you think.
Customers don’t always know when to use your product. It isn’t as intuitive to them as it is to the company that built it. We have to spell it out for them and understand how it fits into their world.
Customers in different verticals will use your product differently from others. But that doesn’t mean one vertical will only use your product one way!
Once you segment by vertical,, you can start to understand the different use cases specific to each one. And here’s where it gets interesting…
You can start cross-pollinating the use cases for the same industry.
With my example above of the Education vertical here’s how it was being used:
- Some people used the tool to set up board meetings.
- Some used it to host parent-teacher conferences.
- And others used it for PTA meetings.
But almost none of them thought to use it for all three!
Once we understood how they were using it, we could let our clients know how they could be getting more out of it –
“Oh, I see you’re using it for PTA meetings. That’s great! How’s that working for you? …I’m glad! I wanted to ask – are you it for board meetings and parent-teacher conferences as well? Because I’d be happy to show you how to do that, and I know a lot of our other customers in education are having a lot of success using it that way. Have you ever thought of using it that way?”
This does a few things:
- Ignites a little competition. No one likes to hear that others in their industry are doing something they are not. It makes them feel behind. (The only reason this doesn’t make me feel icky is because it ends up giving them more for their initial investment.)
- Increases use cases and frequency of use (adoption, stickiness)
- Introduces the product to other user bases – board members, parents (marketing, upsell)
Create modified customer journeys for each use case and vertical
The first step is to create a basic customer journey for your users based on each use case. What features do they have to use when to achieve X result.
After you have this basic idea, use your data and feedback from your customers to determine what is successful for each use case in each vertical. This should be done in two steps:
- Looking at the user data from successful customers in each vertical to see how they are using the product.
- Talking to the customers about what business problem they are solving with your product and how they use the product to get results.
If the two don’t line up, you will need to ask more questions until it makes sense. (e.g. they can’t say they are achieving success by using one feature while it never shows up in their user data…)
Once these factors are determined create different health scores based on their needs as they relate to the different verticals and use cases. The education vertical above would need to meet much lower usage metrics to meet their goals than the sales clients. Risk for one will not equal risk for the other. If you want your healthscore to be predictive – it can’t be one size fits all.
I know this sounds like a lot of work and may be very overwhelming. Don’t panic! Rome wasn’t built in a day. I’ll show you where to start so that you are the most effective with the least amount of work.
Share information with sales and marketing
Don’t keep this information to yourself! Very often, Customer Success is the only department that sees the full picture. We know what customers in each vertical are looking for and what problem they are trying to solve. We can speak to which features drive relevant business results for each vertical.
This can be absolute gold for the sales and marketing teams. But they can also give CS some insights early on as well! When you are just getting started with this process, talk to Sales and Marketing about what you are looking to do, and ask marketing what personas they have developed. Find out from sales what customers in each vertical seem most interested in when it comes to solving problems using your product.
When these teams work together in this way, you decrease the chances of bad-fit customers getting onboarded due to poor communication between departments; they also increase their ability to deliver on an ideal customer profile by focusing on use cases that matter most instead of focusing on broad features like product functionality or price point alone
Segmenting by vertical helps create community and thought leadership
When you identify a vertical, it’s a perfect opportunity to create a community around it – and the marketing to go with it.
For example, in the education vertical above, I would use that to create a blog post on how educators are using tech in the workplace, how educators are changing how they look at their calendars with time-blocking, and how administrative teams in education are using remote meetings. All those would be related to a scheduling tool, but focus on the customer. Since it’s being hosted on the product site, it would draw this group of customers to our site, whether they came to look at the product or not.
If I was looking for advocates, I could offer successful customers a chance to be on a panel to discuss how others in their industry are handling (X challenge that our product solves). This allows them to promote themselves and their company and allows them to position themselves as a thought leader.
Customers are much more likely to become advocates if there’s something in it for them!
This would be a chance for people in that industry to network and share best practices.
But it also makes your website and your company a gathering place for your ideal customer.
No, you absolutely don’t have to create all this as a CS leader – you ca`n definitely hand off a lot of this to marketing or product marketing. But if you’re a lean startup, it may be a lot to put on your plate at the moment. Consider hosting ONE webinar or panel for your top vertical to discuss how those in their industry are solving (X problems your product solves).
If you’re completely overwhelmed…
Don’t freak out. I know this seems like a lot. Eat the elephant one bite at a time.
First, determine your highest grossing vertical. Now determine the average value per account in each vertical. This will help you determine your strategy. If you’ve got 12 customers who are providing you with 40% of your company’s revenue and they are all in the same industry, that tells you that you need to prioritize that vertical and that you need resources in place to be high touch if needed with them.
However if you determine that 40% of your revenue is made up of one vertical – but that the average value per account in that vertical is low, you will need more customer enablement materials, but you’ll need to put a lot of research into getting it right!
Start with your highest grossing vertical.
Find out what their specific use cases are
Determine what gets them from A to B with your product.
Build supporting materials.
Lather rinse repeat.
Segmentation can’t only be about your company. If you use a customer-focused lens on it, you can create a customer journey and a scaled approach that customers will rave about.
And it will make you look pretty smart too…
PS – Need help figuring how to roll this out at your company? Give me a call.