Why Customer Segmentation Is So Important

Written by
Ross Andrewsarrow icon

Why Customer Segmentation Is So Important

Written by
Ross Andrews

For most Saas/Subscription businesses, as you grow and scale you begin to collect an increasingly wide variety of customers. A huge key for success for these growing startups is to understand these customers characteristics and to take those characteristics and segment, or put them into groups, based on these characteristics. Customer segmentation is a powerful way to better understand your business, where it is growing, and where it might have a weak spot that is holding you back.

Customer segmentation “can” be simple (SMB vs. Mid-Market vs. Enterprise). But for most SaaS/Subscription startups customer segmentation is something that is truly unique to your business. The best way to start thinking about your customer segmentation is to gather all the defining customer characteristics you have in your CRM or customer database and take a deep and thorough look at them. Industry, location, size, business model, MRR, billing contact, customer champion, no. of interactions, no. of service tickets, and many many more. These are just a sample of some of the characteristics you might analyze but the first step is helping identify the characteristics that are meaningful to your customer base. Take Salesforce, I’m sure the number of products and which products that a customer buys is a determining factor in what type of customer they are and how likely they are to renew and expand.

Once you have identified the 3-4 characteristics that really distinguish your customers you can now segment them or break them into groups with other customers who have similar characteristics. This is where the magic happens, once you have these segmentation buckets you can really start to breakdown your business and see what is going on. With each segment you can analyze churn, revenue retention, CAC, cost to serve and several other statistics to try and understand which customer segments have low churn and high revenue retention, which segments have abnormally high CAC, and really see which segments are making you money and which ones are costing you money.

Once you identify the healthy and unhealthy segments you can make operational decisions about how to address each segment to help the growth and health of your business. You can focus energy and resource towards healthy segments and try and improve the health of other segments or make the decision to unwind them and slow down customer acquisition in that segment. Startups that the time and resources to understand their customer segmentation will be able to use that information to help supercharge their growth.

Below are some (not all) samples of different segments you can look for:

Industry

  • Restaurant, Manufacturing, Technology, etc.

Business Model (Who are their customers?)

  • B2B, B2C, DTC, etc.

Size (Usually measured by employee headcount)

  • SMB, Mid-Market, Enterprise

Customer Champion

  • Do you have one or not?

Cost to Serve and Cost to Retain

  • How much do you need to expend to serve and retain a customer
Sign Up For Our Weekly Newsletter