What types of customers provide the most revenue for your company? Which portions of your customer base have the lowest cost of acquisition and retention? Which of your customers are most likely to become evangelists and generate new business on your behalf?
The insights gained from customer segmentation can answer all those questions and ensure you’re acquiring the best-fit customers for your company.
What is Customer Segmentation?
Customer segmentation is a way to group similar customers together in order to do reporting and analysis on the health of your database.
You can segment your customer base by their industry, product tier or usage level, revenue, employee size, geographical locations, date they became a customer, channel their contact originated from, buyer persona and ideal customer profile. Grouping by these data points can help you identify your ideal customer profiles and determine which types of prospects you should avoid selling to.
The Benefits of Customer Segmentation
Segmenting your customer base and analyzing the performance of those groupings can improve your marketing, sales and customer service efforts.
Refine messaging
Customer segmentation enables you to identify patterns in the way you’ve acquired customers and the way different segments have engaged with your company. This allows you to gain a better understanding of what resonates with different types of prospects during the marketing and sales process and what kinds of communications they prefer to receive during service delivery.
Focus on acquiring the right customers
Understanding the characteristics of your most successful customers can help you better target your customer acquisition efforts.
Knowing who your company best serves can inform your marketing strategy so you work toward only attracting good-fit leads. On the sales side, the insights gained from customer segmentation can prevent you from investing resources in pursuing poor-fit leads.
Produce healthier customers
Because you’re optimizing your acquisition strategies around attracting and nurturing the best-fit prospects, the customers you close should be happier and stay with your company longer.
Improve your product or service
The feedback you receive from different segments will give you insight into how your offering is helping your customers. This can help you determine how to position your solution to prospects and uncover needs that you can solve for with new products or services in the future.
Using Customer Segmentation to Improve Customer Health
The goal of customer segmentation is to learn which customers both gain the most value from your solution and provide the most value to your company. But to determine which segments provide the most value to you, you need to consider more than just monthly recurring revenue (MRR) or annual contract value (ACV).
For example, if one segment has really high contract values and high maintenance costs, a segment with lower contract values and lower maintenance costs could be better for your company.
To get a holistic understand of customer health, take into consideration feedback surveys, ACV or MRR, cost of acquisition and cost of servicing the account, retention rate, ACV or MRR growth and product usage.
Once you understand the health trends of different segments, you need to act upon those insights.
High ACV is a very attractive metric for your sales team, so if you have a segment that results in large deals and poor customer health post-sale, you need to find a way to de-incentivize selling to that segment.
Or if you find a customer segment that has a high churn rate within the first 90 days but produces evangelists who expand significantly and refer new business to you, your onboarding probably isn’t meeting that segment’s needs. So, by improving your onboarding, you can increase the performance of that segment.
The Takeaway
High customer health should be the output of customer segmentation. By analyzing the different segments within your database, you can gain a better understanding of how your company provides value to your customers and which types of customers benefit the most.
Changing the way you run your business based on that understanding will enable you to have a healthier customer base consisting of clients that have solved their challenges through your offerings and want to continue their engagement with your company for a long time.
