Customer segmentation has become vital to providing a holistic customer experience.
When a company is small (< 100 customers) and is setting up the customer success practice, customer segmentation may not seem that important. There would be a small number of customers who can be managed, by a small customer success team or a single customer success manager (CSM) in case of ARPA < $5k, without much difficulty.
As the company grows and the number of accounts increases, scaling a customer success team without customer segmentation might lead to hitting roadblocks.
All customers are not equal.
Different customers have different requirements and expectations. They buy your product for different use cases. Hence, customer success for all customers can’t be the same.
It’s also not possible to provide personalized customer success to all customers as that would not be economically feasible.
What is customer segmentation?
Customer segmentation is dividing customers into groups based on pre-decided common factors. All the customers having those factors in common belong to the same segment.
Advantages of customer segmentation
The advantage of customer segmentation is that each segmented group of customers can be treated similarly as their requirements tend to be similar.
Now instead of managing every customer individually, you can manage segments. This ensures better resource utilization. And it helps the customer success team manage more customers efficiently and effectively.
How to segment customers?
You can use customer success software to segment customers based on your requirements. There are different customer segmentation models that you can use to segment customers. However, your choice should depend on the nature of your SaaS business.
For example, in CustomerSuccessBox, you can choose various attributes such as health, usage, frequency, users, subscription, etc. based on your business requirements. You can even put multiple conditions to segment customers more efficiently.
Types of SaaS customer segmentation models
You can segment customers in various ways. Some types of segmentation might only be applicable to your company. Some of the common ways are:
1. Segmentation by Recurring Revenue
MRR (Monthly Recurring Revenue) or ARR (Annual Recurring Revenue) is the most common way in which customers are segmented. Depending on how much the customers are paying, you can group them into different segments.
The idea comes from the fact that if a customer is paying more, the product is important for the customer and s/he expects a better customer experience. They might need more hand holding. The higher paying customers want to derive the maximum benefit from the product.
2. Segmentation by Plans
If your product is priced differently based on the features, the number of licenses, etc., you can segment the customers based on pricing plans.
Customers on the same plan will be using similar features and have similar requirements. Each segment will have its own expectations from the product. A CSM can manage multiple accounts in the same segment easily.
For example, any customer in the “Blossom” plan of freshdesk will not have any issues related to performance reports, CSAT surveys as those features are not available in that plan. They might face problems in email ticketing or automation which can be managed by their CSM.
CSMs managing a specific segment will have all the information regarding that plan and will be able to help the customers proactively.
3. Demographic segmentation
Another way to segment the customers is based on where they are located. If you are a global company with clients all over the world, you may put clients from Europe in one segment, clients from the USA in another segment, and so on and so forth.
Companies belonging to a particular location usually have a similar working style and CSMs who understand that culture is more suited to manage them.
4. Use cases segmentation
One of the most effective ways to segment customers is based on the use cases for which the customers bought your product.
All customers are NOT equal. A SaaS product is used for solving different problems. You should segment the customers based on the different use cases that your product is built for.
For example, you can use a CRM for managing customers, tracking customers, increasing team collaboration, manage leads for efficiently, etc.
Every company will not want to achieve everything that is possible on a CRM but wants to focus on a few things.
Based on what customers are trying to achieve using your product you can segment them into different groups.
An even better way to segment the customers is to link the different use cases to the buyer personas that you are selling your product. How to do that?
We recorded a video with our Founder & CEO, Puneet Kataria to discuss the same:
Selecting the factors for SaaS customer segmentation
No matter how you segment your customers, it is important to choose the factors that are right for your company and based on what your customers want.
Sometimes you may want to combine more than one factor to segment customers. For example, segmenting the customers on both plan and use cases. This will help you provide an even better customer experience.
Choosing the wrong factors can increase the churn rate even though you may have a good product. This can even lead to financial instability.
For example, assume that you have a high paying customer but s/he doesn’t need a lot of handholding. If you blindly put them in the segment of high paying customers and assume they are high touch clients, they might get frustrated with the excess touchpoints and even churn.
So, always take the customer’s needs into consideration while segmenting your customer list.
Also make sure to include the leadership of your company along with other departments as everyone will have valuable inputs to give.
In the end, the better your customer segmentation is, the more effective your customer success practice will be.