Your customer base, much like individual snowflakes, cannot be lumped into one general category. Different customers have different individual needs. Though they may come to you for one particular service, what they need from that service and their added daily value differs from customer to customer. Lumping them into just one category will limit your understanding of your customers and affect your ability to speak to their needs.
What is customer segmentation?
Segmentation is based on Vilfredo Pareto’s findings that 80% of profit comes from 20% of customers. His study started with land. He found that 80% of land in Italy was owned by just 20% of the population. Further investigation proved that this applied to other industries as well and it became known as the 80/20 rule.
Segmentation is categorization: you separate customers into specific groups based on their characteristics. Doing simple customer segmentation research, will change how you look at your buyers and how you market your products.
Approaches to Customer Segmentation
- Quality-based. Quality-based segmentation focuses on shared, publicly available characteristics like location, age, company size, type of industry, etc. This is the most straightforward and effortless approach you can take. However, this approach assumes that because these customers share the same demographic characteristics, they also share the same need and put the same value on your products. In some cases, this assumption is inaccurate.
- Need-based. This segmentation approach focuses more on what your customers need from your products. You can gather data through market research, sales calls, etc to create need-based customer profiles. This provides a better understanding of how you can market your products to certain people.
- Value-based. The value-based approach to segmentation separates your customers according to their economic value. This type of segmentation is essential when you are focusing on growth. To gather relevant information for this type of segmentation, you need to look at your sales data and evaluate where revenue is generated .
The Importance of Customer Segmentation to SaaS Companies
Customer segmentation can benefit your company in many ways, from guiding you in formulating strategies for growth to helping you develop sales and customer relationships.
Classifying customers into certain groups can help simplify your marketing approach. All the data you need to formulate your plan of attack is within your segmentation criteria. If you choose the needs-based method, you can focus your marketing campaign on those needs your customers identified.
Knowing your customers by studying the segments they fall under can help you develop stronger relationships with them. It can also help you give your customers what they need from you. Instead of all your customers getting the same information, each segment will see a custom-fit message based on their shared characteristics—no more wading through irrelevant information.
Segmentation can help you determine which customers will be open to upselling and who won’t buy into it. Upselling successfully needs a thorough understanding of your customer base that customer segmentation can provide.
Segmentation Tips for Startups
Find your why
Why are you doing customer segmentation? What is your main goal? Are you aiming for growth? Once you have identified your goals for customer segmentation, you can choose the appropriate segmentation approach that will best fit your needs to achieve your goals. This will also help you isolate each segment for targeted projects and marketing.
Once you have identified the approach you need, start doing your market and customer research based on specified criteria to fit your system. You can gather data from your website’s landing page, during customer onboarding or through surveys. Just make sure that you do not overwhelm your customers with questions. Being a SaaS company, you have better and more in-depth access to specific data regarding how your customers use your products. Take advantage of this when doing your segmentation.
Use the 80/20 rule
Based on the 80/20 rule, focus your attention on the big spenders — the 20%. This, of course, does not mean leaving all your other customers by the wayside. Instead, it means that you can show how you appreciate them. Think of those companies that offer customer tiers. The lowest level will have the essential perks; the highest rank gets the most perks with a dedicated customer service line. This keeps your 20% happy and engaged. Your extras can include early-bird access to new features, freebies, etc.
Customer segmentation will help you refine your approach to running your SaaS company. This can help you achieve your growth goals and provide your customers with better service.
No matter your business size, a great way to know the best approach is to consult experts. Cansulta can help you by connecting you to vetted consultants with expertise across industries, regions, and knowledge areas. Book a free call today.