When scaling a SaaS business, it is critical to implement an effective customer segmentation strategy. Without one, companies leverage a “one-size-fits-all” approach to customer service, leading to inefficiencies and missed opportunities. With proper customer segmentation, companies can be empowered to make better decisions, work more cohesively and drive better customer outcomes.
When companies create an effective post-sales customer segmentation and cohort analysis, they build the foundation of a data-driven customer experience. Within this framework, companies can identify patterns of behavior among groups of customers and build and support cross-functional programs that can lead to stronger results. Additionally, segmentation can help teams within the company, such as Customer Experience, Marketing and Product, collaborate more fluidly, as it provides a common language to describe different customer groups and objectives.
More specifically, a segmentation strategy will inform how you report on your customers, how you communicate with your customers and how you support your customers.
Segment vs. Cohort
“Segment” and “cohort” are sometimes used interchangeably in SaaS organizations, but it is important to understand the difference between the two when developing and discussing your segmentation strategy.
Cohorts are time-bound, typically grouped by the starting month and/or year the customer was acquired. Cohort analysis helps understand how a group of customers behave over time. Segmentation, on the other hand, differentiates customers based on shared behaviors or attributes, regardless of tenure. Both are critically important to the analysis of your business.
Why Cohort Analysis?
Cohort analysis can reveal trends in the customer base based on sales cohorts and their behavioral trends. This analysis enables companies to observe trends in customer retention and expansion over time and compare to other cohorts. Cohort analysis should be used in conjunction with segmentation.
Segmentation Approaches
There are many ways to segment your customer base. We have seen the following five approaches be effective for the businesses we have supported:
1. Firmographic Segmentation
Firmographics refer to attributes about your customers’ businesses such as number of employees, industry, revenue, etc. Sales and Marketing rely on firmographics to identify Ideal Customer Profiles (ICPs) in the go-to-market motion, and these attributes play an equally integral role in post-sales segmentation. At a minimum, work to segment your customers by one or two firmographic differentiators.
2. Customer Value Segmentation
Customer value is often the first attribute used to segment customers post-sales. Most commonly, Annual Recurring Revenue (ARR) or Monthly Recurring Revenue (MRR) are used to define the customer value segment. Total Contract Value (TCV) is also applicable.
3. Customer Stage Segmentation
Customer stage segmentation looks at customer behavior through the customer journey. Typical stages include Implementation, Hypercare, Adoption, Expansion and Renewal. Customize the stages to reflect your specific customer journey.
4. Customer Status Segmentation
Customer status considers attributes that reflect the sentiment and health of the customer: NPS, Health, and other customer advocacy stats, such as whether the customer is referenceable.
5. Product Adoption & Usage Segmentation
How customers use your products, and how often, are important differentiators. This type of segmentation requires product and usage analytics integrated into your tech stack and can offer powerful insights.
How to implement customer segmentation
To segment your customers, you have to be able to rely on your underlying data. Your CRM should serve as your system of record, configured to capture the data you need to describe each of the five aforementioned approaches. Within your CRM, make sure that segmentation attributes are required fields at the account level. Contract level data should also be present in your CRM to support the cohort analysis.
Just as buying habits change over time, customer behavior changes over time. It is important to analyze and review your segmentation approach annually and adjust accordingly.
Segmentation in action
You’ve defined your segments, captured them in your CRM….now what? It’s time to put segmentation to work in your organization:
- Engagement model: Use Customer Value and/or Firmographic segmentation to determine how your post-sales team supports customers across all segments. Consider which segments are supported with a pooled or scaled approach, versus a high-touch approach. For the CX function, this is arguably the most important outcome of your segmentation strategy.
- Product Marketing: Use Product Adoption and Customer Status segmentation to identify customer candidates for participation in case studies about new features or products.
- Pricing & Packaging: Use Cohort Analysis to understand if the new pricing and packaging resulted in improved expansion rates this quarter compared to last quarter.
- Reporting & Analytics: Use all available segments to build health scores, to correlate behavior to renewal likelihood/churn risk.
Start Simple
Segmenting your customers should be a priority for every Customer Experience leader. Use the data to inform your strategies and programs and continue to iterate and learn from the data. Segmentation is foundational to the entire post-sales motion. As with all data-driven initiatives, start simple and evolve your program over time.