"Your segmentation strategy needs to be tailored to your unique customer base and resources so you can boost adoption, minimize churn, and maximize expansion revenue."
Segmentation divides your customer base into groups of customers with similar needs so that you can deliver services that are most appropriate for each segment, and maximize retention and expansion revenue. Segments are often designed to allocate scarce or expensive resources to the most valuable customers, but they can also be used to provide programs or services to suit the needs of different customer groups.
Segmenting is for (almost) Everyone
You don’t have to segment your customers, but it's rare to have a customer base so homogenous that you can use the same approach for everyone. Most businesses find that they can easily distinguish between key and non-key customers, creating at least two important customer segments.
At the same time, beware of creating too many segments. Even in a large organization with a diverse customer base, 3-4 segments should be enough to meet the needs of most customers.
"Use what makes sense for your customer base and always keep in mind that it should be easy to categorize customers. If it takes a committee and a process, the criteria are too complicated."
Segmenting for Success vs. Segmenting for Marketing
Marketing segments facilitate the acquisition of customers, while Customer Success segments orchestrate retention — so they can be quite distinct. For instance, you might have different acquisition programs for the various products you sell, but you may find that post-sale, the size of customers is more important than the products they use (or the other way round).
When designing Customer Success segments, consider your marketing segments, but don’t feel limited by them.
There are many ways to approach segmentation, and only you can decide what will work best for your customer base. We will start with the most common approach, segmentation by revenue, but there are many others.
Revenue (MRR or ARR)
The idea behind revenue segmentation is that extra attention should be paid to customers that contribute more to your bottom line. In turn, these high-value customers often have more complex needs. When segmenting based on revenue, consider these two points:
- Select meaningful segment boundaries. This means customers below and above each revenue level should have clearly different needs. If you decide to treat customers differently above $100k Annual Recurring Revenue (ARR), it will be awkward if you have a lot of $99k customers.
- Plan how to handle customers that drop down to a lower tier. Upgrades are never a problem but dropping to a lower tier can cause resentment, especially if the drop in revenue is slight.
A customer may generate relatively low revenue today, but have the potential for a much higher contribution in the future. If a large company starts with a small pilot project there could be a nice upsell opportunity, in which case you may choose to deliver a higher level of service — even if the current Monthly Recurring Revenue (MRR) is modest.
A customer may not be particularly large nor likely to grow but still serve as an important reference account. For instance, it may be a beachhead in a new territory or a gateway to a whole new industry. Coddling reference accounts can be an excellent investment for your long-term growth.
Customers often require a bit of handholding at the beginning of their lifecycle (usually the first weeks or even months). As a result, many vendors treat new customers differently, as a separate and special segment.
If your product or service is used across various disciplines, segmenting by industry is a smart move. For instance, you may offer back-to-school training and assistance to K-12 education customers while business customers receive Quarterly Business Reviews (QBRs).
Most vendors assign additional resources to worrisome accounts. The hope is that troubled accounts will overcome their issues after a period of focused care and extra attention. Think of it as a temporary segment boost, and one you don’t need to advertise, unlike other segmentation decisions.
Segment Your Way
Your customers’ unique requirements can and should matter for your segmentation strategy. It may be the number of branches, the mix of products they are using, or even their technical expertise. Use what makes sense for your customer base and always keep in mind that it should be easy to categorize customers. If it takes a committee and a process, the criteria are too complicated.
Two Revenue Segments
Here is a simple two-tier segmentation based either on current MRR or potential MRR. The Small and Medium Business (SMB) segment receives minimal help, while Enterprise customers receive personalized service from start to end through an assigned CSM.
Three Revenue Segments
Here is an example of three customer segments, illustrating a progression from self-service to highly personalized service. Once again, the segmentation could be based on current or potential MRR.
Segmentation doesn't have to follow a Russian-doll, nested logic. The last example illustrates a segmentation by industry rather than expected revenue or company size.
Your segmentation strategy needs to be tailored to your unique customer base and resources so you can boost adoption, minimize churn, and maximize expansion revenue. Don’t be afraid to experiment and reevaluate your strategy based on observed outcomes.
About the Author
Francoise Tourniaire is the founder of FT Works and co-founder of ChurnSquad. Both companies provide consulting, training, and coaching to create and improve Customer Success initiatives. She is the author of The Art of Support, a complete guide to Customer Success and Support.
Contact Francoise at firstname.lastname@example.org or +1 (650) 559-9826 for more information.