The 3 Biggest Mistakes With Your Customer Segmentation

As we move into the time of year where annual planning becomes front and center, many GTM leaders and RevOps teams start to perform the type of work they wish they could perform all year round – analyzing what is working well in the business, what isn’t, and using it to craft the strategy to make next year even bigger than this one.

One of the typical analyses in all of this is Customer Segmentation. Unfortunately for most teams, this usually ends up being a waste of time. So, how do you ensure that your team isn’t wasting their time this year?

Before we dive in too far on where most orgs go wrong with Customer Segmentation, let’s begin with understanding what Customer Segmentation even is.

What is Customer Segmentation?

Customer Segmentation is the process of dividing customers into groups based on common characteristics. For B2B businesses, this typically starts with looking at Firmographics such as the industry, location, and size of your customers.

Many organizations next start to layer in Technographic data which refers to the technology stack that is in place. Knowing what CRM a customer is using or whether an ERP is in place can help point to the maturity of an organization, and even give a rough idea of what their budget could look like for new solutions.

Customer Segmentation vs. Ideal Customer Profile

You should be careful not to confuse Customer Segmentation with your Ideal Customer Profile. While these terms sound similar and are often used interchangeably, these are two different analyses that address different problems.

An Ideal Customer Profile (ICP) is a description of the perfect company or customer for your business. It’s possible for your ICP to be the same as one of the Segments from your Customer Segmentation analysis, or a subset. In companies that sell multiple products, service multiple industries, or different geographies, it’s possible to have multiple Ideal Customer Profiles.

Over time, it is very likely that your Ideal Customer Profile will change. In the world of B2B software, most organizations start out serving smaller organizations that make decisions faster and are more likely to try out new solutions. But many start to look at moving “upmarket” to serve large organizations that are oftentimes stickier and less likely to go out of business.

We’ll dive deeper into Ideal Customer Profiles in an upcoming post.

What is the goal of Customer Segmentation?

As with any analysis, the first question that should be asked long before diving deep into CRM data and excel spreadsheets is what is the purpose of Customer Segmentation?

At its core, Customer Segmentation helps us better answer the question of why our customers should buy from us over anyone else? Of course, we hope that Customer Segmentation allows us to increase sales and improve retention. But these are indirect results of putting strong Customer Segmentation into practice.

It is rarely the case that all customers buy your solution for the exact same reason. Breaking customers into smaller groups allows us to understand their unique needs, unlocking the ability to create more personalized content and outreach tailored specifically to their value prop and positioning uniquely suited to each Segment.

Where Customer Segmentation Goes Wrong?

1. Way Too Broad: Customer Segmentation is the process of dividing customers into groups based on common characteristics. For B2B businesses, this typically starts with looking at Firmographics such as the industry, location, and size of your customers.

Many organizations next start to layer in Technographic data which refers to the technology stack that is in place. Knowing what CRM a customer is using or whether an ERP is in place can help point to the maturity of an organization, and even give a rough idea of what their budget could look like for new solutions.

2. Updated Once A Year: While Customer Segments change at differing rates depending on the business over the course of a year, performance within them changes constantly. Top organizations are consistently measuring what is working within Micro-Segments in real-time and what isn’t so they can adapt quickly to markets that are changing faster than ever.

Knowing that customers that use NetSuite closed at a 50% faster rate than those that used Quickbooks in the last quarter can be used as a roadmap for marketing and sales to create new tailored content and point to where additional enablement is needed. 

3. Never Used: Last but not least is the bane of all analysts’ existence. After spending countless hours cutting and recutting data, they find that the hard work that went into building out Customer Segments was never used in a meaningful way.

Well maybe used once for territory planning when territory assignments are given out. But after that, probably not again until next year’s annual planning. Take a quick spin through your company’s Google Drive (or other repository) and you’ll likely find a graveyard of past Customer analyses with amazing insights that never saw the light of day.

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What Can You Do To Make Your Customer Segmentation Actually Work?

1. Build a Usage Plan: Before you jump into the analysis, put together a documented outline for how you expect the team to use the results and what success looks like. Customer Segments can be used to set targets for Sales and Marketing teams to go after.

Upfront alignment on which segments your company should be spending time on is critical to helping answers questions like:

  • Are inbound leads coming in from the Segments that we aren’t trying to target?
  • Are sales reps working accounts in Segments that are a lower priority?

Monitoring opportunity creation rates, sales cycle length, and average selling price by each Customer Segment in real-time can give you the ability to make decisions and changes quicker than ever, allowing you to double down on the Segments that are working and dig into areas that aren’t going as expected.

2. Get More Granular: Build Micro-Segments. The organizations that are able to scale the quickest deeply understand their customers and the problems they face. 

It is impossible as a single person to get your arms around every problem that B2B Technology businesses in North America are facing. But it is possible to deeply understand the needs of a Sales Manager at payment processing businesses selling to eCommerce stores specializing in apparel. 

Narrowing down your focus to Micro-Segments can be scary upfront. The fear of missing out (FOMO) is very real. But companies rarely win by going after all Segments at the same time. Rather, they win niche by niche where they can truly understand their customer’s problems and where their solution can best solve them.

3. Monitor Continuously: Measure performance on a monthly basis, at a minimum. For customers with sales cycles that are less than 30 days, monitoring on a weekly basis can improve results significantly.

Throughout the year it’s important to stay on top of the changes in your market and in your organization. As new reps come onboard and others leave your organization, monitoring performance at an individual level can help ensure you are putting your team in the best position.

Not all reps are created equal and treating them as such is a recipe for disaster. Some reps are better suited for serving one Customer Segment than the other. A tenured rep that has been selling into dental offices in Iowa and Nebraska for the past 15 years can’t be replaced overnight with a rep that has never stepped foot in either state. Unfortunately, this happens all of the time as accounts get quickly reshuffled when personnel changes occur.

Final Thoughts

So if your Customer Segmentation analysis ends with the recommendation that you should be reaching out to B2B Technology businesses in North America, you might want to take another pass. 

Customer segmentation is a powerful tool that can help businesses to better understand their customers and create more targeted sales and marketing campaigns. To avoid the common mistakes of customer segmentation, focus on creating Micro-Segments and monitoring their performance on a regular basis in real-time. 

The way buyers make purchasing decisions has changed. Gone are the days of purchasing your solution because you are the only one that can solve their problem. 

Today, buyers are buying your expertise as much as they are your product. And the bar is only going to keep getting higher and higher. The only way you can be seen as an expert is if you truly know their business better than they know it themselves. That starts with Customer Segmentation.

If you are interested in diving deeper or need help with Customer Segmentation, book time with AccountAim today!

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