Having a clear definition of your Ideal Customer is one of the most important things you can do for your business.
Your Ideal Customer Profile – ICP – dictates (or should dictate) everything from the features and functionality of the SaaS product you build, to the words you use and the emotion you invoke or tap into in your marketing.
I think people forget that you actually get to choose your customers. You get to choose who you want to do business with. So creating an Ideal Customer Profile isn’t limiting… it’s empowering!
In fact, if you don’t choose who you want to do business with, your customers will choose you… and they may very well be less-than-Ideal.
There are obviously lots of ways to come up with your Ideal Customer Profile, lots of methods and templates and canvases… but over time I’ve developed this framework that works well for me.
And I continue to evolve it. When I do, I will update this post. The current version is for Q12016.
If you’re looking for information on why you should create an Ideal Customer Profile, here are a couple of articles and a presentation that will help set the stage.
- Who’s your ideal customer?
- SaaS Sales Funnel: Stop Optimizing for the Wrong Customers
- SaaS Churn Rate Reduction Starts with Attracting the Right Customers
- Where is Your Ideal Customer on the Awareness Ladder?
Not About Persona Development… Yet
This Framework is not about persona development, it’s about the types of Customers (generally, in a B2B setting… a company) that you should target with your sales and marketing initiatives for a particular situation (more on this shortly).
We’re not trying to come up with “HR Henry” or “Marketing Maxine” or define the characteristics of the economic buyer, technical buyer, or coach in this exercise.
Persona development has to come after ICP development because you simply cannot know what the personas look like – let alone what Marketing Channels, Pitch, Pricing, or Messaging to use – until you are clear on your Ideal Customer Profile.
Think about it…. the CMO at one type of customer will have different motivations / interest / desires / budgets / influencers / etc. than a CMO with matching demographic and psychographic characteristics but at a different type of company.
So get clear on your Ideal Customer… then move on to persona development, empathy mapping, etc. That’s all very important, but it’s not the first thing you have to do; this is.
But first, some bad news; there is no….
Universal Definition of an Ideal Customer
Sorry. There is no Universal definition of an Ideal Customer; not for your company… not for any company.
Your Ideal Customer Profile is a living, breathing “definition” that you’ll come back to – and modify – often.
Ultimately, you should think of your Ideal Customer as the customer type that – over a clearly-defined time frame – you will dedicate Sales and Marketing Resources to acquire.
In fact, your Ideal Customer is really specific to:
- The situation you’re solving for
- Your goal
- Your capabilities
Before you can develop your Ideal Customer Profile you must overcome…
FOMO – The Fear of Missing Out
A lot of people I share this framework with are afraid of narrowing things down to one Ideal Customer – even if just for a single situation – and that’s due to FOMO (the Fear of Missing Out).
They think that if they focus on only one type of customer, they’ll miss out on all the rest.
But the reality is when you don’t focus, and instead, try to be everything to everyone, you end up making a connection with no one. When that happens, I guarantee you’re missing out.
You’re missing out on every one of those people who are, in fact, your ideal customer.
So to overcome FOMO…
Situational Awareness is Critical
Determining your Ideal Customer is NOT about determining the ONLY type of customer you’ll ever do business with, ever.
No, it’s about determining the Ideal Customer for a particular situation.
That should ease the FOMO pain a bit.
The situation definition has three inputs:
1. The Time Frame
Use whatever timeframe makes sense, but 3 or 6 months is generally a good amount of time for adequate testing. Less than that is likely not enough time and more than that is, you guessed it, probably too much time. But if you have a valid reason for the timeframe you’ve chosen – a mandate from investors, a gut-level feeling, etc. – then go for it.
The key is to be specific with the overall timeframe but to also identify milestones along the way where you can check-in to see if this ICP hypothesis is proving true or false. If a 90-day ICP hypothesis is proving false after 45 days, you can either adjust your tactics or make the call that this ICP is in fact not Ideal and pivot to a different ICP.
2. The Goal
Just as you need to be specific with the timeframe for this situation, you need to be specific with the goal you wish to achieve in that timeframe.
- x amount of additional revenue
- x new customers
- x customer advocates
You’ll notice that the goal isn’t only revenue or new customers, but could be customer advocates (those customers willing to help you land other customers). The goal can really be anything you want, and it’s this goal that will really dictate how heavily we weight the different inputs into the Ideal Customer Profile.
That said, it should be clear that once you define the time frame and the goal that the type of customer you go after – your Ideal Customer – becomes very, very important. Reaching that specific goal in the specified timeframe without being extremely deliberate in your customer acquisition efforts is essentially a non-starter.
You’ll also need to be clear on where you are starting from (baseline) and what metrics you’ll use to measure progress for this situation (and ensure you’re keeping track of those)
3. Your Current Capabilities
This final point is critical; regardless of what your goals are, you have to be realistic about what you can actually do for your customers. Sure, in order to grow and expand you sometimes need to take on “stretch” customers that require you to extend your capabilities… but you have to be realistic about the amount of stretch you can handle. If you only have an API and Enterprise customers require a fully developed rich UI, that may be too much of a stretch right now so they won’t be your Ideal Customer for this situation.
Some things to consider::
- The maturity of your product (API only vs. MVP vs. Feature Parity with Market Leader, etc.)
- Your ability to serve customers (onboarding, training, customization, customer support, etc.)
- Technology or other dependencies (these will figure heavily into the Success Potential input
All of that allows for something we don’t have when we just try a bunch of things with a broad audience…
The Scientific Method
The Ideal Customer Profile Framework allows you to take a more scientific approach to your marketing and sales. It’s one of the only ways I know of that allows you to test CUSTOMERS vs. just marketing tactics.
If you have 90 days to acquire $100k in new ARR, if you’re not at $34k in new ARR by the end of 30 days, you can decide to change your tactics, keep going, or pivot to a new Ideal Customer Profile if you feel the profile you originally came up with isn’t working out for you or was just wrong.
It’s so much better to know something isn’t working and be able to cut bait and move on to a new fishing hole, than to just keep fishing in the same place even though nothing’s biting… and this framework finally gives you a more scientific (and less subjective) method to achieve that. Sorry for the fishing analogy.
Okay, so onto the actual framework, but don’t skip the Situational Definition… it’s absolutely critical. Without a clearly defined situation, just defining an Ideal Customer will not work.
Ideal Customer Profile Framework (Version: Q22016)
If you can find a customer that is Ready, Willing, and Able, that’s a great start.
But if the customer is more likely to be successful with your product, you can acquire and support that customer profitably, there is expansion potential there AND they’ll be an advocate for you… that definitely is an Ideal Customer.
Okay, so here’s the breakdown of the Framework, starting with the baseline characteristics.
- They have a problem they need solved / opportunity to take advantage of
- They know they have the problem / opportunity
- The problem / opportunity is acute … there’s a sense of urgency you can take advantage of
- They’re ready to solve that problem by taking action
- Even better if they’re exploring options to solve that problem
- There’s a strong Catalyst driving change: M&A, Investments, Bankruptcy, hiring/firing, RFP, etc.
- They have the means to solve the problem (i.e. they have the money)
- They have the authority to solve the problem
- The way you sell matches their Buying Cycle / Procurement Process
Ready, Willing, and Able are the baseline characteristics of an Ideal Customer.
But you can do even better by applying the value-add inputs of Successful, Efficient Acquisition, Expansion, and Advocacy Potential.
4. Success Potential
- Success Potential is such an important part of developing your Ideal Customer Profile, I’ve dedicated an entire post to understanding it.
- I go into a lot of detail on this input in this post: This Customer Acquisition Mistake Can Kill your Growth
- In the next major update to the ICP Framework, Success Potential will be carved out as a stand-alone step in developing your Ideal Customer profile.
5. Acquisition Efficiency
- This means that it’s cost-effective to get in front of them
- Could mean CAC < (LTV/x) where x = the lifetime of the customer in months
- If they’re strategic, the actual monetary cost to acquire may not matter, but the ease of acquisition might
- It may mean that you can reach them by leveraging existing distribution channel knowledge, but it might not.
- Don’t let existing channel knowledge / expertise bias you if the other ICP inputs tell you what you know best – AdWords for example – isn’t the right way to reach them
- Include Onboarding & Support costs when considering cost-effectiveness of the acquisition
- It’s one thing to pay little to get the initial deal, but if they amount of work required to deliver first value is too high, for a situation where CAC matters, they may not actually be your Ideal Customer.
- Figure in Estimated Lifetime (eLT) as well; this is a metric you should have developed either without data or with data sourced from your Customer Success Management system.
- eLT will help you understand CAC efficiency and whether or not a targeted cohort of customers will be profitable, which would help determine if a cohort you’re evaluating fits your ICP or not.
- You must know the Buying Cycle / Process of your customers to truly understand if they fit into your situational ICP.
- If you’ve decided that you want to add 25 customers in the next 90-days, your ICP for that situation will need to have a shorter buying cycle, a buying cycle that doesn’t have a procurement window or has one that’s within the next 90-days (schools in the United States, for example, often procure products
- Customer Success begins by acquiring the right customers – see #4 above – but in itself drives use/consumption/revenue and extends the customer lifetime, therefore driving up LTV and improving CAC efficiency overall.
- Generally speaking, this is how you improve the per-unit profitability of a customer
6. Ascension Potential
- This is Intra-Company Virality or Land-and-Expand
- Includes Additional seats (or licenses, users, etc.), as well as Upsell and Cross-Sell
- Cross-sell can be selling the same thing to different parts of the company
- Cross-sell can also be selling other (different) products to existing customers
- Cross-sell often re-introduces the sales organization into the mix as it generally requires a new sales cycle
- Upsell can often be handled by Customer Success Managers / Account Managers
- Expansion must be logically orchestrated around the Customer’s Success
- Expansion drives customer Lifetime Value (LTV)
- Known expansion potential can lead to immediate ASV (Average Subscription Value) boost through strategic discounting
- This is a major consideration when deciding to sell to Enterprise Dept vs. SME, Agency vs. Enterprise, etc.
- Customer Success is absolutely required here… no success, no expansion
7. Customer-driven Growth Potential
- Advocacy, Word of Mouth, Virality
- Inter-Company (beyond our four – even if virtual – walls) Virality
- Improves Customer Acquisition Cost (CAC) Efficiency
- Spend $1 CAC to bring in 2 customers (1 refers another) and your CAC drops to $0.50
- Many ways to achieve Advocacy
- Network Effect = Built-in Social Proof
- Social Proof – logos that get more logos
- Be careful with the customers you attract initially
- Advocacy is generally horizontal; people will refer/advocate for you to their peers
- Customers will generally not bring in higher-value customers than themselves; it may happen, but don’t bank on it
- So if you bring in low-value / less-than-ideal customers initially, if there is advocacy potential, it will probably not result in higher-value customers.
- Customer Success is required here, too… no success, no Advocacy
Chasing logos is fine, but chase logos that get you more logos instead of logos that just feed your ego (or your bank account short-term)
— Lincoln Murphy (@lincolnmurphy) June 19, 2014
Ideal Customer Sanity Checks
Here are some quick Sanity Checks to do before you run with the profile you’ve created.
Ideal Customer POV
- Would they know they’re your ideal customer if they looked at your site?
- Would they feel comfortable in your app?
- Would they feel like your service was designed for them?
Who’s your less-than-Ideal Customer?
- Make sure you’re not going where they are!
- Then make sure you’re not actively attracting them
- Would they think they’re your ideal customer if they looked at your marketing assets? That’s bad. Fix it.
Ideal Customer Profile Defined; Now What?
- Develop buyer personas with confidence!
- See how your Ideal Customer proﬁle compares to
- the rest of your customer base
- prospect funnel
- customers that churned
- current churn threats
- prospects that didn’t convert during the trial
- cohorts by acquisition channel
- Test or Complete your Hypothesis
- Use the Ideal Customer Profile to get look-alike leads
- Buy leads that match their characteristics
- Give the proﬁle to LeadGeni.us, Carburetor, or Growbots to ﬁnd leads or people to talk to
- Run the proﬁle through Mintigo and ﬁnd others like them
- Figure out how to get in front of them
I hope this helps you take your SaaS business to the next level!