Determining the Perfect Number of Customer Segments

In Customer Success, customer segmentation should be logical (take a step back and really think about it) and done from the customer point of view (think: Appropriate Experience segmentation) rather than from an internal-focused view (i.e. ARR, revenue potential, etc.).

It’s not about what a customer pays us… it’s about the customer’s appropriate experience.

Let’s dig into this…

For context, on Friday, May 5, 2017, I did a Customer Success Ask Me Anything (AMA) on Facebook live. It was awesome. The video (audio only… sorry) is embedded below and below that is the transcript (edited for better readability) that answers the question.


The Right Number of Customer Segments

This is from Brandon: “How many segments should there be for a B2B SaaS company that has an ARPU of $60? How many is too many? What is the proper balance in your opinion?”

The question is how many segments should there be for a product that’s $60 a month? Seven. I don’t know. There’s no blanket answer. I don’t know of any way to benchmark this from one company to another. You would have to look at a company that’s selling exactly the same product to exactly the same customers.

All I can say is you have to know your customers. You have to understand the appropriate experience of your customers.

You may find that for you, yes, you could get super granular. You could go down to seven different segments, but really if we’re not trying to find an excuse not to do this and we actually want this to work, we may find that there are just two logical segments.

There’s no blanket answer. I don’t know of any way to benchmark this from one company to another.

You would have to look at a company that’s selling exactly the same product to exactly the same customers. All I can say is you have to know your customers. You have to understand the appropriate experience of your customers. You may find that for you, yes, you could get super granular.

You could go down to seven different segments, but really if we’re not trying to find an excuse not to do this and we actually want this to work, we may find that there are just two logical segments.

We can really point out that, “Look, this customer in this particular vertical has a very specific, appropriate experience that we can call out.”

We can make that right for them. Everybody else fits into this other bucket and their appropriate experience is going to be this. We just have to bridge some success gaps for this industry, talk about some use cases, maybe have a little bit more … One to many, but more of the human interaction. Over here can be all tech touch, whatever.

Don’t overthink it and don’t go too granular, but there isn’t a right or wrong answer there.

You have to really understand your customers and also what it is you’re trying to do. I would say the worst thing you could do though is say, “Because we’re a $60 a month product, this is what we’re going to do.” The reality is you may be selling to customers that have an appropriate experience that is something you cannot give them in an economically feasible way for you if they’re only paying you $60 a month.

Then you have to be realistic about the fact that … You could ask them to pay you more. That’s certainly something.

Most companies will go in the direction, unfortunately, of taking a customer that pays us $60 a month and saying, “Hey, this is what they deserve. They’re only paying us 60 bucks a month. I can’t give them any more. In fact, we’re giving them too much as it is,” … customer-negative things.

What tends to happen there is those customers come in. They may even achieve their required outcome, but they churn out because the appropriate experience is not there.

You can have customers that don’t pay you very much and you can give them a lesser experience than what’s appropriate, but that’s probably going to be cause for a lot of churn. What you should do is say, “Those are bad fit customers because I cannot give them the experience that they need, the experience that is appropriate for them in an economically feasible way. I’m going to not do business for those customers.”

There are ways to get really clear, really deliberate on this.

A lot of times, those are decisions that people don’t want to make. It requires you to be intellectually honest about what you’re trying to do, but I would say, “Don’t get too granular.” Let’s open our eyes to what our customers’ actual appropriate experience is and look for logical groupings of that experience and there is your segmentation.

About Lincoln Murphy

I am a Customer Success Consultant focused on Customer Success-driven Growth. I wrote the Customer Success book which you can buy at Amazon. If you need help applying Customer Success-driven Growth principles in your company or would like me to speak at your event, please contact me. Also, connect with me on LinkedIn or follow me on Twitter or Facebook.

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