Logical Customer Segmentation: The Key to Scaling Customer Success

logical-customer-segmentation-the-key-to-scaling-customer-successCustomers that pay more need more human interaction, right?

Customers that pay less don’t deserve as much human interaction, right?

Customers that we give more human interaction should pay more, right?

Segmenting customers based on how much they pay us is one of those traps that a lot of Customer Success organizations fall into, mostly because it seems logical and it’s what the industry has been doing for a long time.

But that doesn’t mean it’s right. Let’s explore a bit, shall we?

Appropriate Customer Segmentation

Each customer segment will have its own Appropriate Experience (AX) – even if they share the same Required Outcome – and this will tell you the type and level of coverage (humans – required skills, characteristics, etc. – plus technology).

Required Outcome + Appropriate Experience is, of course, what makes up the customer’s Desired Outcome.

This means that segmentation should actually be logical (take a step back and really think about it) and done from the customer point of view (think: 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.

It’s easy to just assume that those things would be correlated, but that’s not always true; and that assumption can cost you dearly, in revenue, profit, and ultimately, customers.

Don’t Over-deliver. Don’t Under-deliver. Just Deliver.

Some high-revenue customers paying the same amount will have very different Appropriate Experiences and if you don’t know this, you’ll normalize across all customers paying us that same amount.

But, one segment of customers within that same “revenue band” may have an Appropriate Experience that requires much less coverage by humans, resulting in a super profitable segment if you understood this.

By not knowing this, however, we inadvertently take what could be a very profitable segment and over-deliver, costing us more in the process and – worst case – actually driving the customer away because the experience is inappropriate for them.

When Appropriate Experience isn’t Economically Feasible

On the flip side, this thinking could lead to us under-delivering for some customer segments when we should actually not be doing business with them at all since they’re a bad fit.

Customers that don’t pay enough to get an appropriate experience; don’t give them an inappropriate experience because that’s all that’s economically feasible… don’t sign them in the first place!

If you can’t provide them with their Appropriate Experience in an economically feasible way for you, either get them to pay more so you can (sometimes we just don’t ask for enough money), or, if they can’t pay more, don’t sign them because they’re a bad fit (lacking Experience Fit) right now.

Maybe at some point in the future, you can provide them with an Appropriate Experience in an economically feasible way or, after being in-market for some time, they’ll trust that you can help them and will pay more for the privilege.

But providing a customer segment with an experience that is inappropriate because that’s all they can afford is not actually helping the customer succeed… in fact, you’re punishing them when you should simply walk away from that engagement until you can provide them with an appropriate experience.

Appropriate Experience Discovery process

Before trying to figure out all of the logical segments that may exist across your customer base or Total Addressable Market, start with one and discover the Appropriate Experience for them.

After that, you’ll start to see how important Appropriate Experience is to the customer, why it’s not going to be the same across all customer segments, and other logical segments will begin to appear. So do this:

  1. Start with your Ideal Customer
  2. Create a hypothesis based on the characteristics of your Ideal Customer
  3. Interview Customers and Prospects that fit your Ideal Customer Profile
  4. Observe them in their daily routines
  5. Ask about their goals
  6. Ask about experiences with other vendors that they thought were right on
  7. Ask about adjacent products/services they use and research the experience those vendors offer
  8. Come out with a more solid Appropriate Experience hypothesis
  9. Create a Customer Success Management process for that hypothesis
  10. Run it by some of your trusted customers to see if you’re on the right track or
  11. Start testing it with customers

Once you’re comfortable you have the process down, start doing this with your other logical Customer Segments.

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.


  1. Cyrille Saulnier says:

    Hi Lincoln, very interesting article and this has definitely got me thinking.
    Our current segmentation is based around the size of companies we are dealing with, so probably a bit Account Management old school.
    In terms of customer experience, I believe the real impact is the number of licenses / users on the client – this will probably define the level of interaction and engagement a client will require. We indeed have a lot of single user client.
    I will look into this and see how we can adapt!
    On a side note, one point I found hard to swallow for a business is “don’t sign them because they’re a bad fit”. We are already struggling to get our Sales Rep to follow some simple best practice (proper T&Cs, no hand written amendment to the Sales Order etc.) so rejecting a deal based on “bad fit” is quite remote for us! Any advice on how to introduce it without damaging growth?

  2. Hi Lincoln,
    In practice, it’s not that easy to segment users based on Appropriate Experience as if you define it wrong you’ll end up with wrong segments.

    One way we do to approach this (and it seems our customers use this a lot) is to uncover specific behavior of the winners. Most often there are 2 or 3 elements (specific actions, or specific frequency or time frames) that can be used for markers to identify such segments.

    With such an analysis, one of our customers, a form builder software discovered that they had basically 2 main segments: users who were into managing multiple forms versus the users that were into getting as many submissions on their forms.

    Till the moment of the discovery, nothing in their business plan was designed for such 2 groups. They were mostly segmenting by industry.

    • I like how you say “in practice” as if what I’m saying is all theory and not based in reality. Subtle, but totally wrong.

      You don’t define Appropriate Experience, you discover that from your customers, as you said. The problem is, the data doesn’t tell the whole story.

      Using my approach means you actually have to talk to – and otherwise learn from – customers and not just look at data… maybe that’s why my way isn’t “easy.”

      • Talking with customers and looking at data are complementary. In my view, they are both a must and both as important. If one of them tells a story and the other doesn’t back it up it means the story is wrong (or better said, misunderstood).

        It’s true I prefer to start from data as it can help a lot when discussing with actual customers.

        The model you present is not just in theory. I’ve seen it work. What I meant with “in practice” refers mostly to the first 4 points of the plan you present. They are straight forward but I’ve seen so many companies struggle with them (even with the first one: Start with your Ideal Customer).

        When no data is used in this process meetings around these points get very intense and with little results.

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