The Guide to Customer Success Segmentation

What is customer segmentation?

Customer segmentation means dividing your current customer base into different groups based on common traits or behaviours.

Without a customer segmentation strategy, your business risks being generic and failing to connect with customers on their level. Personalization of your interactions with customers is a key component of customer success and helps you decide which customers are the best candidates for engagement at a given time. Segmenting is necessary because it’s not practical for a customer success specialist to cater to each customer separately.

Some of the examples where segmentation can be useful:

• Send targeted newsletters based on industry.
• As a SaaS company, companies who have the highest ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) are a great fit for your business’s time and attention. Retaining these customers is the most valuable for your business.
• You might be aiming to tailor your customer communications based on new customers who hail from different geographic areas, or customers who have used all of your main features but haven’t logged in for a week. These two types of customers require a targeted approach from your team.

Why is customer segmentation important?

Customer segmentation aims to divide your clientele into smaller groups to make your interactions with them more specific and tailored. The following are reasons why customer segmentation is as critical to the success of your business as any other marketing strategy you devise.

1. Helps create a personalized experience for the user

Customer segmentation is the secret sauce that empowers businesses to create tailored experiences for their customers by grouping them based on shared characteristics. It allows you to customize your products, services, marketing, and sales to each segment’s unique needs and goals.

For instance, Monday.com, the work management platform, leverages customer segmentation to target customers based on their industry, location, use case, company size, and subscription plan. This approach has helped them create relevant content, provide customized customer support, deliver personalized demos and webinars, and identify upselling opportunities.

The result is increased customer satisfaction, loyalty, retention, and revenue. Moreover, customer segmentation will improve your product development efforts by giving you a better understanding of the challenges and outcomes of different customer segments

2. Improved customer service

SaaS customer segmentation is a powerful tool that will help you better understand and meet the expectations and needs of your customers, resulting in better customer service. Identifying patterns among your clientele allows you to tailor your service to each segment’s unique problems, priorities, and inclinations.

With this method, you can talk to each group through the channels and platforms they prefer and put them in touch with the right agents or teams based on their skills and knowledge.

Improving customer satisfaction, loyalty, retention, and advocacy within each segment enhances customer service and makes customers feel valued, understood, and cared for.

3. Improved offerings

If you want to craft offerings that genuinely resonate with your customers, Importance of customer segmentation is necessary. By gathering insights into who your customers are, what they want, and how they behave, you can elevate your offerings in a multitude of ways:

• Develop innovative solutions that solve specific problems and exceed customer expectations
• Test new ideas with the right audience before launching them to the world
• Customize your products to meet the expectations and requirements of each customer group
• Continuously refine your offerings based on feedback from each customer segment

These will help you, in the long run, to develop irresistible products, increase sales, cut expenses, and bolster customer loyalty.

4. Price optimization

Price optimization is about finding the sweet spot between value and profit. It’s about knowing how much your customers will pay for your product or service.

Customer segmentation helps you optimize your prices since you can group your customers based on traits that affect their purchasing power, like demographics, buying behaviors, values, and needs.

What do you get from this?

You can increase your sales and revenue by targeting specific customer segments and charging them different prices based on their willingness and ability to pay. Since you’ll deliver better value per cost and exceed customer expectations, you can expect a boost in customer loyalty and retention.

This differentiates you from the competition by allowing you to charge different prices to different customers. You’ll be able to have a pricing strategy that changes with the market and customers’ tastes.

5. Increased revenue

Any company that properly segments its customers can attest to its revenue-boosting effects. The logic behind it is pretty simple. When you understand your customers – who they are, what they want, and how they behave – and effectively segment them, you can create targeted marketing campaigns that address each group’s unique needs and desires.

You can also set prices and offer discounts that align with their budget and perception of value, increasing sales of your products and services that cater to their needs and expectations.

All these factors ultimately contribute to the growth of your customer base, an increase in sales, and a higher average order value, resulting in a boost in revenue.

6. Better marketing campaigns

B2B customer segmentation is like having a secret decoder ring for your business. By using it, you can unlock the mysteries of your customer base, understand their unique traits and behaviors, and communicate with them in a way that resonates deeply. When you play the customer segmentation game well, you will:

• Craft relevant and engaging messages that address each segment’s problems and desires.
• Choose the proper channels and platforms to communicate with each group based on their preferences.
• Test and optimize your campaigns for each group based on their feedback and behavior
• Increase your conversions and sales by offering personalized solutions that match each group’s expectations and goals

7. Higher ROI and CRO

Let’s take a scenario to explain this. Imagine you’re a fashion designer trying to curate the perfect suit for every customer. Without knowing their size, style, and preferences, you would waste a lot of fabric, time, and money on trial and error. In the same way, customer segmentation helps you find different groups of customers with similar needs, interests, behaviors, and buying patterns.

By tailoring your marketing messages to each segment and creating a sense of alignment with their values, you can increase your relevance, engagement, and conversion rates, resulting in a higher ROI and CRO. Businesses that use advanced segmentation strategies can get a return on investment (ROI) of up to 20:1.

Investing in customer segmentation will help you create the perfect customer experience and maximize your ROI.

How to segment customers?

Segmenting customers requires collecting customer data with which you can base your categories on.

The data that you need to build customer segments is frequently held in more than one platform. In this case, a Customer segmentation software by Churn360 will be an indispensable tool in helping you to collect data.

Churn360 integrates data from payment tools like Stripe or Charge bee, your CRM like Salesforce, user analytics and feature usage from platforms like Segment, customer support request data from tools like Fresh service or Zoho, and more. All this data is collected in a single screen by Churn360 which makes creating useful segments very easy.

It’s important to segment your customers based on customer success attributes – for example, what statistics about your customers do you regularly report on to your customer success team and how does your company currently perceive your different types of customers? Potential segments include active customers, account status (paying customer versus trial), or customers by size (enterprise versus SMB). You can tailor your messaging to help different segments at varying stages of the customer lifecycle, from onboarding, to adoption, renewal and expansion.

Another way to segment your customers is to gather data about exactly how customers are using your products. You can keep track of which customers are using your core features and who is logging in regularly. You can monitor who reaches the activation point with your software and who fails to complete a successful onboarding. You can construct goals for different points in your customer’s journey to see where your customer segments are hitting barriers and find ways to help them.

Steps for Implementing Customer Segmentation

There are several sequential steps you need to go through when implementing customer segmentation for your SaaS business.

Data collection

The first step for implementing customer segmentation is collecting the data for your proposed groups. To collect data effectively, you must decide on the characteristics you want to pursue and then find out whether the data is viable. For example, it might be easiest to collect demographic data about your customers but this won’t necessarily result in the most insightful customer segments.

Analysis

Once you have collected your customer segmentation data you need to analyze that data for insights. Make sure your data is in a format that can be analyzed by common data analytics tools and don’t worry too much about outliers that won’t fit into your segments. When you’ve searched for characteristics, you’ll be able to find out if you have enough customers to fit into each segment.

Segmentation

When you have created your segments you can then go on to decide how you want to tailor the product experience to appeal to each group. If you’ve conducted qualitative methods of gathering data such as interviews and surveys, you’ll be able to understand what each group of customers requires from your product. This form of data can result in much richer insights which can then go on to form the basis of your product experience.

Targeting

Target your customers according to their specific needs and regularly revise your segmentation strategy to ensure you have the most relevant customer groups. You’ll need to measure the customer success of the segments you have targeted so you can find out whether your segmentation has actually worked. If some segments are not working particularly well then you may need to revise them to target customers who are more likely to experience success with your product.

Customer segmentation models

Traits-based segmentation

One way of segmenting your customers is based on their demographic traits such as location, age, gender, job title, industry, ethnicity, or any other factor that defines your customer as a person. Other traits include industry, subscription plan, usage and more.

This data may be readily available online or collected by sign up forms or welcome screens. This type of data is highly useful for personalizing communications and making messages more relevant.

Needs-based segmentation

Needs-based segmentation is defined by what customers want to achieve by using your product and the problems they want to solve. Every user has unique pain points that they need to overcome and they have chosen your product as the solution.

This type of data can be collected through customer success calls or interviews. It tells you more about how customers are using your products and is helpful for tailoring customer support and success messaging to individual users.

Value-based segmentation

A very common way to segment customers is through how much they are worth to your business. These groups could be based on MRR, ARR, CLTV and churn. It makes sense to prioritize your high value customers for personalized messaging that reduces the risk of churn. You might want to devote more of your efforts towards targeting these types of customers because it will be more worthwhile than your low-value customers.

Challenges of Customer Segmentation

Customer segmentation is not always straightforward. There are some challenges you may encounter when implementing segmentation.

Data privacy concerns

There will more than likely be customers who do not want you to collect their data and this poses a challenge of customer segmentation. You must respect their wishes when gathering data for your segmentation efforts. You also need to be careful in the way that you handle the data that you do collect to comply with data privacy laws.

Data accuracy

Even when you do manage to collect the data you need, there is often no way of knowing how accurate the data actually is. You need reliable data if you are going to be able to effectively segment your customers and base product experiences around the characteristics that you find represented.

Data management

Staying on top of all the data you collect can be a full-time job. Properly managing and housing that data is a key challenge for SaaS companies who are successfully segmenting their customers.

Some Metrics to Segment Customers

Data is everything as far as Segmenting Customers is concerned. The more relevant data you have the better you can Segment Customers. Here are some data-related examples.

Churn Scores

Churn scores are an easy way to help CSMs focus on the right customers at the right time. For a simple explanation, Churn scores collate various data about a customer including things like the number of logins, features usages, billing history and so on and form a score that shows the likelihood of a customer churning. This helps the CSM to proactively manage customers who are not getting full value and see how they can be assisted. Churn scores are a great way to start. By grouping customers with an average, poor and good health score, the CSM can have different engagement strategies for each.

For example, for the Segment of customers with poor churn scores, the CSM can analyse usage and suggest features that could bring value to their business which they probably are not using. For customers with average churn scores, the engagement strategy should be to ensure they do not fall to poor. By understanding those customers more, CSMs can map what they must do to improve the score. Customers with good churn scores are the ones who will become your advocates, so campaigns to get referrals and advocacy campaigns can be run with them.

Customers Value to you (MRR/ARR)

The higher the MRR/ARR of a customer, the more value they would expect from your product and the higher the customer service they expect from you. So, grouping customers based on MRR/ARR is a very good starting point.

Renewal Days Left

Even though CSMs would have processes to try and renew customers early, some customers do not renew till the last few days. It is important to track these customers and follow up regularly to ensure they renew before the renewal date. Creating a Customer Segment for customers who are due for renewal within the next 30 days or even 15 days and keep a close watch on them will be very useful.

Plans

If your product has multiple plans, grouping customers based on their plans will help CSMs send relevant information to customers. For example, if each plan has different features, then the CSM does not have to worry about feature usage or sending information about features that are not part of a plan.

Demographics

If you sell your product in different countries, then grouping customers by demographics and assigning CSMs who understand their culture better goes a long way in increasing customer service levels. It is also very useful to send information to customers in different countries at the time that works for them.

Use Cases

Every Customer’s reason for using your software will be different. Understanding why your Customers are using your product is important to ensure your Customer’s goal is achieved as one size does not fit all. This information can be used to cater relevant messaging and engagement to your Customers to track their goals and ensure true Customer Success.

Customer’s Age

New Customers require different hand-holding compared to old customers. Based on your processes, Segmenting Customers based on their age can be very useful.

Customers by Industry

Businesses in similar industries may use your product for similar use cases. In that case, grouping by industry will help. Grouping by industry also has the advantage of allowing CSMs to speak similar jargon to the set of customers who will understand that.

Where to get the metrics to create segments from ?

The data required to create segments usually reside in multiple systems. This is where a Customer Success platform like Churn360 helps you. It will pull data from your CRM, finance systems like Stripe or Chargebee, user analytics and feature adoption from platforms like Segment, support ticket information from tools like Freshservice or Zoho to name a few. All this data is available in one place which makes it easy to create Segments.

Customer segmentation examples

1. Customers by product fit

Product fit is a common way to segment your customers because it tells you about the ways in which customers are using your product. Is it being used for its intended purpose or are customers using it in unique and unexpected ways? How can this inform your customer success strategy?

2. Actively onboarding customers

Customer Onboarding is a crucial stage in the customer lifecycle and your customer success team will want to be paying close attention to users in this segment. Determine how long the onboarding process should take and identify those customers who are struggling to complete it in the desired time frame.

3. Customers at risk for churn

Identify those customers who are at risk for churn so you can concentrate your customer success efforts on re-engaging them with your product. Warning signs could include not logging in for more than a week or failing to integrate your app with third-party software. This customer segment is a great candidate for your team’s attention. You can send out surveys to customers and track customer health score to get a clear picture of those who might churn.

4. Location

Location tells you more about how you can reach your customers with your messaging. You might want to adjust your messaging for customers who live in different areas. For example, you will approach customers living in London in a different way compared to those living in Manchester.

5. Lifecycle stage

Lifecycle stage refers to where a customer is at in the customer journey, and informs the type of messaging that they will be receptive to. For example, is your customer a new customer who will benefit from a bespoke onboarding process to get up to speed with your product? Or is your customer a seasoned veteran at risk of churn who needs a re-engagement program?

6. Values

When segmenting customers it’s important to get an idea of what they value so you can tailor your marketing messages accordingly. To understand their values, you need to appreciate what they want and identify common obstacles that they have to achieving their objectives. This will tell you more about what customers are looking for in a brand.

7. Net Promoter Score

Segmenting your customers through Net Promoter Score indicates how customers feel about your business as a whole. If a customer rates your business highly this shows they are satisfied with your service while a lower score suggests they may be about to churn. Finding out who your promoters and detractors are lets you get the most out of your happy customers and allows you to proactively reach out to those who are unhappy and turn their experience around.

8. Annual Recurring Revenue

Annual Recurring Revenue tells you how much a customer is worth to you over a year of doing business with you. Customers with a high ARR could be candidates for significant investment when it comes to customer success and customer support. It’s critical for your business to retain these customers to maintain overall profitability.

How to use segmentation to enhance your customer experience

When you’ve collected all this data, what do you do with it? You can use your customer segmentation to enhance the customer experience and promote more growth with your product.

• You might want to set up personalized onboarding for high-value customers who still haven’t activated your product and reached that “aha” moment.
• You can target those customers who haven’t logged in to the app for a period of time, are confused with the app or have failed to use a feature that fits their use case. Use this data to trigger automated emails prompting customers to take a certain action, or set up a customer success call to talk them through it.
• You can identify customers who are unhappy by the NPS survey results and initiate steps to engage to understand the problem and avoid the risk of churn.
• You can increase business revenue by targeting upsell messages to relevant customer segments within the app. You can present them to highly active users who have the potential to convert to a higher paid plan. Make sure customers know the value of the features they would have access to if they upgraded to increase the chance of conversion.

Read more: How to use data analytics to improve customer segmentation

Wrapping up

Customer segmentation is a powerful way to increase the value of your customer success efforts and to target existing customers more effectively. By segmenting your customers into groups, you can make your messaging more relevant and increase the chance that customers will take your desired action with your software. When you know more about your customers, content can become much more personalized and this makes customers more receptive to what you’re trying to say.

Whether you’re trying to sell more or find ways to engage more customers with your app, segmentation is a great way to increase the effectiveness of your communications and gain more ROI. Less and less of your efforts are wasted in targeting individuals who don’t want to listen, and you see more successful campaigns as a result.