Measuring the effect of customer segmentation on SaaS business

Suprej Venkat Apr 14, 2023

Customer segmentation is an important factor for the success of your SaaS business. Only when you place customers into groups based on shared characteristics can you offer a tailored product experience that results in higher customer retention and product adoption in customers who are ultimately more loyal to your business.

Just as important is the need to measure the effect of customer segmentation on your SaaS business. You need to know whether your segmentation efforts have been successful and whether it has resulted in higher revenues from your targeted customer groups.

This means drilling down into the data that tells you whether the customer was more engaged with your product after you offered them a more segmented experience. It also helps you offer highly targeted marketing campaigns that appeal to different groups of customers.

Theoretical Frameworks on Customer Segmentation Such as RFM (Recency, Frequency, Monetary)

You can use segmentation to identify customers who would be great candidates for a targeted marketing campaign. One way to do this is using the framework of Recency, Frequency, and Monetary (RFM) which helps you perform an analysis to quantitatively rank customers based on their most recent transactions.

  • Recency – measures whenever the customer’s last purchase was made in terms of hours, days, weeks, months or years. Customers who have recently purchased your product may be more likely to buy again.
  • Frequency – how many times did a customer purchase your product within a given time frame? Frequent purchasers are more open to buying again.
  • Monetary – how much did a particular customer spend in a set time frame? High value customers are good ones to target with your campaigns.

In RFM analysis, you then come up with a score that tells you which segments of customers are best for you to target for your marketing campaigns.

The Effect of Measuring Customer Segmentation

Measuring your customer segmentation efforts results in a higher success rate and a more repeatable process. If you target a particular customer group, but it doesn’t result in more sales or a higher customer success rate, you may want to move on to different segments that will be more valuable.

Instead of wasting time on customers who are unlikely to convert, you can target those customers who will be most profitable for your SaaS business. This enables you to make the most of finite resources and grow sustainably in the long-term. Your operations will be more efficient and you’ll be able to invest budget in more productive areas.

Collect Customer Data and Understand the Customer Journey

In Churn360, for example, you can segment your customers based on common traits and perform bulk actions more effectively on your customer groups with reference to the customer journey. With segmentation, it’s easier to keep track of customer success in Churn360 because you are not treating customers as one large generic group.

You could create a segment that focused on enterprise customers in the oil and gas industry. Churn360 will help you monitor when this group might become ready for an upsell or keep track of their health scores, and in this way you can focus your efforts on customer segments who might provide good ROI.

Once you have created a segment, you can use it on any of the features in the product from customer list to plays, customer journey to customer health score. This makes segmentation a useful and versatile way of managing large volumes of customers because you have access to the data that gives insight into their success.

Create Marketing Campaigns Based on a Customer Segmentation Strategy

You can tailor your marketing messages for specific customer segments as part of a strategy that targets different types of customers. Segmentation in marketing is important because you will be able to identify your most valuable marketing channels and which ones offer the highest yields for your efforts.

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That’s why it’s important to measure your customer segments across different campaigns. You will then be able to use segmentation to tailor your marketing campaigns in a way that resonates with types of customers, making them more likely to buy your SaaS product.

Wrapping Up

Customers who are segmented are more likely to engage with your product and have experiences that are satisfying and promote loyalty. When you create targeted marketing campaigns or product experiences, different types of customers will be more valuable to your business and therefore deserving of more attention.

When you have a limited budget and time, it’s important to identify those groups of customers that will be open to sales and upselling opportunities. It’s up to SaaS businesses to target their most profitable customers, and measuring how well your segments have performed is an integral part of this process.

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