At some point, you’ll likely struggle to understand your core target customers.
One powerful strategy that’ll help you on this journey is something you might be doing already: customer segmentation. This process involves dividing your customer base into distinct groups based on specific criteria, thus facilitating a clearer definition of your target customer profile.
However, creating target segments requires a thoughtful and systematic approach.
In the comprehensive guide, I’ll take you through a step-by-step process to create effective target customer segments for your business. From gathering data and defining segments to leveraging insights, you’ll walk away with the knowledge and tools necessary to establish a deeper connection with your target customer profiles, ultimately driving meaningful results.
It's crucial to note that the successful implementation of this strategy hinges on having a product-market fit backed by sufficient data.
Now, having covered the essential practice of customer segmentation for a comprehensive audience understanding, let's clarify the differences and overlap between three common terms: target customer profile, ideal customer profile, and buyer persona.
Understanding these nuances is important to crafting effective go-to-market (GTM) strategies that cater to specific customer needs and preferences.
Target Customer Profile vs. Ideal Customer Profile vs. Buyer Persona
Target and ideal customer profiles are often used interchangeably but have distinct meanings. A target consumer profile focuses on identifying several potential customer segments, while an ideal customer profile pinpoints the specific type of customer you are trying to attract.
Buyer persona complements both types of customer profiles.
Having clarified these terms, let's explore how each contributes to a robust GTM strategy.
Target Consumer Profile
Target customer profiling provides a foundational understanding of the audience your SaaS business aims to reach.
It's a broad classification that outlines various segments within the overall market. This profile focuses on identifying different types of potential customers based on demographics, geographic location, industry, company size, and other general factors.
Ideal Customer Profile (ICP)
In contrast, an ideal customer profile represents a more refined and specific subset within the target consumer profile. It goes beyond basic demographics to include criteria that make a customer an ideal fit for a company's offerings.
When developing an ICP, businesses use insights from their target consumer profile to identify a customer's most valuable and desirable characteristics. This helps concentrate efforts on customers who are not only part of the broader target but are also the most likely to derive significant value from the products or services.
Buyer Persona
A buyer persona complements both the target and ideal customer profiles. It is a detailed and semi-fictional representation of an individual within the broader audience.
This specific contact is the focus when prospecting, and the buyer persona helps understand customers better.
SaaS businesses can tailor their content, messaging, and product development to meet specific needs and interests by delving into the persona's demographics, behaviors, and concerns.
Buyer personas contribute depth and specificity to the target consumer profile, aiding in the creation of an ideal customer profile by identifying the attributes that make a customer an ideal fit.
The impact of defining your target customer
Defining a target customer provides a crystal-clear understanding of who your SaaS product is trying to serve. This, in turn, empowers your company to strategically tailor your marketing, product development, and customer service efforts. Doing so, ultimately, leads to stronger acquisition, retention, and monetization.
The impact of defining your target customer profile manifests in several key benefits, including:
- Improved marketing messaging: Craft a compelling value proposition that resonates with your core target customer. By understanding their needs and preferences, you can tailor your marketing messages to directly address their customer pain points, fostering a stronger connection and engagement. (Marketing intelligence software can help you with this.)
- A more focused product roadmap: Utilize target customer profiles to inform and prioritize your product development roadmap. By honing in on your core customer's specific pain points and requirements, you can ensure that your product enhancements are aligned with their expectations, resulting in a more focused and impactful customer experience.
- Pricing undefined packaging: Develop a well-defined pricing strategy by building product tiers that bundle the most relevant features for your target customer. This approach ensures that your pricing and packaging align with the perceived value of your core audience, maximizing monetization opportunities while providing tailored solutions.
Understanding the impact of defining your target customer, let's now explore the practical methods to achieve this through customer segmentation and buyer personas.
2 methods that help define your target customer
The two methods that help define your target customers are:
- Customer segmentation
- Buyer personas
Let’s dive deeper into these concepts and how to choose when to use them.
1. Customer segmentation
Through quantitative data analysis, customer segmentation divides the company's customer base into distinct groups or segments based on shared characteristics such as demographics, behavior, or purchasing habits.
The segmentation is like dividing your party guests into general categories, such as children, teenagers, adults, and seniors. Doing so helps you understand each group's different needs and preferences, allowing you to plan activities, select music, and arrange the party layout accordingly.
2. Buyer personas
Buyer personas are fictional, generalized representations of the company's ideal customer.
They are based on qualitative insights from market/customer research and are used to create a detailed profile of your target customer.
A buyer persona represents a fictional yet highly detailed profile.
Example of buyer personas
For instance, within the adult segment, you might have the following:
- A buyer persona named "Adventurous Annie" loves outdoor activities, values sustainability, and enjoys trying new foods.
- Another persona, "Busy Bob," might be a professional seeking convenience and time-saving solutions.
5-step framework to create target customer segments
Let's break down this 5-step framework that will guide you from defining segmentation criteria to sharing impactful target customer profiles across your SaaS organization.
1. Define segmentation criteria
Choosing the right profiling segmentation criteria is a bit of art and science based on the stage of your business. The goal should be finding a way to segment the base that creates differentiation between each customer profile.
The first step is to determine the criteria to segment your customers. It could include demographics, psychographic traits, or behavioral characteristics.
The goal is to define criteria to segment your user base.
Depending on the size of the company, there are two methods you can use:
- First Principles: Use a set of criteria to segment your base (e.g., business industry, annual revenue, # of employees).
- Correlation analysis: See what characteristics have a strong connection.
SaaS example
Say you’re a B2B SaaS company that targets SMBs. Based on past analysis and customer research, you have decided the best way to segment your customer base is by the business industry.
So, you define grouping customer segments by the following:
- Field service businesses (e.g., landscaping, trades, etc.)
- Knowledge-based businesses (e.g., consultants, marketing agencies)
- Retail service businesses (e.g., hair undefined nail salons)
- E-commerce businesses (e.g., Shopify store)
- Retail product businesses (e.g. bakeries, restaurants)
This will then inform your data analysis by grouping your customers into these five categories.
With the criteria established, let's move on to the next step — conducting a segmentation analysis to derive meaningful insights from your customer base.
2. Conduct segmentation analysis
This next step is conducting your analysis by segmenting your customer base into distinct groups based on how you defined your segmentation criteria (see step #1).
Doing so ensures you get the data you need by each segment and analyze for clear themes.
Data spreadsheet organization
To get started, you want to dump data into spreadsheets, each tab being a specific customer profile. Each tab should list specific behavioral data points and define how large the customer segment is within your user base.
The spreadsheet should include the following:
- Clearly defined customer segments
- The size of each segment within your customer base
- Specific behavior data points for each customer segment
Let’s continue with our example.
SaaS example
Picture you are a B2B invoicing SaaS company. Your customer profiles are based on business industries, and now you want to overlay your in-product data for each segment.
This would include data points such as:
- Number of invoices sent
- Number of customers they have
- The size of the invoice amount
- Number of methods they get paid by
- Monthly revenue from invoices
3. Overlay demographic data across customer segments
The next step in this segmentation process is to overlay the demographic data you collect on each user.
Adding in demographic data makes these customer profiles more actionable for employees in the company to use because you can start to put a face to a name.
Collecting data in SaaS onboarding
Much of the data collected by SaaS companies at onboarding is demographic-related and starts to put a face to your customer segments. This data might include their industry, annual revenue, number of employees, how many years they have been in business, etc.
To illustrate, consider Shopify’s use of a multi-step signup process.
On the initial page, users are prompted to answer one question about their e-commerce business.
Upon completing the initial field, the next page presents another question, asking users to select all options related to the business. This approach provides valuable customer profile data.
The strategic aim is to integrate this collected data into each previously defined customer segment. By doing so, each segment's impact is heightened by including behavioral and demographic insights.
The subsequent step involved adding demographic data (e.g., annual revenue, number of employees, business age, etc.) into the five customer segments we created.
4. Build your target customer profiles
Now that you have finished your data exercise, the next step is to build out these customer profiles into an artifact.
The goal is to build an artifact so that anyone at your company can easily understand who your customer segments are.
Create a PDF or slide deck
The best way to do this is to create a PDF or slide deck that showcases each customer segment.
These customer segments should include the following:
- Name of each customer segment
- Photo of them
- Description of who they are
- Key demographic data points
- Key behavior data points
Make your artifact
Our next step is to create our five customer segments with a designer's help to create a visually appealing artifact that people can easily understand.
I have included a template you can use here.
5. Share your target customer profiles
Our final step is to share the artifact across the company to get people to understand how to use it.
Getting teams to understand how to use this artifact is critical to driving internal adoption. The best way to do this is the following:
- Present these customer segments at an all hands.
- Include this artifact as part of new hiring/onboarding training.
Getting all teams to understand how to apply the insights from the customer segmentation artifact is essential.
The two ways to apply the customer segmentation artifact include:
- Marketing teams can use this to help target better, brainstorm new channels to acquire, and improve their positioning/messaging on their website.
- Product teams can use this to help prioritize the most critical product features for each of their segments.
Regularly revisit and refine your target customer profiles
As your SaaS company scales, your customer segments are constantly changing. It's essential to revisit these segments every six to 12 months.
If your product-led company isn't scaling as expected, you may not have a product-market fit. This could mean you're targeting the wrong customers for your SaaS product.
In ProductLed's coaching program, building a winning strategy is the first component of a three-phase system that SaaS founders and their teams tackle. To dominate your market, you must be crystal clear about what your company does best and align your strengths with market demands and customer needs. With this clarity, you can confidently create your target customer profile and so much more.
Learn more about applying to the ProductLed Academy and working with Wes Bush to scale your SaaS more efficiently and profitably than ever before.
