What Is Saas Customer Segmentation? How To Implement It? A complete guide

TL:DR

• Saas customer segmentation is the process of categorizing customers into distinct groups based on characteristics, needs, and value.
• Customer segmentation can be based on qualities, needs, and economic value.
• Different customer segmentation models include behavioral, demographic, geographic, value-based, needs-based, psychographic, and technographic segmentation.
• Using customer segmentation in SaaS can lead to product-led growth and various benefits such as enhancing product offerings, tailoring marketing messages, optimizing sales efforts, and generating high-quality revenues.
• Customer segmentation can be used to drive more conversions by clarifying goals, finding similarities between customers, segmenting customers into groups, and focusing on the most profitable segments.
• Leveraging the power of Successeve, a customer intelligence platform, can facilitate effective customer segmentation and personalized campaigns.
• Customer segmentation is essential for all businesses, regardless of their size or stage of growth, to understand their customers better and achieve sustainable growth.

In the dynamic world of Software as a Service (SaaS), where data reigns supreme, customer segmentation has emerged as a pivotal strategy to unlock the true potential of businesses. Understanding and categorizing customers into distinct groups based on their characteristics, needs, and value not only empowers SaaS companies with unparalleled insights but also lays the groundwork for tailored marketing strategies and exceptional customer experiences.

In this comprehensive guide, we delve deep into the realm of SaaS customer segmentation, exploring its definition and significance. We'll examine various types of customer segmentation models, shedding light on how they can be harnessed to drive conversions, boost customer retention, and win back churned customers. Moreover, we'll reveal actionable steps for SaaS companies to effectively segment their product users, ensuring that their marketing efforts are finely tuned to meet the diverse demands of their clientele.

Are you eager to uncover the secrets of delivering targeted marketing campaigns and maximizing customer satisfaction? Then join us on this transformative journey as we unlock the power of customer segmentation for SaaS businesses, providing practical insights and real-life examples that showcase its profound impact on sustainable growth and success. Let's dive in and embrace the art and science of SaaS customer segmentation!

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What is customer segmentation?

Customer segmentation definition

Customer segmentation is the process of splitting up the customers into different groups according to the various characteristics. It’s the first crucial step in creating a sales funnel that works across multiple demographics.

The customer segmentation strategy will be primarily influenced by your product and the similarities between the people already buying it.
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There are certain factors of an ideal customer segment:
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Profitable

The segment should be large enough for you to earn a profit. 
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Stable

The customer segment should not be something that’s not stable and is about to vanish after a short time.
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Attainable

The customers segment should be realistic and reachable by the marketing strategies.
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Consistent

The procedure of customer segmentation allows marketers to prioritize several products and services to their respective target audiences. This helps in allocating the marketing resources and strategies efficiently.

While you create customer segments it should not be something that reacts differently to each of your marketing strategies.
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Types of customer segmentation

Based on their qualities

Quality-based segmentation is one of the most commonly used approaches by the sales team to segment the customers. It uses the demographic traits of the customers such as their age, industry, company size, etc.

The only advantage of segmenting your customers this way is you can recognize them easily. But if you’re moving forward with this segmentation, you’ll have to assume that companies with the same qualities share the same goals and desired outcomes. And that might not be right every time.
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Based on their needs

Every company has a specific goal they want to achieve, so you can group your customers based on those goals. You can collect this information through sales calls, customer research, and market research.
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Based on their value

This segments the users according to their economic value, existing ARR, whitespace ARR, product adoption rates, churn rates,and MRR. You can find the data through your accounts, revenue, and sales data.

This technique is highly crucial to understand the segments with growth potential. It also enables you to understand the segments which would churn or aren’t providing an equal amount of value.
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Customer segmentation models

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Various customer segmentation models offer valuable insights and opportunities to tailor marketing efforts effectively. These models are essential for businesses to understand and engage with their diverse audience. Let's explore some common segmentation models in detail:

• Behavioral Segmentation:

Behavioral segmentation involves customizing marketing strategies based on users' interactions with a brand. For instance, setting up automated email or SMS series when a user downloads an ebook enables companies to gauge their interests. This allows personalized follow-up messaging to nurture the relationship and guide potential leads towards the product or services.

• Demographic Segmentation:

Demographic segmentation groups the audience into sub-categories based on their demographic information, including income, job title, age, and gender. This information empowers businesses to tailor messaging according to unique professional pain points for B2B contexts or present personalized offers for B2C marketing based on interests and demographics.

• Geographic Segmentation:

Geographic segmentation targets audiences based on their physical location. This proves especially useful for B2C businesses affected by local climate and customs. By tailoring campaigns, companies can promote relevant products, such as swimwear in warmer climates and winter clothes in colder regions.

• Value-based Segmentation:

In value-based segmentation, businesses assess the financial value of different audience segments to optimize their marketing budget. By focusing efforts on the most profitable leads, companies maximize their marketing ROI. Data on customer lifetime value aids in understanding which subgroups are cost-effective to attract, retain, and bring back for future sales.

• Needs-based Segmentation:

Needs-based segmentation involves creating personalized messaging based on customers' emotional, physical, and financial needs. By identifying specific pain points, companies can target users more effectively. For example, an online furniture store can market low-cost desks to college students and professionals working from home, while offering children's coloring desks to stay-at-home parents.

• Psychographic Segmentation:

Psychographic segmentation divides the audience based on their values, social status, hobbies, and political views. Understanding how customers perceive products allows businesses to target the right audience with suitable messaging. Specialized software or data monitoring helps gather valuable insights into customer attitudes and preferences.

• Technographic Customer Segmentation:

Technographic segmentation categorizes the audience based on the technology they use. This is especially relevant for SaaS companies targeting specific user groups. By personalizing messages that align with the software recipients already use, companies can improve the effectiveness of their marketing campaigns.

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In conclusion, customer segmentation models offer valuable tools for businesses to better understand their audience and engage them effectively. By utilizing the right segmentation approach, companies can optimize their marketing efforts, increase customer satisfaction, and ultimately drive business growth.

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Why use customer segmentation in SaaS?

Customer Segmentation for Product-Led Growth

In the realm of product-led growth (PLG), customer segmentation takes center stage as a linchpin strategy to drive sustainable business expansion and enhance user satisfaction. PLG, with its focus on seamless product experiences and user-driven growth, necessitates a laser-sharp understanding of customer behavior and needs. As SaaS companies adopt a product-led approach, customer segmentation becomes an indispensable tool for optimizing product-led strategies and achieving exponential growth.

In a product-led growth model, customer segmentation is not confined to traditional demographics or firmographic traits. Instead, it revolves around comprehending user behavior within the product, analyzing engagement metrics, and interpreting customer feedback to identify distinct user cohorts. These cohorts represent unique customer segments, each with its own set of requirements and preferences.

The first step in customer segmentation for PLG involves mapping the user journey. By analyzing how users interact with the product, where they encounter roadblocks, and what drives their engagement, SaaS companies can identify key touchpoints in the customer lifecycle. This deep understanding enables companies to deliver personalized, contextual experiences that encourage users to progress seamlessly through the product funnel.

Segmenting customers for PLG goes beyond mere acquisition and focuses on nurturing customers towards becoming product champions and advocates. Each user segment requires tailored onboarding, targeted messaging, and in-app engagement to cater to their specific use cases and objectives. By addressing individual user needs, PLG companies create a self-sustaining ecosystem where satisfied customers drive organic growth through word-of-mouth referrals and positive reviews.

An essential aspect of customer segmentation in PLG is measuring user value and product adoption. Identifying power users, product enthusiasts, and those at risk of churning empowers SaaS companies to allocate resources effectively. High-value customers can be nurtured with exclusive features and support, while potential churn risks receive proactive attention through personalized win-back campaigns.

Furthermore, customer segmentation for PLG thrives on iterative improvement and data-driven decision-making. Leveraging product analytics and user insights allows companies to continuously refine their segmentation strategies and tailor their product-led approach to evolving market dynamics.

As product-led growth reshapes the SaaS industry, customer segmentation stands as a cornerstone strategy for PLG companies seeking to create customer-centric products and forge enduring relationships with their users. By employing segmentation to identify and engage with diverse customer segments, SaaS companies can foster rapid user adoption, drive conversion rates, and fuel sustained growth in the product-led era. Embracing the power of customer segmentation is key to unlocking the full potential of product-led growth and achieving long-term success in the competitive landscape of SaaS.

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The benefits of customer segmentation

The advantages of customer segmentation are undeniable, especially during the expansion phase of a business. Attempting to execute a marketing strategy without a clear understanding of your target market's segments is akin to taking shots in the dark, hoping for a lucky hit.

Lacking insights into how a company's best customers are segmented can result in a misallocation of valuable resources, both human and financial. It can also lead to diluted go-to-market strategies and hinder the company's ability to effectively engage with its target segments, ultimately hindering growth prospects.

On the other hand, a well-executed customer segmentation strategy offers a host of business benefits:

Enhancing product offerings

Understanding the specific needs and preferences of your customers enables you to position your company as the optimal solution for their requirements. This fosters higher customer satisfaction and a competitive edge, extending not only to your core product but also to improved customer support and other complementary services.

Tailoring marketing messages

Customer segmentation empowers you to create personalized marketing messages for each customer segment, resulting in increased interest in your products and services, as they directly address the distinct pain points and preferences of your target customers.

Optimizing sales efforts

By focusing on the most profitable customer segments, your sales team can prioritize their efforts, increasing win rates and revenue generation while maximizing coverage and market penetration.

Generating high-quality revenues

Recognizing that not all revenue sources are equal, concentrating on the right customer segments ensures higher profitability and customer retention, avoiding costly and less sustainable customer relationships.

Undertaking customer segmentation research yields additional benefits beyond these primary advantages. When executed effectively, it allows businesses to scale efficiently, ensuring that all aspects, from lead generation to product development, are aligned with the most significant opportunities in the market.

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Using Customer Segmentation to enhance revenue throughout the lifecycle

In the fast-paced world of Software as a Service (SaaS), understanding and catering to the unique needs of different customer groups are crucial for sustainable growth and success. Customer segmentation is a powerful strategy that enables SaaS companies to tailor their offerings, marketing efforts, and support services to specific customer segments. In this complete guide, we will explore why customer segmentation is essential for SaaS companies and how it can be utilized to drive conversion, retention, and win-backs, using real-life examples to illustrate its impact.

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Customer Segmentation for Conversion:

Customer segmentation plays a pivotal role in boosting conversion rates by providing personalized experiences to potential customers. Let's consider a SaaS company that offers project management software. They identify two distinct customer segments based on their interactions with the product - Free Trial Users and Product Qualified Leads (PQLs).

Example: The SaaS company finds that Free Trial Users who have only used the basic features of the software are less likely to convert. To address this, they design targeted email campaigns and in-app messages, showcasing the advanced features and benefits of their paid plans. On the other hand, they personalize communication with PQLs who have extensively used specific features during the trial period, highlighting how the premium version can enhance their productivity and project efficiency. As a result, the conversion rate of both segments improves significantly.

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Customer Segmentation for Retention:

Customer segmentation is equally valuable in retaining existing customers. Let's consider a Customer Relationship Management (CRM) SaaS platform that serves both small businesses and large enterprises.

Example: By analyzing user data and feedback, the CRM SaaS company identifies that small businesses prioritize ease of use and affordability, while large enterprises seek advanced integrations and customization. Armed with this knowledge, the company tailors its customer support approach accordingly. For small businesses, they offer self-help resources and quick response times via chat support. For enterprise clients, they provide dedicated account managers and prioritize phone support for immediate assistance. This personalized approach to support significantly increases customer satisfaction, leading to higher retention rates in both customer segments.

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Customer Segmentation for Churn Win-backs:

Churn is inevitable in the SaaS industry, but customer segmentation can help win back lost customers effectively. Consider an email marketing SaaS platform that experiences churn due to intense competition in the market.

Example: The email marketing platform categorizes churned customers into two segments - Price-sensitive Churn and Feature-specific Churn. Price-sensitive churners left due to lower-priced alternatives, while feature-specific churners desired functionalities that the platform lacked.

To win back price-sensitive churners, the SaaS company introduces a discounted plan with comparable features to the competition. For feature-specific churners, they invest in product development to bridge the gap and communicate these enhancements through targeted emails and social media campaigns. As a result, they successfully win back a considerable number of customers from both segments.

In the competitive landscape of the SaaS industry, customer segmentation has emerged as a game-changer. Understanding the diverse needs and behaviors of customers allows SaaS companies to refine their marketing efforts, strengthen customer relationships, and drive overall business growth. By leveraging customer segmentation for conversion, retention, and churn win-backs, SaaS companies can optimize their resources and efforts, leading to enhanced customer satisfaction and long-term success.

Implementing effective customer segmentation requires data-driven insights and a comprehensive understanding of customer personas. As technology advances, AI-powered tools and analytics are becoming increasingly valuable in this process. SaaS companies that embrace customer segmentation as a core strategy are better positioned to thrive in the dynamic and ever-evolving world of Software as a Service.

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How to segment your SaaS product users to drive more conversions?

The customer segmentation strategy begins with the right goal setting and ends with personalized experiences for every customer segment. Let’s uncover the five steps to create your customer segment.

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Clarity on your customer segmentation goals

The initial step in creating a customer segmentation strategy is to clarify your goals and objectives. Without enough clarity you’ll be stuck in a loop of trial and error forever. Here are some of the questions that will help you understand it better:

• Why are we investing time in customer segmentation?
• How being a product-led company will help us?
• Will our customers benefit from this?
• How much time on average can we devote to segmentation?

Once you’ve answers to these questions it’ll help you in painting a defined customer picture. Think this as a broader perspective of customer segmentation. 

It aims to better understand the needs of different segments and enhance their customer journey. But your company can also set specific goals based on your various needs that cater to the right set of audience.

For example, you might want to just target the VPs of marketing as customers to sell a feature of the product that’s exactly meant for them.

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Find similarities between customers

The concept behind customer segmentation is to look for common traits among the various customer segments. You need to overview your customers and look for common traits connecting them.

For example, your product is an accounting system that targets early-funded start-ups. So you find that most of them like to have a desktop app for better accessibility than just websites.

There are various ways to segment your customers, and we discussed the major three in the previous section. To ensure a better segmentation you need to recognize the key common traits that can better serve your goals and objectives.

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Segment customers into multiple groups

Once you’ve recognized those common traits, you should divide them into their respective groups according to your vision. Either you can choose a blend of more than two types or go with a single model for efficient results. 

However, pay attention that it all drills down to your approach, customers, certain needs, and your goals.

For example, you might want to segment your customers geographically and according to their locations with a blend of their goals.

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Focus on most profitable customer segments

If you’ve heard the 80/20 rule of marketing, 80% of an organization’s sales come from 20% of the customers.

So focusing more on the profitable or high-value segment is a good strategy, but it doesn’t mean you should ignore other segments. 

You need to look for a way to help the least profitable segment to achieve their goals and eventually add them to the most profitable segment. But, you should provide your additional care and attention to the 20% of customers that are contributing to 80% of your business sales.

Creating the right customer retention strategies and loyalty programs that focus on eliminating any challenges of your profitable customer segment should be your next step to the customer segmentation.

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Leverage the power of Successeve

This sounds so good in theory, but is there any quicker and more practical way to do this? Yes, with Successeve, you can centralize all of your customer data into a single, 360-degree view. 

That allows you to save time and avoid the back and forth activity. You can focus on the other crucial tasks while Successeve takes care of coming up with data-driven alerts and insights.

You can also take advantage of advanced segmentation across the customer journey. This will help you increase customer engagement and use automated workflows for your hyper-personalized campaigns that help you to reach out to the right customers.

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Customer Segmentation is a must!

There are various myths in the business world, and one of them is that you don’t need to go through all of these processes because it’s not useful for early-stage companies. Customer segmentation is for you even if you are a company of two people and searching for an investor or more customers.

You need to know who your customers are before you go out and sell the product to them. Remember, understanding your goals, needs, customers’ needs, and pain points, leveraging the right data, and personalizing their experience is the key to perfect growth. 

You need to find a sweet spot among the different segmentation models to get the desired results. Let Successeve help and make it easier for you with a product built to make your customer success team life easier.