Companies sell products to a broad variety of industries and customer segments, and it’s often hard to know where to focus the sales, marketing and product development efforts. Who should you listen to and who should you be chasing?
Within your target market, there will be customers that are “ideal” you. They buy quickly, renew and expand their contracts, and advocate for the product. In order to fully benefit from these fans, the sales team needs to understand who they are and be comfortable selling to them. And in order for this to work, there should be enough of them to make the effort worthwhile.
What is an ideal customer profile?
Building an ideal customer profile helps companies to work out what characteristics different customer groups have in common so that more attention can be given to finding and nurturing the most profitable customers.
While an ideal customer profile will always be unique to a given company and will depend on a large number of variables, it can be defined as “the target customer profile that sales, marketing and product development will be dedicated to over a certain timeframe.”
How to create an ideal customer profile
1. Gather all the data you can on your customers
- Salesforce (i.e. CRM software): contract values, expansion, time-to-close, win/loss ratios
- Business data: sector, growth, employee count, revenue, region
- Product analytics: monthly usage, feature usage
- Third-party research: price sensitivity, buying behaviour, brand perception
- Qualitative characteristics: business model, technology adoption
2. Decide which are your best (and worst) customers
This will be different for every business but some characteristics to look at include:
- Highest initial contract values
- Post purchase expansion
- Renewals
- Churn
3. Look for correlation
Examine the data to see if certain factors are consistently present for your best and worst customers. Tableau is great for iterating this quickly, otherwise you can use Pivot tables. Good starting points would be:
- Size (employees, turnover)
- Industry
- Job title/team
- Sales cycle duration
- Win/loss for a specific segment
4. Create a shortlist of segments
If you are lucky, one segment will stand out clearly above all others. More likely there will be a number of clearly bad segments and several promising ones.
Define them as clearly as you can so that you can make objective comparisons between them. For example: “Manufacturing companies in Chicago with more than 100 employees and $10-25M revenues.”
5. Objectively compare each segment
Now you can score each segment based on the characteristics and questions below. Your answers will probably be a blend of quantified data and qualitative feedback from your sales, support and research teams.
Product-market fit
- Which customers have the biggest problem that you can solve (in terms of time or money)?
- Was the customer aware that they had the problem and actively looking for solutions?
- How much did they save/make because of your product?
Sales efficiency
- How well do you understand the buying process of this customer type?
- How easy is it to get access to decision makers in these organisations?
- How long does it typically take to close a deal?
Addressable market
- How many prospects fit the above characteristics in your territories?
- What average deal size would you expect to achieve per customer?
6. Pursue the most promising segments
This exercise will highlight which segments you should be directing your sales and marketing resources towards. Inbound enquiries can be better prioritised and outbound campaigns can be more focused.
The scores will also identify segments that you should be going after in the future (“potential ideal customer profile”) when the product has evolved or when you’ve added new capabilities to your sales team. These are clearly defined levers that you can pull when you need to.
7. Create feedback loops and iterate
It’s not wise to switch completely from a very broad audience to one customer segment. Instead you can pursue a clearly defined set of four segments. Monitor them closely for signals (both qualitative feedback from the team and quantifiable measures from Salesforce) and make changes as required (i.e. deprioritise segments that aren’t promising).
Conclusion
Customer profiling is a way to paint a portrait of your customers in order to help you make key decisions concerning product design, marketing, distribution, pricing, and customer service. If done well, it can help a business build the right product, communicate the right message and thereby make more sales quickly to the most profitable customer segments.
Jason Oh is a Senior Consultant, Strategy & Customer at EY with project experiences in commercial due diligence and corporate strategy planning. Previously, he was a Management Consultant at Novantas with a focus on the financial services sector, where he advised on pricing, marketing, channel distribution, digital transformation and due diligence.
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