Editors Note: Lincoln Murphy is the Customer Success Evangelist at the leading Customer Success SaaS company, Gainsight. He also writes about all things SaaS at Sixteen Ventures. This is the first article in his new ongoing series on Customer Success Hacks exclusive to SalesHacker.com.
When I help Enterprise SaaS companies accelerate their sales process, one of the first things we do is create an Ideal Customer Profile. In my experience, having a very specific customer you’re marketing and selling to just makes things easier.
It makes things easier for you because you know how to reach them where they are and you know what to say that resonates and compels them to take action (rather than trying to strong-arm and convince random people).
It makes things easier for your customer because you’re speaking their language while talking about the problems/opportunities that are acute in their world. They don’t have to use a lot of cycles to get from the conversation that’s going on in their minds to how your product will fit in with that. You’ve done that for them.
But to me, defining an Ideal Customer goes way beyond just figuring out what I’m going to say to a prospect or put in an ad. When you really get into this process, you’ll figure out how to get customers that will get you more customers. And how to get customers that will pay you more to use more of your product over time.
These four Ideal Customer hacks I’m going to share with you could – if you’re open-minded – completely change the way you decide who you want your customers to be.
And that could completely change your business!
Ideal Customer Profile Framework
My Ideal Customer Profile Framework (I suggest you spend some time studying this) was created – and is always evolving – to give my clients and me a simple method upon which to build our ideal Customer hypothesis.
This framework consists of 7 inputs – all dictated by the situation for which we’re identifying the Ideal Customer – and those are:
- Expansion Potential
It should be obvious that if you can find a prospect who is Ready, Willing, and Able to become a paying customer, that’s a great start.
But… if that customer is more likely to be successful with your product, you can acquire and support that customer profitably, there is expansion potential there, AND they’ll be an advocate for you… now that’s definitely an Ideal Customer!
In the Ideal Customer Profile Framework, I talk about how everything is situational. That could mean you’re trying to identify an Ideal Customer for your company overall, or a specific campaign you’re running. Which means, you may wish to pull this data within a certain contract value in mind, those that had a < 30-day sales cycle, or those that came in via a certain marketing channel.
Your Data-Driven Ideal Customer Profile
Below are four “data hacks” you can use to really find just those customers that are going to be awesome for you.
Whether you have a full-blown Customer Success Management platform (full disclosure: I work at Gainsight, a vendor in the CSM space) or you need to pull this together from disparate systems. If you’ve been in-market for a while, you should have this data somewhere.
Okay, here we go…
Ideal Customer Hack #1: Identify Your Most Successful & Healthy Customers
The idea here is simple… your Ideal Customers are more the ones most likely to achieve success with your product.
There are some very simple things you can do to ensure you go after customers that can be successful with your product, and that is to be honest about the technical/infrasture/data requirements to be successful.
For instance, if you have an app that runs natively in Salesforce.com, while you may be able to work with other CRMs, the likelihood of success is greater if you target customers already using Salesforce.com. Makes sense, right?
Okay, so beyond the technical requirements, now we want to find your customers with the highest average lifetime Customer Health Score – meaning they didn’t just achieve a high Customer Health Score two-years into their contract with you, but were healthy from the beginning and kept that up over time. And then we’ll look for patterns.
If you don’t have a Customer Success Management platform yet (you should, BTW), an actual Customer Health Score may be hard to find – especially historically – so you’ll pull together other data points to try to come up with your own “Customer Health” score.
For instance, you could pull together average Net Promoter Score (NPS) over time, on-boarding/implementation milestone data, Common Conversion Activities data, Customer Support data, and maybe get your Account Managers to apply a “health” score – based on their gut – to each of the customers they manage. Sure, a real CSM solution could give you this report quickly, the point is even without that you should be able to get this data.
Okay, so what are the patterns that seem to lead to success? You have to consider all aspects of on-boarding, customization, data seeding/cleansing, etc. as well as technology/infrastructure requirements.
Is there an industry, company type or size, or revenue amount that appears to be more successful (healthy) than the others? Did the companies that found success buy through a VAR? Was an internal champion present?
Understanding what goes into making your customers successful will surface ideas on what to look for in prospective customers…. assuming Customer Success is a goal of yours (and it probably should be).
Ideal Customer Hack #2: Identify Your Most Profitable Customers
Look, the definition of – or even the need for – profitably acquiring and supporting a customer changes depending on your company stage and goals. Because of the deep dependence on the situation, I won’t spend a lot of time here except to say that acquiring customers has a cost and you may want to make sure you recoup that cost as quickly as possible. Maybe.
That cost is generally referred to as Customer Acquisition Cost (CAC), and should be “fully loaded” including all the costs to advertise to, sell to, support during a Free Trial or Proof of Concept, and convert to paying customer.
If the sum of all that is less than the profit you get from them over some pre-determined time-frame (we’ll say in the first 12 months), then you can say that you’ll acquire them profitably.
But CAC isn’t the only cost you need to be aware of in figuring out the “Profitable” input for your Ideal Customer Profile. The immediate-post-sale costs such as on-boarding, provisioning, data cleansing/seeding, customization/configuration, training, etc. needs to be figured in. And then the ongoing cost to support regular use, like Infrastructure costs or Customer/Technical Support.
And frankly, the difference between you skating by on razor-thin margins or living large with super-fat margins ultimately comes down to the customers you acquire. That determines whether they’ll pay the premium price, whether their support costs are too high, their CAC is too high, sales cycles are too long, their customization/integration needs are too high, etc.
Again, you can look to your CSM solution to figure out all of this, or pull the data from the myriad customer data systems you have. Maybe look for customers that had a short sales cycle, have a high LTV with long-term contracts but increase usage frequently and have a low cost to support.
What are the patterns? What are the characteristics of those customers? Now we’re starting to paint a picture of an Ideal Customer!
Ideal Customer Hack #3: Identify and Exploit Expansion Potential
This is what I refer to as Intra-Company Virality and provides you with tons of opportunity for Up-Sell and Cross-Sell within the same company.
One of the questions I hear all the time from startups is “should we go after Enterprise or SME customers?” Well, it’s usually in the form of a statement about who they’re targeting, which is always both SMEs and Enterprises… which means they don’t “target” anyone. Fail!
Now the real answer to the question – target Enterprise or SMEs? – has many inputs, not the least of which are sales cycle length, deal size, etc.
But one input that few really consider is the Expansion Potential of the account.
If you sell to a company with 25 employees and they buy 25 seats and have 100% usage, how do you expand the account? How do you grow revenue? You better have additional features or non-user-based usage fees you can charge, right? Because if you wanted to add just 1 more user, the company would literally have to grow by 4%.
But if you sold that same 25 licenses with the same usage, into a department/org in a large Enterprise, if you wanted to grow the account by 1 user, they’d just add a user. The department growing by 4% is nothing. A rounding error.
Couple that with other departments that are interested in what you have (which happens even more and a lot faster when you fully orchestrate this process; the “virality” piece I mentioned), and there is a ton of expansion potential.
Maybe the sales cycle will be longer for the initial Enterprise-focused sale (though if you do things right you can accelerate this significantly, especially in this land-and-expand fashion), but the long-term growth after the initial sale might just make it worthwhile.
And you should be able to gather from your Customer Success Management system a list of companies that have expanded their use over their lifetime with your company… what are the patterns and common characteristics? Who did you initially sell to? What department/persona?
The “Ideal” in Ideal Customer is really starting to shine through now, right?
Before we move on, I just have to make sure we’re clear on this. When it comes to expansion potential, that potential is only recognized when the customers have achieved success… when their customer health score is high.
No Customer Success.. no expansion revenue. Period.
Ideal Customer Hack #4: Leverage Your Network of Advocates
I think of Advocacy as Inter-Company Virality… it’s how boring ol’ B2B products “go viral” and it’s how you can leverage your focus on Customer Success to drive Second Order Revenue by having your customers bring you more customers.
I said this recently on Twitter… chasing logos is fine… but chase logos that’ll bring you more logos!
Chasing logos is fine, but chase logos that get you more logos instead of logos that just feed your ego (or your bank account short-term)
— Lincoln Murphy (@lincolnmurphy) June 19, 2014
And the only way Advocacy happens is if customers are finding success with your product. If they’re ever going to be an advocate for you, it’s when their Customer Health Score is high.
No Customer Success… no Advocates. And no “viral” growth.
So use your Customer Success Management solution to look for customers that have been your biggest advocates. If you’re measuring correctly this should include those who have referred new customers through their use of your product (think: they send a file, the recipient gets the file but also becomes a user and then a paying customer), have given testimonials, have talked to prospects on your behalf, etc.
While you may not WIN the deal because of the advocacy of your customers, you may be IN the deal because of it. Don’t underestimate the value of Customer Advocacy.
When you pull this data on your biggest customer advocates – again, ensuring other situational parameters are set, too – what patterns emerge? Types of customers? Size of customers? Industry? LTV?
Now you take that Advocacy data and use that input in your Ideal Customer Profile and all of the sudden you have an amazing picture of your absolute Ideal Customer.
Don’t let FOMO Derail You
Now, a lot of folks are afraid of narrowing things down to one Ideal Customer – even if just for a single campaign – and that’s due to FOMO (the Fear of Missing Out).
They think that if they focus on only one type of customer, they’ll miss out on all the rest. But the reality is, when you don’t focus, and instead try to be everything to everyone, you end up making a connection with no one.
And when that happens, I guarantee you’re missing out. And to make matters worse, because you’re talking generically (probably about your product instead of them), you’re actually missing out on the people who are, in fact, your Ideal Customers.
So go develop your Ideal Customer Profile now, then go identify companies that match that profile, and then figure out how to get in front of them with the right offer at the right time; for the win.