The Key to SaaS Growth: Do You Know Who Your Ideal Customer Is?

Iq5JXY5j by

SaaS customer acquisition and success strategist Lincoln Murphy explains why answering this one simple but powerful question is the key to rapid and sustainable growth.

The Key to SaaS Growth: Do You Know Who Your Ideal Customer Is?

So far in 2013 I’ve helped 21 software-as-a-service (SaaS) providers from around the world boost customer acquisition and lower their SaaS churn rates. And in just about every instance I have found myself asking them the same questions.

The fact that these questions were not easily answered or — if they were — that the answers were ignored, often shed light on the underlying cause of several different problems my SaaS provider clients faced.

From stagnating growth, to unacceptable churn, to a less-than-acceptable ROI on AdWords and other paid traffic spend, it became clear to me that we have a problem. And this problem isn’t small or to be ignored.

To the contrary, it is resulting in SaaS provider executives — just like you — going back to their investors and board with less-than-stellar results, for Founders and CEOs of SaaS companies who know they have the best product out there pulling their hair out at the lack of new customers or the super-high churn rates.

And for the SaaS CMO and Marketing teams who have implemented rigorous A/B testing programs that are functioning properly but not resulting in statistically significant lift, the crisis is mounting.

What is going on here?!?!?!

Simple — you’re attracting the wrong audience and here’s why.

Attracting Your Ideal Customer Is Not an Accident

love testerWe know that attracting the right customers is critical to growing your SaaS business, and this includes reducing your SaaS churn rate.

The reality is, you’re not attracting your ideal customers, at least not in the numbers you’d like, because a) you haven’t identified your ideal customers, or b) you have, but you choose to ignore that fact and continue trying to be all things to everyone so you “don’t miss any opportunities.”

But you also know that’s wrong and goes against everything we know to be true in marketing, right?

And the rules apply to you just like everyone else, right?

Okay.

So, to ensure that you’re attracting the right customers, take some time with your team and answer these questions:

  1. Who is your ideal customer?
  2. Would they know they’re your ideal customer if they looked at your marketing site?
  3. Of your current customer base, what percentage does your ideal customer represent?

Question #3 is a super-interesting metric that few SaaS companies actually monitor (but should).

In fact, when I go through this exercise with SaaS providers who are struggling to achieve the results they’re looking for, the answer is generally less than 10% — indicating that 90% of their customer base is made up of customers outside the “ideal” spectrum.

BTW, I’m very interested to see your answers (especially #3) so email them to me when you’re done.

Ugh… language!

Look, when you don’t know who your ideal customer is, you can’t talk to them using their language.

Whether on your marketing site, your ad campaigns, inside your app, through your email follow-up, or even your sales conversations, if you don’t know who you’re talking to you’re in trouble.

When you don’t know who your ideal customer is — or you aren’t willing to focus solely on them for fear of, you know, missing all those other opportunities — you can’t speak the language of that particular audience.

We can agree that HR pros use different words than chefs who use different words than attorneys and so on, right? Maybe different tones, formalities, etc. Perhaps they even want different things, have different needs, desires, and so forth, right? Sure.

Well, when you try to speak to everyone, you can’t use the words of the HR pro or the chef or the attorney. Instead, you have to drop to the lowest common denominator among every potential customer, which means you aren’t saying anything of value to anyone!

Said another way:

But wait — the language issue that comes from not speaking to an ideal customer actually gets even worse for SaaS companies!

Because most SaaS companies don’t see themselves as “services” and instead hold on tightly to their technology pedigree, they often won’t stop at “lowest common denominator” language. Nope, they drop even lower and stop talking about the customer at all, instead focusing 100% on their product, features, technology, APIs, and all the other stuff that doesn’t matter when you’re trying to connect with your potential customers (beyond early adopters).

And because you should extend your marketing/sales funnel into your app knowing who you’re attracting will help you create an in-app experience congruent with their needs/desires/expectations.

Zuora Puts Their Customers Front and Center

Look, I can tell when a SaaS company hasn’t identified (or chooses to ignore) their ideal customer before I ever talk to them — because their marketing is all about their product!

Which means I’m not surprised when I talk to those same SaaS providers and hear that their business is stagnating, their churn is high, etc.

So it’s refreshing to see a company like Zuora take the opposite tact and really put their customers front & center:

saas conversion rate optimization 300x204 Whos your ideal customer?

Now, I’m not saying you have to go that far, but what a great example of using your (best) customers to help you resonate with more customers like them.

And something to note here is that Zuora isn’t a small, vertical-specific company — anyone that fits into the “subscription economy” is a potential customer of theirs.

But they know who their ideal customers would be and they’re actively marketing to them so they (the ideal customer) will know that they’re Zuora’s ideal customer, too.

Other customers who may not fit into the “ideal” mold aren’t prevented from doing business with Zuora, but by drawing a line in the sand Zuora is saying “these are the types of companies we most want to do business with.”

And, frankly (these are my words; Zuora hasn’t been and isn’t a client), Zuora is — by identifying with certain customer types — also subtly pushing less-than-ideal customers away.

Zuora, without saying it directly, is indicating that early-stage startups and smaller companies might be a better fit for less-complex billing solutions like Chargify or Stripe.

But I also happen to know that some companies are starting to outgrow those smaller billing solutions and, as one of the companies I’m working with recently said about Zuora, “we want to be a $250M/ARR company, so we want to use the systems a $250M/ARR SaaS provider would use.”

That’s what I call an aspirational customer.

So just because you draw a line in the sand and actively try to resonate with your ideal customers, that doesn’t mean you won’t get customers from outside that ideal spectrum. It just means you’ll definitely get customers within that spectrum, predictably, which is probably different than what you’re experiencing now.

Get Crystal Clear and Take Action

SEO strategy

So we know a picture is worth a thousand words, right? Well that product screen shot on your main marketing page is speaking to me loud and clear — you don’t know who your ideal customer is or you’re unwilling to draw that line in the sand.

It should be speaking to you, too. But are you listening?

You can make some quick changes by simply taking your existing product-centric “sales copy” and replacing it with customer-centric, value-based, actual sales copy.

Remember: What’s in it for them (WIIFT)?

What will your ideal customer get from your offering? Make that your headline and bullet list, instead of you-centric messaging and lists of features. Then you can evolve from there and spread that messaging throughout the rest of your sales funnel.

Of course, to do that means you have to know who your ideal customer is! So…

Who is your ideal customer?

That is one of the most powerful questions you probably don’t have a clear answer to. It’s time to get clear.

Editor’s note: This guest post from SaaS customer acquisition and success strategist Lincoln Murphy has been adapted from a post titled “Who’s Your Ideal Customer?” that originally appeared on his SaaS Growth Strategies blog.

Take the Next Step: Download the Free eBook

customer segmentationLearn how to use customer segmentation to identify your ideal target customers so you can sell to them more often and more efficiently.

Download this free eBook and learn how to:

  • Conduct customer research to identify your best, most profitable current customer segment
  • Verify hypotheses about the characteristics and behaviors that set those customers apart
  • Identify and target additional prospects that resemble those customers to speed up your sales cycle and fuel sustainable growth

Download

 

Customer Success Architect / Mentor

  • Luke Catlin

    Great post Lincoln. What are the markers that would identify the 10% as the ideal versus the 90%? How would a SaaS business deduce that a significantly smaller subset of their customer base holds the key to their future growth?

    • Good question Luke.

      In this exercise I outlined in the post, I ask SaaS providers who their ideal customer is.

      Then – based on whatever characteristics they decide identify their “ideal customer” – I ask them to look at their current customer base to see what percentage that “ideal customer” makes up.

      When it is only 10%, that is likely an indicator that at some level you’re not attracting – or resonating with – that “ideal customer” you’ve just defined.

      Now, how you come up with your ideal customer – what markers indicate an “ideal” customer vs. one you might want to actively jettison… that’s a whole different issue.

      A good starting point would be your goals.

      Are you trying to build a profitable business or are you trying to get market share quickly? Are you trying to build a user base fast or are you trying to grow revenue?

      It absolutely 100% depends on your situation, your goals, your market, your product, your stakeholders, etc.

      Good question, for sure.

  • Tony Yang

    Another good post Lincoln. I would love your take on this – we’re working on a big data solution that helps you learn who your ideal customer is by analyzing all the unstructured data across the social web. Do you think this has legs?

    http://www.mintigo.com/the-mintigo-interestbase-knows-your-next-customer-before-you-do-2013-06-06/

    • That’s an interesting use of social data, for sure, Tony.

      As I said to Luke below, figuring out who your “Ideal Customer” is has many inputs and is 100% unique to your situation.

      When it comes to helping you decide who your Ideal Customer is – at least right now – I’d think you could leverage social data in multiple ways, especially when you can directly tie it back to your customers.

      If your goal is viral expansion, then one way you could use this data would be to figure out the customer type that is more likely to spread the word on your behalf and to figure out how to go after more of them.

      On the flip side… if you find that those who share on social media are only complaining, you could tie that back to customer data and restructure your marketing so that you avoid attracting those types of customers.

      You could also do more to orchestrate social sharing of good stuff.