Launching your SaaS business is one thing. Scaling it up is another. If you are a small business with fewer than 100 customers, it is simple to analyze what your customer expects from your product by looking at the user behavior. But when your user base grows, your task becomes more complex. What strategy will lead to a clear, effective plan for customer success and get the highest value customers for your business? The answer is customer segmentation!
What Is SaaS Customer Segmentation?
SaaS customer segmentation is a focus and growth approach for the success of your SaaS business. You divide your customer base into distinct segments based on common attributes. Then, you direct targeted marketing toward each segment to get more conversions.
When you have a growing base of customers, you might assume that all your customers are similar to each other. But they are not. Every customer looks at your product from a different perspective.
Here’s a simple example. Netflix is an entertainment SaaS business. All Netflix users come to this platform for a single purpose – to get entertained. But if you zoom into the customer list, you’ll see the differences. The users come from different locations, belong to different age groups, and have different viewing preferences.
Netflix could try to cater to every customer individually. After all, every customer is important. But, looking at the expanse of their business—Demand Sage reported 221.64 million Netflix subscribers in 2022—would that make any sense? Absolutely not.
To relieve pressure on your growth team – which includes marketing, sales, product, and customer success – and make strategic decisions to scale up your business, you segment your customers.
Our example, Netflix, segments its customers using behavioral segmentation groups and viewing preferences.
Why is SaaS customer segmentation important?
You make better use of your resources and discover new opportunities to grow your SaaS business with SaaS customer segmentation. Here’s how.
It builds greater customer loyalty‘
When each segment has customers with similar needs, you can run better and more personalized marketing campaigns. This will make the user feel connected to your brand as if their needs are being taken into account on a personal level.
You’ll build customer loyalty if you further nurture these customers based on their preferences. This, in turn, will improve your customer retention. Even a 5% increase in customer retention can increase profits for your business by up to 95%.
You can upgrade or add innovations in a better way
If you study your customer segments, you’ll notice a pattern in their use cases. This will help you identify your customer’s needs, expectations, and frequent activities.
To ensure a reliable and successful product, make changes to your product or services according to a particular segment analysis and observe how well those customers respond.
It lowers your churn likelihood
You save a lot of money on marketing since you know what factors to target for customer segments. This improves your conversion and lowers your churn rate. In contrast, a generic marketing plan does not address your customer’s specific concerns, and you see fewer conversions.
Since you focus on a specific segment at a time, it’s easier for you to align with your customers and upsell or cross-sell your services.
You can build marketing campaigns that sell
You can develop effective marketing campaigns through B2B customer segmentation.
For example, if your SaaS users are Indian, you can run product offers around Indian festivals like Diwali. If your SaaS users are US-based, you can launch Halloween discounts.
It boosts your SaaS revenue
You can identify which user segments contribute more to your revenue. These might be customers who upsell, participate in your affiliate programs, frequently click on your display ads or opt into fee-based services.
This allows you to choose your customer priorities and scale better.
How to segment your SaaS customers?
Before you segment your SaaS customers, here are six elements that you should consider:
To start with, each customer in the customer segment must have a common identity attribute.
For a customer segment that belongs to customers aged 18 to 20, every customer should fall within this age limit.
Number of customers in each segment
The number of customers in each segment must be significant to make the most of your marketing efforts.
There is no sense in making a segment with five users. You don’t want to invest your marketing efforts in a small audience. It will also cost your business more time and money.
On the other hand, if you have a very large customer segment, it might not be clear which marketing actions will produce results.
The goal is to create a balance between the number of customers and the amount of profit they bring to your business.
So, even a small customer segment is useful if it consistently contributes to higher profits for your business.
Each customer in your customer segment must be reachable via a single communication channel. This lowers the chaos associated with managing them and assures a smooth delivery.
For example, for one customer segment, you might use phone numbers to deliver notification updates. Another segment might be more responsive to email contacts.
Stable behavioral patterns
Every customer in a segment should show a stable behavior pattern. That is why customer segmentation exists in the first place.
You should see a customer segment with US customers that respond according to the UTC time zone. Similarly, a customer segment with Indian customers should respond according to the IST time zone.
If you add new customers to an existing customer segment and the behavioral pattern changes, it means you didn’t segment your customers correctly.
Each segment should have its own differentiator. If all your segments resemble each other, it will be hard to decide what marketing campaigns to run for whom.
If you have two segments, both with US residents and a combination of males and females, you will not be able to target each segment differently. Your marketing efforts will be wasted.
The whole point of segmenting is to take specific actions for that segment, such as giving personalized recommendations on Netflix. Effective segmentation will drive revenue growth.
If you don’t interact with your customer segments, the effort you made to create them is pointless. A clear purpose behind segmenting your customers will naturally lead to well-targeted actions.
Ask yourself these important questions while you segment your customers:
- Is the total addressable market for this segment already saturated? If so, how can I be more specific and unique in my services?
- How much is this segment capable of growing?
- Do I have the resources (technology or a well-trained staff) to nurture this segment effectively?
- Am I ready to upgrade my SaaS product or services to align with this segment’s needs?
Now that you are clear on the basics, follow this 4-step approach to segment your SaaS customers for maximum conversions.
Step 1 – Gather information for customer segmentation
To get started with customer segmentation, you must have their data in hand. This includes their age, location, or job title. You can also collect data by tracking how your customers interact with your SaaS product.
Here’s how you can collect data from your customers:
Through welcome screens or during user onboarding
When the customer registers on your site, ask them for basic details like their name, their company name, and their email address. Also ask them about their goals and some additional tools they use. While asking for too many details can be tempting, don’t overdo it.
Here’s how Glance asks for some essential data during user onboarding. Providing personal information helps the user feel valued and receive better services, and in turn, it gives relevant data to Glance for customer segmentation. It’s a win-win situation for both.
Through your user’s product engagement patterns
Your users’ actions on your product tell a lot about them. This includes things like the number of times they use your product in a day, their frequent search queries, their login frequency, and the features they use or don’t use the most. You can map this data with corresponding goals for each segment.
Through your customer’s ability or willingness to spend money on your product
Financial investment is a strong indicator of which customers will stick around for a short time, and how many of your customers will stay longer.
Customers who upgrade to your paid features and use the right “power” features are more engaged with your product. In contrast, customers who you suspect are lifetime free users might not invest in your product at all.
You have the data and can communicate with your customers accordingly.
Through customer surveys
You can use different types of customer surveys for understanding customers and connecting with them better. This includes NPS surveys, post-purchase surveys, CSAT surveys, and product surveys. You can learn more about these surveys here.
Based on these survey answers, segment your customers into different categories.
Step 2 – Outline your customer segmentation goals
Once you have the customer data, identify their needs. Taking those needs as their pain point, segment customers into groups and offer solutions with your targeted marketing plans. Your goals for each segment will target the unique needs of those customers.
Step 3 – Make a plan of action
Devise an action plan based on the data you collected.
Let’s say, through a survey, you find out that a significant group of customers is not satisfied with your specific feature B. When you explore these users’ behavior, you realize that they are not using that feature correctly.
In that case, you can plan strategies such as the use of tooltips, or interactive walkthroughs, to educate them to correctly use feature B.
This will help improve customer experience and increase the value of your product in the customer’s eyes.
Step 4 – Implement your action plan
The final step is to test your action plan on the customer segment and monitor their response. For example, implementing interactive walkthroughs to educate your customer about feature B.
Monitor whether your action gets you the desired results – in this case, more customers using feature B. If your customers are still not using that feature, you might want to change it altogether.
If you are working on a customer segment that is key to your profitability, aim to solve their major issues and give them a more personalized experience.
What are some best SaaS customer market segmentation software/tools?
Google Analytics is a free tool for segmenting your customers. Through GA, you get relevant data such as the bounce rate of the customer, average time spent on your website, traffic sources, and more relevant metrics. Here’s a detailed list by Stitch of valuable metrics you can track in GA that will help you improve customer segmentation.
Glance offers customer segmentation as a service to convert your users into continuing high-paying customers. They follow a two-step process:
Organize by goals – Organize your audience by goals for your business and not by lists.
Segment your audience – Automatically get hyper-segments for your audience based on their stage in the product journey.
Mailchimp provides an email campaign segmentation tool. Their goal is to send the appropriate emails to the appropriate customers.
In comparison to unsegmented ads, their customers had 23% higher open rates and 49% higher click-through rates when using their segmentation technology. Here’s an overview of their segmentation techniques.
Sprout Social is a social media analytics tool that segments your social media audience based upon age, gender, location, interests, relationship status, and more.
According to a 2022 report, 4.62 billion people in the world use social media. So, marketing ads on social media are important. It is an effective tool to send social media marketing campaigns.
The best-phased engagement plan during 30-60-90 days post-sales to achieve success for both customer and provider
After the users sign up for your SaaS product, the first 90 days are critical in determining whether they will stay for a longer period. You must convince the user of your product’s value within this time.
Here’s a breakdown of 90 days after customer acquisition and what you should do to retain your customers for a longer time:
0-30 days – Get your customer comfortable with your SaaS product
Your customer success team must function at its best in this phase. The customer has trusted you and enrolled in a paid subscription for your services. You must make them believe that they made the right decision. Here are some helpful strategies you can use:
- This phase provides an opportunity to understand your customers’ challenges with your product. Give them customer support through emails, calls, or messages. The user must be able to use your services without difficulty. If a large group of customers is facing a similar difficulty with any aspect of your product, you might need to make amendments to your product.
- Observe the usage patterns of your customers and see if their behavior matches your ideal customer profile.
- Ensure that the customer is satisfied with your SaaS pricing plan because it means they are happy with the value they receive from your product.
31-60 days – Build product attachment to your customers
If there are any inactive users, get in touch with them and find out what their concerns are. If possible, give them a customized solution.
The main goals of this phase are to retain as many customers as possible and to keep them active. The customer must not only use your product but also see effective results. They should not be thinking about using your competitor’s product.
Consider the three main elements of the customer lifecycle:
Customer Acquisition – Are your marketing efforts yielding the desired results?
Customer Engagement – What percentage of your customers are actually using your product? How many customers contribute to the monthly recurring revenue?
Customer Retention – Are customers achieving their goals through your product? Are they upgrading to new features?
61 – 90 days – Evaluate your results and prioritize your active customers
It’s time to analyze your results. You’ve done your best to keep your customers engaged. Now see if you’ve met your goals. This could include an increase in the number of email subscribers, more paid subscriptions, or a higher number of paid feature upgrades.
If the user is active and engaged, your product is working for them. If not, you may run the risk of losing your customers. In that case, prioritize your efforts toward the customers who are active.
By the end of 90 days, you should have established a solid foothold in terms of customer retention. Once the customer understands your product’s worth, you’ll have to put in less effort, and they will be more likely to scale up.
Customer segmentation is important in SaaS. It gives you insights into what matters in a holistic customer experience. However, if you do not segment properly, you will miss out on potential opportunities to grow your SaaS business.
The customer is the king and customer segmentation focuses on your customers. Give the customer what they want, and you will see your business grow.