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The Importance of Customer Segmentation – SaaS Style

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The Importance of Customer Segmentation – SaaS Style

Importance of customer segmentation

Importance of segmentingProducts are not designed to be everything to everyone. As much as your first instinct would tell you that “of course every business wants as many clients as possible”, if you’re a start-up, targeting everyone is clearly not the way to go. Even a product that is used by the general population, for example chewing gum, had a specific target audience when they first started. Do not be fooled by big companies that seem to be advertising to everyone, even if they do so, that have immense advertising and marketing budgets, which you probably don’t.

Even their marketing team doesn’t make a decision unless it’s supported by evidence because products need to be tailored to a specific customer. It lets a business reach an audience’s specific needs and wants. Also, it makes a company spend a lot less on advertising.

Focus has massively shifted on customer experience and the number one priority for SaaS companies is the front end. The key focus of all marketing messages is always on making the customer’s life easier with each new solution. But how to segment?

Customer segmentation is clearly an important tool for your SaaS. The challenge here is that you get a less tangible feel of your customers, all you can see is their website or how they use your product. You don’t sell an expensive watch or luxury cars so the classic way of segmenting an audience, such as income, is out the window. SaaS companies cannot get stuck in traditional customer segmentation techniques.

For example, at 123ContactForm, we use needs-based segmentation. Simply and intuitively put, this strategy of customer segmentation focuses on the customer’s needs. Depending on their needs, they are put into one more more clearly defined segments and acted upon depending on those characteristics. Our needs-based segmentation is based on a solid definition of what our customers need.

In this type of customer segmentation, it is critical to develop customer segment hypotheses and variables and validate them through research. It is almost impossible to utilize needs-based segmentation without first establishing a clear hypotheses that will serve as a foundation for research. Hypotheses do not have to be overly complicated, it’s not like you’re trying to prove Einstein’s Theory of Relativity is wrong.

Using 123ContactForm as an example we might presume:

  • Customers working for an NPO might use X, Y or Z type of forms.
  • Companies with more than X number of employees might best benefit from our X plan.

The primary purpose of doing this is to provide a framework for the customer segmentation research process. After you’ve clearly outlined your presumptions and the values that you need to test, begin testing for the best customer segment.

Here’s a little example that helped us. When customers want to sign up for our service, they are asked what category they are a part of (education, NPO, design, etc.). This helps us clearly outline what types of forms and what form features are used by each category. You can imagine how this helps our future targeting.

When segmenting you have to ask yourself: is segment measurable, addressable, stable and consistent? The most important is the first one, is there enough data? How do you collect that data?

Tell us how you segment your audience, no matter if your and SaaS or any other type of business.

Alex Balan
Alex Balan
is a Marketing Specialist at 123ContactForm. He is in charge of market research, general copywriting and anything in between. He likes spending his time watching TV series, reading and playing the ukulele.

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