"The essence of strategy is choosing what not to do."
- Michael Porter
The word alone is enough to make most SaaS marketers squirm. It conjures up images of complex spreadsheets, long meetings dissecting minute customer attributes, and overly intricate marketing orchestration.
But segmentation doesn't have to be scary or tedious. At its core, it's simply about understanding your customers more deeply so you can provide unmatched value to them. And in SaaS, value drives growth.
In this post, I'll show you how to leverage segmentation the easy way to help your SaaS business thrive. These four techniques require no spreadsheets or PhDs to implement, just a curiosity about your customers and desire to serve them better.
By the end, you'll see why savvy SaaS businesses make segmentation a cornerstone of their growth strategy. Let's dive in!
1. Create Targeted Upsell/Cross-sell Campaigns
One of the most obvious applications of segmentation is to identify upsell and cross-sell opportunities within your existing customer base.
By splitting your customers into groups such as:
- Company size
- Team size
- Usage data
- Current plan
- Tech stack
You can pinpoint which features, integrations, and premium plans they are most likely to need next.
For example, if you offer team collaboration software, solo users on your basic plan may be ripe for upgrading to the business plan with enhanced administrative controls and permissions. However, large enterprises using your enterprise plan could benefit more from additional integration support.
With a segmented view, you can create highly tailored campaigns to nudge each customer group towards your ideal next purchase.
|Solo users on Basic plan
|Upgrade to Business plan for team management features
|Mid-market companies on Professional plan
|Add on enhanced analytics module
|Large enterprises on Enterprise plan
|Integrate with their existing Salesforce instance
The key is to intimately understand your segments so you can match them with relevant offerings at opportune moments. This avoids spraying irrelevant messages across your entire customer base.
2. Optimize Your Free Trial → Paid Conversion Funnel
Many SaaS businesses rely on a free trial → paid conversion funnel as their primary engine of growth.
Segmentation can be invaluable for diagnosing leaks in this funnel and pinpointing optimization opportunities.
By examining the characteristics of customers who:
- Sign up but never start the trial
- Start but never complete the trial
- Complete the trial but don't convert to paid
You can surface patterns in the types of users that struggle at each stage and address their specific barriers.
For example, you may find:
Trial signups from tech savvy roles like developers have higher completion rates than less technical roles in marketing or sales. This indicates your onboarding experience may require simplification to be more accessible.
Customers from certain industries like retail and construction convert at much lower rates than software and consulting. This suggests your messaging may need adaptation to resonate across verticals.
Companies below 10 people have more difficulty completing setup of all features within the trial period. You could extend trials or simplify workflows for smaller teams.
By zeroing in on which segments fail to progress through your funnel, you can isolate problems and test targeted solutions. Small tweaks tailored to each segment's needs can compound to drastically improve overall conversion.
3. Refine Your Ideal Customer Profile
One of the hardest but most vital skills in SaaS is defining your ideal customer profile (ICP). Who is most likely to get value from your product and become a high-value, long-term customer?
Segmentation helps sharpen your ICP by revealing which types of customers achieve the most success with your product. Look for patterns in segments that have:
- High product usage
- Fast time-to-value
- Strong renewal rates
- Expansion revenue
For example, you may find that customers from mid-sized companies in healthcare and high-tech have the highest retention and lowest churn. This suggests your platform is a great fit for those verticals and company sizes.
Conversely, you may find sole proprietors in real estate swiftly churn and rarely use advanced features. This implies your product may not be the best solution for early stage or non-technical users.
These insights allow you to hone your ICP and concentrate your marketing and sales efforts on your best-fit segments. Saying no to poor-fit customers is just as important as saying yes to ideal customers. Segmentation helps you identify who to prioritize and who to deprioritize.
4. Personalize Your End-User Experience
Lastly, segmentation isn't just useful for marketing campaigns. It can also help you tailor and personalize the product experience for each user.
By tracking individual usage data, you can divide end-users into segments such as:
- Frequency of use (heavy vs. light)
- Features used (which workflows)
- Domain expert vs. novice
- Support ticket patterns
- Current adoption stage (onboarding vs. mature)
You can then customize what each user sees based on their history and traits. Examples:
- Only highlight advanced features when appropriate based on usage patterns
- Prioritize specific help articles and training materials
- Trigger proactive support when repeated issues arise
- Show onboarding tips to new users vs. new release highlights to existing users
This surgical personalization keeps each user engaged instead of confronting everyone with a generic, one-size fits all experience. Users appreciate when products seem to “get” them and cater to their needs.
Segmentation powers this entire class of personalization and contextualization that was previously impossible in the era of monolithic software.
Segmentation can seem intimidating but simply involves grouping users based on shared characteristics and behaviors. Start by isolating key questions then bifurcate your customers into smaller clusters that allow you to answer those questions and uncover actionable insights.
Applied creatively across your customer lifecycle, segmentation enables you to:
- Target campaigns to micro-audiences
- Diagnose funnel leaks and friction points
- Refine your ideal customer profile
- Deliver personalized end-user experiences
The end result is accelerating growth by delivering the right message at the right time to the right customer. Segmentation transforms your product and marketing from a blunt instrument into a scalpel. Wield it wisely and growth can skyrocket.
1. What exactly is segmentation?
Segmentation is the practice of dividing your customers into groups that share common attributes. This allows you to analyze and engage each segment in a targeted way based on their specific needs and behaviors.
The attributes you use to segment customers can vary greatly depending on your business goals. Some examples are:
- Firmographic data like company size, industry, location
- Behavioral data like usage frequency, features used
- Customer lifecycle stage like trial users, new customers, renewals
- Technical attributes like tech stack, workflows
- Firmographic info like role, department
The key is choosing attributes that allow you to isolate segments relevant to your business goals. Avoid overly complex segmentation schemes. Start with the biggest meaningful groups first.
2. Why is segmentation valuable for SaaS companies?
Segmentation is incredibly valuable for SaaS businesses because it enables:
Hyper-targeted marketing: Send the right messages to micro-segments based on their specific needs. Avoid spamming irrelevant content.
Personalization: Customize and tailor parts of the product experience to each segment.
Diagnosing funnel leaks: Pinpoint where and why specific segments fail to convert or churn. Address their barriers.
Optimizing sales: Focus energy on high-value target segments instead of spamming all prospects.
Ideal customer profiling: Double down on your best-fit segments and say no to poor-fit segments.
In summary, segmentation allows messages, features, pricing, campaigns, and entire strategies to be precision-tuned for each customer group for optimal growth.
3. How granular can you get with segments?
There is no definitive limit to how finely you can segment customers, but beware of over-segmentation. Too many tightly defined groups can become impractical to manage and lose statistical significance.
As a rule of thumb, try to have at least 300-500 users per segment for meaningful analysis. Look for natural clusters in attributes like company size, industry, tech stack, and behaviors. Don't force unnatural splits just for the sake of more segments.
Start with larger groups by company size and industry. Then you can get more granular over time as your data and sophistication grows. Just ensure each segment is actually differentiated enough to warrant tailored treatment.
4. What are some common ways to segment SaaS customers?
Some popular ways to segment SaaS customers include:
Company size: Enterprise vs. SMB vs. startup vs. solo founders
Industry vertical: Tech, healthcare, finance, retail, etc.
Customer lifecycle stage: Trial, new customer, upsell, renewal, churn risk
Usage data: Heavy vs. medium vs. light usage based on actions
Behaviors: What features they use, don't use, their workflows
Technical attributes: What other tools they use or systems they integrate with
Firmographic: Department, role, seniority level, decision making authority
Revenue: High-value vs. low-value accounts based on revenue contribution
You can combine multiple attributes to create blended segments like "high-tech SMB trial users" or "healthcare solopreneurs." Again, choose attributes meaningful to your goals.
5. When should you start segmenting customers?
Ideally, you should start segmented customers from day one by capturing meaningful attributes during signup. Waiting until you have a large customer base makes it harder to retroactively segment customers.
That said, it's never too late to start. Even if you don't have historical data, you can begin collecting key attributes from today forward. Segmenting future customers is better than not segmenting at all.
6. How do you choose which attributes to use for segmentation?
Choose customer attributes that relate to your specific business goals, such as:
If your goal is reducing churn, segment by customer lifecycle stage, usage data, industry vertical.
If your goal is increasing deal sizes, segment by company size, # of users, industry revenue data.
If your goal is improving conversions, segment by customer source, traffic source, funnel drop off.
If your goal is upselling, segment by plan, feature usage, technical attributes.
Don't choose attributes arbitrarily. Let your business goals guide which attributes will be most meaningful to segment by. Limit to 2-5 attributes to avoid over-complication.
7. How do you gather data for segmentation?
SaaS companies can gather data for segmentation from sources like:
Signup forms: Directly asking for data like company size, role, industry etc during signup.
Behavioral data: Usage data, feature adoption, clicks, workflows. Use analytics tools.
CRM/MAP systems: Fetch firmographic data like industry, employees from integrated systems.
Surveys: Directly survey customers for data not captured elsewhere.
Support tickets/chats: Extract insights on technical needs, workflows from support conversations.
Marketing automation: Identify customer lifecycle stages based on email sends, funnel progression.
Prioritize explicit data collection through signup forms, surveys etc. to avoid assumptions. But also leverage behavioral and integrated data for powerful supplementary insights.
8. What tools do you need to segment customers?
Sophisticated data science tools are not required. Some helpful platforms include:
CRM: Most CRMs like Salesforce allow creating custom segments and reporting on them.
Analytics: Google Analytics, Amplitude, Mixpanel etc. enable behavioral and firmographic segmentation.
Email marketing: MailChimp, Customer.io, HubSpot etc. provide list segmentation features.
Surveys: Typeform, SurveyMonkey and others help capture direct data for segmentation.
Data warehouses: Stitch customer data for a unified segment view. Popular options include Snowflake, Redshift, and BigQuery.
Don't let lack of ML expertise block you. Leverage existing MarTech tools to get started then refine over time as needed.
9. What are some common mistakes with segmentation?
Some frequent segmentation mistakes include:
Too many segments: Avoiding over-complicating into too many narrowed groups. Start broader.
Incorrect attributes: Choosing attributes that don't actually relate to your goals. Ensure clear purpose.
Data quality issues: Inaccurate or incomplete data leading to false conclusions about segments. Garbage in, garbage out.
Inaction: Creating segments but then not actually taking tailored actions based on the insights uncovered per group.
Inconsistent application: Applying segmentation across some campaigns but not others, diminishing its impact. Pursue omni-channel segmentation.
Learn from these errors by keeping your segmentation framework simple, purposeful, data-informed, and action-oriented. Start small then build upon it over time.
10. How do you get organizational buy-in on segmentation?
Some tips for gaining company-wide buy-in:
Make the business case: Explain how it can increase conversions, lower churn, boost growth. Tie it to strategic objectives.
Start small: Don't try to segment every customer on day one. Tactically prove value on a limited basis first.
Involve other teams early: Sales, marketing, product etc. should help shape the approach to drive collaboration.
Share compelling examples: Use case studies of successful segmentation from other SaaS companies. Look at how Spotify, Slack and others do it.
Celebrate small wins: Consistently highlight incremental improvements driven by segmentation. Achieve internal viral adoption.
With the right foundation of education, expectation setting, and achievable scope, segmentation can become engrained as a cross-functional growth enabler.