• As growth-stage companies increase product complexity and add new customers, the need for specialized teams to support customers’ needs grows as well.
  • A customer segmentation strategy increases efficiency and maximizes growth opportunities by improving customer experience — but implementing segmentation can be challenging.
  • Two examples of CS leaders who successfully approached segmentation by considering product verticals and annual contract value.

Customer segmentation allows you to tap into trends within your growing customer base.

Customer success teams are often the unsung heroes of an organization’s go-to-market model. Thanks to the strong relationships these teams build with customers, they are uniquely equipped to add to top-line growth for the business and drive impact and value for the customer.

They are a critical part of a cycle – more customers bring more revenue, which invites more employees to support their needs and enable their success. And with time and growth also comes complexity added to the product offering — which in turn attracts a diverse customer base with specialized needs.

This is where customer segmentation comes into play.

As a company grows, its customer landscape shifts, requiring organizations to change their strategy — not only to support a wider range of customers and help them to get the most out of their investment but also to market and sell more effectively to new customers.

Customer segmentation allows you to tap into trends within your growing customer base. It goes beyond merely arranging clients into logical groups — customer segmentation is an essential and vital component of optimizing your success team’s services, exceeding customer experience expectations and maximizing customer impact.

The size of a customer segment or the size of the team that supports it will vary from one company to the next.

The Value, and Challenges, of Customer Segmentation

Strategic customer segmentation helps create value for growth stage companies by:

  • Achieving a more efficient cost to serve. Even if the headcount of your customer success team remains unchanged, you’ll be able to allocate those resources in the most efficient way.
  • Creating a consistent experience for customers. Documenting the appropriate experience for each segment enables teams to perform to those standards and allows sales teams to set expectations ahead of the sale.
  • Maximizing expansion revenue. Not all customers are created equal. By considering value potential in your segmentation, you can focus the highest-level resources on your highest-potential clients.
  • Limiting churn for your most valuable clients. It’s common for different segments to have different churn expectations. With this understanding, you can put KPIs in place and hold your teams accountable to those metrics.

Implementing an impactful customer segmentation strategy can also be challenging. Here are some of the common hurdles that companies face.

  • There are many options for segmentation, and there isn’t a straightforward, one-size-fits-all or “correct way” to achieve it.
  • There are no hard rules or thresholds to define what a segment looks like. The appropriate size of a customer segment or the size of the team that supports it will vary from one company to the next.
  • Similarly, job titles and role definitions vary widely, making it difficult to compare structures or even share best practices between companies.
  • As a growth-stage company, your organization’s needs will change over time. Defining segments and support roles will be a part of the ongoing process of growth.

How are you handling clients? Does it feel like the loudest client or “the squeaky wheel” gets attention first?

When is the Right Time to Implement Customer Segmentation?

Creating segments allows your customer success teams to shift from primarily reacting to customer needs to proactively create the most appropriate experience for a given customer.

Since this is a need that grows along with your company, consider these questions to understand whether it’s time to implement customer segmentation:

  • How are you handling clients? Does it feel like the loudest client or “the squeaky wheel” gets attention first?
  • What is the status of your team’s resources and bandwidth per person?
  • Is there clarity within your customer success team regarding who manages whom?

If the answers to these questions reveal a scenario that doesn’t align with your company’s vision for customer success, it may be time to rethink how you approach different types of customers.

With tiers in place, the team implemented a priority system to guide how they would support customers.

Approaching Customer Segmentation – Examples from the Field

I recently worked with two Customer Success leaders to tackle segmentation for their growing customer bases. Both unique efforts resulted in better-defined customer success roles and more aligned post-sale activity.

Example #1 – Customer Value vs. Support Level

In the first case, the Customer Success leader recognized an opportunity for stronger correlation between customer value and treatment, when noticing that escalations sometimes seemed out of place. For example, a salesperson requested that the success team fly out to the customer’s location to facilitate training — a trip that cost more than what the customer would be paying them over a five-month period.

To solve for this discrepancy, the team created a simple triangle model to segment customers based on revenue. They divided customers into three tiers — enterprise, mid-market and small business. The enterprise tier comprised only about 12% of their customers but made up 60% of revenue, whereas the small business tier included 65% of customers but only accounted for 15% of revenue.

With the tiers in place, they implemented a priority system to guide how the team would support customers, with the enterprise tier being high-touch, the mid-market medium-touch and the small business tier low-touch. The next stage for the company is to further align these segments with the customer journey.

Segmenting by setting allowed this company to improve how they invest in their customer success managers.

Example #2 – Role Specification by Client Setting

In the second case, the Customer Success leaders at a different company were mindful that segmentation could be an expensive and resource-intensive process. To execute efficiently, they started by asking questions to understand their customers:

  • Who are they? What size are they? What are their capabilities and their potential for growth?
  • What do they do? What vertical do they operate in? What are their goals and needs?
  • How do they do what they do? What is their workflow?

With these answers in hand, they segmented customers in two distinct ways — first dividing them into four groups based on their setting (ex. hospital, private practice, home health/hospice and long-term care), and then splitting each segment into three sub-segments based on annual contract value (large, mid-market and small business).

Segmenting by setting allowed this company to improve how they invest in their customer success managers. Now, managers specialize in their assigned setting, providing opportunities for deeper training and a higher level of influence with customers.

Supporting a segment well requires resources and infrastructure that may be too costly prior to $5 million in ARR.

Additional considerations for segmentation

Because there are multiple ways to approach customer segmentation within your business, there are a few additional aspects you may consider:

  • In my experience, it may not be beneficial to have more than one customer segment until your organization reaches $5 million in annual recurring revenue. Supporting a segment well requires resources and infrastructure that may be too costly prior to this milestone.
  • When you do implement segmentation, align these segments across all your go-to-market teams (marketing, sales and customer success) so that you can manage every step of the customer journey according to the appropriate segment.
  • If your business operates with a “land and expand” model — meaning you bring in customers at a low revenue level and significantly grow that account over the first couple of years — look at the average contract value for years two or three to determine the best go-to-market approach for those clients.

Here’s the bottom line.

Customer segmentation is a vital exercise for growth-stage companies to optimize marketing strategies, maximize a customer’s value to your business and elevate customer experience and satisfaction. When segments align across go-to-market strategies, they are an important tool for attracting, retaining and growing the customers that have the biggest impact on your growing business.

This GrowthBit is featured in LLR’s 2023 Growth Guide, along with other exclusive insights from our portfolio company leaders and Value Creation Team. Download the eBook here.