The Process of Customer Segmentation

 

Segmentation (aka “tiering”) of a customer base involves classifying each account into a tier to aid in the definition of the services that will be provided to each tier. Performing the tiering process will enable you to define the level of investment per client segment and scale your team with out spending precious capital in overhead.

 

Before beginning the process of segmenting your account-base, you’ll want to gain the involvement of your CFO, CRO/VP of Sales, and CMO/VP of Marketing. Assessing cost of service and assessed service value will be a crucial piece of this process.

 

Step 0

 

Before getting started with the actual segmentation process, define the segmentation criteria. Generally speaking, most SaaS companies will Tier their accounts in the following manner:

 

Tier	ARR	Definition
Tier 1	Large Enterprise 10-20% ARR	Strategic accounts that are high-touch accounts
Tier 2	Mid-market 30-50% ARR spread	Receive partial services and reactionary support
Tier 3	SMB balance of ARR spread	Low/No Touch Accounts (un-serviced)

 

While the above is a common way to perform Tiering, segmentation can also be performed by other criteria:

 

• Industry
• Company size (in employee headcount or annual revenue)
• Geo-location
• Product/Service type

 

Step 1

 

Define all of the services the Customer Success team will be proving to each of your customers (regardless of size, vertical, ARR, etc.). Remember to be complete with the service definition. Include automated services as well as services to be performed by leadership personas.

 

SERVICES PROVIDED	Definition of Services
Executive Sponsorship	Executive persona is the acting CSM for the Client and will perform proactive communications and strategy sessions
Quarterly Business Review	Review of Client’s KPIs and SaaS vendor’s performance to meeting them. Analyze & review Client’s ROI of the SaaS vendor’s product.   Review of any open issues and go forward planning for issue resolution (as applicable). Review of new feature/functions (as applicable).   Review of any other project work that might be underway
Proactive Communications	Communications to Client for any reason involving account health, usage, billing, Q&A, support, etc.
Assigned CSM	Client has direct access to dedicated CSM
Assigned Technical Resource	Client has direct access to dedicated support personnel (this is usually a Customer Success Engineer or a Technical Success Manager)
Adoption Monitoring	CSM will monitor usage and track trends to ensure proper product adoption and determine opportunities of upsell, training needs, use case expansion
NPS®/CSAT Survey Monitoring	Monitoring and tracking Net Promoter Score℠ / CSAT survey responses. This service includes following up on surveys where appropriate
Best Practice Advice	CSM will proactively provide best practice advice for product usage optimization
Training	CSM will engage with Client to provide training. Typically this type of training is not associated with paid services
Health Check	CSM will perform a detailed review of Client’s use case and instance to validate best practices are being adopted and all technical detail is correct for optimal use of the product (technical detail could include settings, implementation, reporting, product performance, etc.)
Renewal	CSM will engage with the Client to ensure that their contract is up to date
Escalations Management	CSM will be the first point of contact for any escalation needs and ongoing communications. CSM will also track and manage remediation plan back to the Client
Support Case Monitoring	CSM will monitor number of open/unresolved cases and become involved when Client reaches <n> threshold
Upsell	CSM will monitor Client for opportunity for upsell and either close the upsell deal or hand off a lead to the appropriate party to close the upsell
Program Management	CSM will manage any programs with the account (onboarding, product rebuild, professional services, etc.). Typically these are not paid services

 

Step 2

 

Define the time interval in which each service will be provided (monthly, quarterly, etc.). Insert the number of times the service will occur in this field. This will be a multiplier of service costs and service value later in the exercise.

 

Step 3

 

With the assistance of your company’s CFO, assess a total cost to provide each service. This cost will help you validate the appropriate service level for each client tier as well as define the frequency at which each service can be provided.

 

During this portion of the exercise, expect to negotiate on time intervals and level of effort per service to ensure that your costs do not exceed your allotted budget (where applicable). The cost of the services should be multiplied by the time interval to provide an annual cost of service.

 

Step 4

 

Now that the costs of services have been defined, you will need to partner with your CRO, CMO and/or CFO to determine the appropriate margin. Use their standard profit margin formula to increase the costs you outlined in Step 3 to define the Assessed Service Value for each of the services to be provided. The formula should look like:

 

(Cost of Service * Time Interval)* Profit Margin

 

Understanding the assessed value of the services the Customer Success team provides will help to:

 

• Assess which customer tier qualifies for each service
• Promotes upsells/larger deal sizes with customers that want higher levels of services
• Ensures profit growth for the Customer Success Team
• Establishes true value of the Customer Success team internally and externally
• Establishes Customer Success as a profit generating team

 

 

Step 5

 

Now that you have executive alignment for defining your tier and service delivery, it’s time to insert your customer tier information into your CRM system. You’ll want to solicit the assistance of your CRM Administrator for this part:

 

• Extract a complete list of accounts from your CRM system into a flat file
• Remember to include attributes such as industry, ARR, entitlements, geographic location, and any other attributes that you used to define your tiers
• Sort the account list by the pre-defined segmentation value(s) and group accounts that fit into each segment/tier
• Insert a column named “Tier” into your flat file for example, your headers might appear like (your exact headers will vary):
• Assign a Tier to each account in the newly created column
• Create a custom field in your CRM system called “Tier”
• Upload your newly curated flat file into the CRM system
• Create a rules based formula in your CRM system to automate future Tier assignment
• Celebrate!
• A few words of caution, however:
  • Don’t cut corners – perform the analysis and segmentation completely
    • Short cuts will result in gaps in segments and/or incorrect tiering
  • Insist on a rules-based tiering process that uses your previously defined definitions
    • Not doing so will result in stale data and incorrect service delivery to some accounts
  • Getting Tiers and rules-based processes into your CRM system will vary based upon the CRM system in use
  • The data in your CRM system may show gaps
    • This is normal, solicit the assistance of an operations analyst, CRM admin, or other ops role to assist you in curating any missing data that you may identify through this process (remember: garbage in – garbage out)

   

  Now that you have performed each of the steps discussed above, you can easily declare victory for officially tiering your entire customer base. Your company is now set up to manage and maintain a well-defined service delivery that will result in client adoption, retention, and advocacy as well as internal team and process scalability.

   

  Conclusion

   

  If you’re a Mel Brooks fan you know, “It’s good to be the king” and that is just what our customers are: Kings. The world that we live in puts the SaaS provider in a position to consistently be thinking of ways to service their customer-base in a way that produces stellar results for their customers.

   

  As your Customer Success model evolves, expands, and even becomes more sophisticated, the services that you offer today will solidify relations with your customers tomorrow. The future growth of your company will come to rely on your successful customers to evangelize and advocate for your products and services.

   

  Creating customer advocacy starts with your service offerings. Segmenting and tiering your customer base and defining the level of investment that you will provide to each of your customers will serve as a critical roadmap to producing long-lasting, fruitful relationships with your clients while preserving the sanity of your Customer Success team.