It’s a must to have a clear definition of your Ideal Customer.
ICP (Ideal Customer Profile) is what defines everything in a SaaS product you build. It concerns functionality, features and even words and emotions you use.
It’s not true that making an Ideal Customer Profile limits you. No. You actually choose your customers, people you want to deal with. But actually, it’s users who choose you in the end.
There are many methods to create an Ideal Customer Profile but Lincoln Murphy has created a framework of his on and wants to share it with you.
Not about persona development… yet
The framework we discuss is about customer types. As we don’t know what personas look like, there’s no sense in trying to define traits of coaches or technical buyers.
The CMO at one type of customer will have different motivations / interest / desires / budgets / influencers / etc. than a CMO with matching demographic and psychographic characteristics but at a different type of company.
Define your Ideal Customer first, then move on to persona development and so on.
Universal definition of an Ideal Customer
To be honest there’s no Universal definition of an Ideal Customer.
Actually, your Ideal Customer is really specific to:
- The Situation You’re solving for
- Your company / product / offer / campaign (or all of these)
Some people consider that if they concentrate on one customer type only, they’ll miss all the rest.
But the truth is, if you don’t concentrate and try to do everything for everybody, you’ll get no connection with anyone.
Situational awareness is critical
When you determine an Ideal Customer, this type is not for good, it’s for this particular situation. The situation has 3 inputs: a goal, a time frame, and your capabilities.
- The time frame:
- 1, 3, 6 months.
- Be Specific.
- The goal:
- x amount of additional revenue.
- y number of new customers.
- z number of customer advocates.
- Your capabilities:
- The maturity of your product (API only vs. MVP vs. Feature Parity with Market Leader, etc.).
- Your ability to serve customers (onboarding, training, customization, customer support, etc.).
- Technology or other dependencies (these will figure heavily into the Success Potential input).
- Be clear on where you start from (baseline) and what metrics you’ll use to measure progress for this situation (keep track of those).
The goal isn’t just revenue or new users, it can be anything at all.
The Ideal Customer Profile Framework will help you to take a more scientific approach to your marketing and sales.
If you think that the profile you’ve initially created doesn’t work for you or is wrong, you can create a new one.
Ideal Customer Profile framework (version: June 2015)
It’s awesome, if you can find a customer who is Ready, Willing, and Able.
But if the customer is more likely to be successful with your product, you can acquire and support that customer profitably, there is expansion potential there AND they’ll be an advocate for you… that definitely is an Ideal Customer.
Here’s the breakdown of the Framework. Let’s start from the baseline characteristics.
- They have a problem they need solved / opportunity to take advantage of.
- They know they have the problem / opportunity.
- The problem / opportunity is acute … there’s a sense of urgency you can take advantage of.
- They’re ready to solve that problem by taking action.
- Even better if they’re exploring options to solve that problem.
- There’s a strong Catalyst driving change: M&A, Investments, Bankruptcy, hiring/firing, RFP, etc.
- They have the means to solve the problem (i.e. they have the money).
- They have the authority to solve the problem.
- The way you sell matches their Buying Cycle / Procurement Process.
4. Success potential
- They are likely to achieve success with our product:
- in the early stages as well as long-term.
- consider all aspects of onboarding, customization, data seeding/cleansing, etc.
- what systems do they already need to have in place that you need to integrate with/replace/etc.
- Acquiring customers that are not likely to have success is pretty much the antithesis of Customer Success
- this will only lead to problems down the road for all parties involved
- If you want to get customers that will become advocates for you, or will expand their use of your product, you’ll want to weight this input more than the others.
5. Acquisition efficiency
- This means that it’s cost-effective to get in front of them:
- could mean CAC < (LTV/x) where x = the lifetime of the customer in months.
- if they’re strategic, the actual monetary cost to acquire may not matter, but the ease of acquisition might.
- it may mean that you can reach them by leveraging existing distribution channel knowledge, but it might not.
- don’t let existing channel knowledge bias you if the other ICP inputs tell you what you know best – AdWords for example – isn’t the right way to reach them.
- Include Onboarding & Support costs when considering cost effectiveness of the acquisition
- it’s one thing to pay little to get the initial deal, but if the amount of work required to deliver first value is too high, for a situation where CAC matters, they may not actually be your Ideal Customer.
- Figure in Estimated Lifetime (eLT) as well; this is a metric you should have developed either without data or with data sourced from your Customer Success Management system.
- eLT will help you understand CAC efficiency and whether or not a targeted cohort of customers will be profitable, which would help determine if a cohort you’re evaluating fits your ICP or not.
- You must know the Buying Cycle / Process of your customers to truly understand if they fit into your situational ICP.
- if you’ve decided that you want to add 25 customers in the next 90-days, your ICP for that situation will need to have a shorter buying cycle, a buying cycle that doesn’t have a procurement window or has one that’s within the next 90-days (schools in the United States, for example, often procure products
- Customer Success begins by acquiring the right customers – see #4 above – but in itself drives use/consumption/revenue and extends the customer lifetime, therefore driving up LTV and improving CAC efficiency overall.
- generally speaking this is how you improve the per-unit profitability of a customer.
6. Expansion potential
- This is Intra-Company Virality.
- Includes Additional seats (or licenses, users, etc.), as well as Upsell and Cross-Sell:
- cross-sell can be selling the same thing to different parts of the company.
- cross-sell can also be selling other (different) products to existing customers.
- cross-sell often re-introduces the sales organization into the mix as it generally requires a new sales cycle.
- upsell can often be handled by Customer Success Managers / Account Managers.
- Expansion drives customer Lifetime Value (LTV):
- known expansion potential can lead to immediate ASV (Average Subscription Value) boost through strategic discounting.
- This is a major consideration when deciding to sell to Enterprise Dept vs. SME, Agency vs. Enterprise, etc.
- Customer Success is absolutely required here… no success, no expansion.
7. Advocacy potential
- This is Inter-Company Virality.
- Improves Customer Acquisition Cost Efficency:
- spend $1 CAC to bring in 2 customers (1 refers another) and your CAC drops to $0.50.
- Many ways to achieve Advocacy:
- defined Customer Advocacy Programs.
- use-based virality.
- referral / invitation systems.
- word of mouth.
- Network Effect = Built-in Social Proof
- Social Proof – logos that get more logos:
- be careful with the customers you attract initially.
- advocacy is generally horizontal; people will refer/advocate for you to their peers.
- customers will generally not bring in higher-value customers than themselves; it may happen, but don’t bank on it.
- so if you bring in low-value / less-than-ideal customers initially, if there is advocacy potential, it will probably not result in higher-value customers.
- Customer Success is required here, too… no success, no Advocacy.
Some quick Ideal Customer sanity checks
Do this quick checks before running the newly created profile.
Ideal Customer POV
- Would they know they’re your ideal customer if they looked at your site?
- Would they feel comfortable in your app?
- Would they feel like your service was designed for them?
Who’s your less-than-Ideal Customer?
- Make sure you’re not going where they are!
- Then make sure you’re not actively attracting them
- Would they think they’re your ideal customer if they looked at your marketing assets? That’s bad. Fix it.
Ideal Customer Profile defined; Now what?
- Develop buyer personas with confidence!
- See how your Ideal Customer pro?le compares to:
- the rest of your customer base.
- prospect funnel.
- customers that churned.
- current churn threats.
- prospects that didn’t convert during the trial.
- cohorts by acquisition channel.
- Test or Complete your Hypothesis:
- Use the Ideal Customer Profile to get look-alike leads.
- Buy leads that match their characteristics.
- Give the pro?le to LeadGeni.us, Carburetor, or Growbots to ?nd leads or people to talk to.
- Run the pro?le through Mintigo and ?nd others like them.
- Figure out how to get in front of them.
This should take your SaaS business to a new level!