Customer Segmentation

B2B Customer Segmentation: 6 Ways to Quickly Identify Target Market

Startup and expansion-stage companies have to focus their resources on a target market and be agile in order to effectively compete with enterprise incumbents in their markets.
There are two primary reasons for this:

  • Their resource constraints do not allow them to build the content and knowledge necessary to effectively sell into multiple spaces. Therefore, they are forced to develop a less targeted approach that does not resonate as well with prospects.
  • They waste resources on going after prospects that are unlikely to be good customers.

Despite this fact, many startups approach their markets blindly and consequently struggle to grow and develop into long-term viable businesses.
This blog post provides six one-off B2B customer segmentation exercises that any early development stage B2B company can use to quickly identify potential segmentation characteristics. During the next few weeks, I will walk through how to set-up and carry-out each of these analyses.
The purpose of this series is not to teach you how to plan-out and execute a customer segmentation research project. Rather, it is intended to get startup and expansion-stage company management teams thinking about different ways they can quickly enhance their knowledge of their customer base.
Sometimes this is all the information that is necessary to get your company targeted and selling into a good segment. Other times, you will find that one-off analyses are not enough to identify a good segment and you will need to plan out a full-scale customer segmentation research project.

6 One-Off B2B Customer Segmentation Exercises

Below are six B2B customer segmentation exercises you can do in a couple hours to enhance your understanding of your customers and potential segmentation characteristics:

Current Customer Industry Analysis

Compare the composition of your customers industry or size against the US census composition statistics for your selected target geography. The selected geography should be representative of the geographic area that your company actively sells into. For most software companies this will be the entire US. This exercise will identify how your customer composition by industry or company size is different from the composition of companies in its target geography.
This can be a great way to identify patterns in your customer base that can help you realize characteristics that are correlated with needs. However, you need to understand the company’s previous history of targeting to make sure that the composition differences are not a reflection of previous go-to-market strategies. You can also look at your lead conversion rates for the interesting sub-segment of companies to verify that it’s not a reflection of a failed targeted selling campaign.

Lost Customers Analysis

Compare the composition of your lost customers by employment size against the US census composition statistics for your selected target geography. This exercise will identify sub-segments of customers that you are not having success selling into.
This can help you see negative patterns in your customer composition that can help you identify characteristics that may be correlated with specific customer needs. Similarly to the previous exercise, you can look at your conversion rates in the sub-segment to make sure that your company is struggling at selling into a given sub-segment.

Revenue by Firmographic Characteristics

Monthly Recurring Revenue (MRR) / Customer or Annual Revenue Per Deal by Selected Firmographic Characteristic: This exercise will identify sub-segments of customers that offer the largest potential value. The key to this analysis is removing outliers and being cognizant of the number of deals that have been sold into the top sub-segments.

Costs by Firmographic Characteristics

Monthly Recurring Costs (MRC) / Customer or Cost of Service Per Month by Firmographic Characteristic: This exercise will identify sub-segments of customers that require the highest levels of cost to support. The key to this analysis is removing outliers and being cognizant of the number of deals that have been sold into the sub-segments.

Tenure by Firmographic Characteristics

Running a tenure analysis will help identify customer groups that are loyal in your customer base. This can be an important factor in businesses with high new customer on-boarding costs or customer acquisition costs.

Win-Loss Analysis

A closed opportunity win-loss analysis by target firmographic characteristic(s) will identify which cuts of your customer base have had the best conversion rates for your products. Looking at this analysis across a couple key cuts can highlight patterns in firmographic characteristics that could be linked to needs.
In order to identify which exercises make the most sense for your understanding of your business, you will need to identify which factors matter most for your business model.
Next week, I will explain how to conduct the two census composition comparison exercises.

Brandon Hickie
Brandon Hickie
Marketing Manager, Pricing Strategy

Brandon Hickie is Marketing Manager, Pricing Strategy at LinkedIn. He previously worked at OpenView as Marketing Insights Manager. Prior to OpenView Brandon was an Associate in the competition practice at Charles River Associates where he focused on merger strategy, merger regulatory review, and antitrust litigation.
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