Whether or not your company has gone through this exercise, now is the time to revisit and determine if your current strategy is still the best one – have macro effects altered the lifetime value of certain customers? Representation from all key areas (product, engineering, customer support, sales, marketing, etc.) should be included to give feedback on how their division is being impacted and whether current prioritization of customers, product roadmaps, etc. need to be modified.
Be especially focused on how the downturn will affect segments. For example, small businesses are more likely to involuntarily churn due to bankruptcy, enterprise sales cycles may increase, airline/travel segments will be less likely to make purchases, etc.
Common variables used to segment customers include:
• SMB, Mid market, or Enterprise - can be determined through employee count, revenue, user base for product, potential ARR, etc.
• Industry – Especially important during a downturn where different industries may have very different reactions
• Complexity of onboarding – Determined by how many employee hours needed to onboard, how long it will take for a customer to be up and running, or what ongoing level of support is needed for the customer
• Difficulty of sale – Can be determined by length of sales cycle, number of decision makers, number of meetings needed to close, etc.
Now the question becomes which of these methodologies should you use? Ideally, we recommend selecting the top 2 or 3 variables that drive lifetime value for the customer and using that as a guide for marketing and sales. You can set up a scorecard / matrix for teams to score potential customers and determine their priority level.
Additionally, your entire organization -- from S&M to engineering to operations -- should have an ongoing feedback loop to adjust customer segmentation and reprioritize initiatives based on new findings and input from the team. For example, if you determine a certain industry is the best target, maybe the engineering team should prioritize industry-specific updates to the software – or if you determine SMB is the best customer, maybe the customer success team should prioritize creating videos and documentation for self-help to limit troubleshooting issues for this customer base.
Segment your current customer base to identify those who are at risk of voluntary churn and those who have a reason to upsell. Determine if there are common features the product team could build, or things the customer success team could do to keep voluntary churn to a minimum and to expedite upsell.
Word of mouth marketing is effective and free. Do everything you can to turn your current customers into your best marketers. To do this you need to prioritize customer support and success over all else. Some ways companies do this include:
• Determine what the most common problems are and develop self-help solutions
• Decrease amount of time to respond to customer support tickets, etc.
• Implement a customer survey (via survey monkey or via phone call) to see where your company/product weaknesses are and address them
• Spend time with customers to ensure they are using all features that can be helpful to them
• Create an ROI calculator to make it easy for customers to see how they are benefiting from the product
This will not only lower the risk of churn and increase upsell, but also take pressure off the sales & marketing team as they will have free warm inbound leads!
There are two key points you need to consider for your business as a result of the current macro conditions. First, sales growth is going to slow down, companies will be less likely to commit to new software purchases, and current customers may be less likely to upsell. Second, funding and financing operations are going to be more difficult for the foreseeable future (see our piece on Fundraising in a Downturn). As a result, you need to be deliberate in planning where best to allocate time and resources – customer segmentation is critical for doing this.
Customer segmentation is an exercise companies go through to help identify their target customers by dividing them into groups based on common characteristics. This helps position the company to grow more quickly, efficiently, and sustainably by providing clarity around who to sell to and how.
Generally, customer segmentation helps you understand how various groups behave, enabling you to market to each group more successfully, and ultimately make strategic decisions about where to focus your sales efforts. While this exercise is important in any economic climate, additional pressures coming from the current downturn may change many assumptions made around customer segments.
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