Why Knowing Your Customers is Crucial for SaaS Success

Understanding your customers is essential for any business, especially if you founded or work at a SaaS company. A simple task like building (and using) your Ideal Customer Profile (ICP) can significantly impact revenue growth and business success. According to TechTarget, 81% of top-performing organizations have ICPs, and companies with strong ICPs average a 68% higher account win rate.

This isn't breaking news, 70 years ago Peter Drucker noted:

"What the people in the business think they know about customers and market is more likely to be wrong than right. Only by asking the customer, by watching him, by trying to understand his behavior can one find out who he is, what he does, how he buys, how he uses what he buys, what he expects, what he values and so on."

Unfortunately, businesses still struggle to deliver value to their users and retain revenue because they don't know their ICP. Building an ICP is easy; the hard part is having the discipline to follow through and not treating it as just another box to check.

How to Start Understanding Your Buyers

1. Listen to Your Customers: Engage directly with your customers through interviews, surveys, and feedback sessions to gather invaluable qualitative data. Understanding their pain points, needs, and expectations helps you tailor your solution to their specific challenges.

2. Analyze Data: Utilize quantitative data from analytics tools to track customer behavior and preferences. Monitor usage patterns, churn rates (by industry, cohort, team structure, etc.), and customer satisfaction scores to identify trends and underlying issues.

3. Identify Root Causes: Combine qualitative and quantitative data to uncover the root causes of your customers' problems. Understanding why they choose your solution over competitors will help refine your ICP and improve your offerings.

Another Peter Drucker gem resonates, "The customer rarely buys what the business thinks it sells him," highlighting the common disconnect between businesses and their customers. By deeply understanding your customers, you can bridge this gap and offer solutions that truly meet their needs.

Quick Tactics to Build Your ICP

1. Define Key Attributes: Identify the characteristics of your most successful customers. Look at firmographics (company size, industry), demographics (role, age), and behavioral attributes (tech stack, software usage). This profile should evolve based on continuous feedback and data analysis.

2. Research & Segment: Use CRM systems and web analytics tools to manage customer data and track interactions. These tools provide insights into customer behavior and preferences, which are crucial for refining your ICP. Segment your market and create detailed profiles for each segment, outlining their specific pain points, needs, and buying triggers. 

3. Validate & Iterate: Test your ICP with real customers and refine it based on feedback and market changes. This iterative process ensures your profile remains accurate and relevant. Tools such as customer journey mapping and market research platforms can help you stay aligned with your customer's evolving needs.

Share your Insights with Leaders

Help your leaders understand what you learned and how it can impact their team. Insights from your ICP are invaluable for any business:

• Product Development: Use the insights from your ICP to guide your product roadmap. Focus on features that address the most significant pain points and deliver the highest value to your customers.

• Marketing & Sales: Tailor your messaging and campaigns to resonate with your ICP. Highlight how your solution solves their specific problems and meets their needs better than the competition.

• Onboarding & Customer Success: Design your onboarding processes and customer success strategies to align with the expectations and behaviors of your ICP. This personalized approach reduces friction and increases your capacity to deliver value, improving customer loyalty and revenue retention.

Handling Legacy Customers

Now that you've created your ICP, presented it to the whole company, and started selling to the right customers with aligned expectations (by changing your definition of MQL/SQL), you have a new "challenge": your legacy customers (not your ICP).

As your customer base grows, you'll have both ICP-aligned customers and those who are not. The latter will demand more effort and time from your team and can negatively impact your KPIs. It's wise to address this:

1. Differentiate and Tag Customers: Tag and differentiate customers in your CRM and reports. This helps you understand who fits your ICP and how your metrics are impacted by non-ICP customers.

2. Segment and Service: Segment non-ICP customers with a specific CSM/team/model that can assist them without confusing the team or impacting your ICP customers. Consider scalable models using content, automation, webinars, videos, etc.

3. Report separately: Start reporting separately for the company and investors to understand the impact of the change. Focus on leading behavioral indicators and cohort analysis in addition to the basics like NRR/NDR/GRR.

4. New success stories to reinforce your new positioning: Look for success cases among your newly acquired ICP customers and feed them back to your marketing and sales teams.

A great Seth Godin quote helps us understand the dynamic of ICP and product: “Don’t find customers for your products, find products for your customers.” By truly understanding your ICP, you can create products and services that meet your customers' needs, fostering long-term relationships and driving sustainable growth. The impact on your business is invaluable as it can enhance overall health, structure, process, and morale.