SaaS Analytics May 23, 2023
16 min read
How to Create an Ideal Customer Profile for SaaS Businesses
How to Create an Ideal Customer Profile for SaaS Businesses
Bruce McFadden
Bruce McFadden Peaka / Seasoned Taskmaster

How to Create an Ideal Customer Profile for SaaS Businesses

Introduction

Rising above the marketing noise in this day and age is the number one concern for marketing teams. How do you get your message across to your audience, who have been exposed to similar messages from a plethora of different mediums? It is this particular concern that led to the emergence of account-based marketing (ABM).

Instead of churning out marketing content to saturate every communication channel and reach every kind of customer, ABM focuses on a handful of target accounts. It emphasizes undertaking research to better understand the needs of those targeted accounts and produce personalized content for them. At the center of this strategy is the "ideal customer profile" (ICP) concept.

What is an ideal customer profile?

An ICP is "the type of company that would benefit the most from your product or service." The term does not refer to your potential customers, though. ICP corresponds to a much more focused group of customers who are a fit for your product and aware of their pain. These customers are actively looking for a solution to a problem, thus motivated to make a purchase.

Finding and detailing customer personas is nothing new. You probably built up profiles like "Amy the accountant" or "Tony the technician" at some point in your career. Working to generate customer personas is a fun exercise that you do because you were asked to do but then put aside and never look back on later. Because customer personas are rarely actionable. That's why people have developed tools like Strategyzer's business model canvas to join customer personas with value propositions and specific actions to be taken.

Key takeaways

  • ICP is an account-level concept that refers to the companies that will become your best-fit customers. It differs from a buyer persona, which corresponds to the individuals within an account.

  • ICP stands on four pillars: Firmographic data, demographic data, technographic data, and psychographic attributes.

  • Creating an ICP is not a one-and-done exercise. The ICP has to be updated and optimized depending on the market conditions and the macro-level changes in the economy.

  • Peaka’s HubSpot-Stripe connector is the kind of tool you need to merge your revenue and CRM data and discover which accounts you must target.

ICP in numbers

  • Organizations with well-defined ICPs achieve 68 percent higher account win rates.

  • Messaging built around ICPs can work wonders. Personalized emails can drive 18 times more traffic than non-personalized emails.

  • A study conducted by the Insight for Professionals community revealed that 60 percent of senior B2B marketers use ICP to identify and prioritize market opportunities.

Target audience vs. Potential customers vs. ICP vs. Buyer persona

These four terms refer to a group of people with varying degrees of potential to become your customers. They can actually be thought of as a funnel or pyramid with increasingly better-defined needs, representing a better fit for a product.

Target audience

Your target audience simply refers to the market segment you are addressing. This group consists of people sharing the same pain points, but they lack the fit and motivation components, which renders them too broad a category to focus on.

Potential customers

These are the members of your target audience for whose needs your product is a good fit. Your value proposition resonates with these people. You will be top of mind for these people when they get the motivation to shop to satisfy that need.

ICP

ICP corresponds to a subset of your potential customers who, in addition to pain and fit, also demonstrate a motivation to buy your product. Your ICP has a pain, knows about available solutions, thinks your products can solve his problem, and shows a readiness to make a purchase.

Buyer persona

This term refers to the members of the buying committee in your target account. Among this group are the everyday users who personally use a product, managers who oversee the work of everyday users, and executive decision-makers who write the check. There can be other people involved in roles like champions, influencers, or blockers.

See this short video by product-led growth guru Myk Pono for a quick look into the differences between these four concepts:

Why do you need an ICP for your SaaS company?

If you are running a SaaS company, you need an ICP because "not all customers are created equal." You need an ICP because your resources are scarce, no matter how much money you have raised. You need an ICP because some segments offer higher value and much higher return on the marketing dollar you spend.

ICP is a handy tool for understanding, segmenting, and acquiring customers. Myk Pono sums it up well:

... [U]nderstanding your customers requires you [to] first understand the whole marketplace and then zero in on an ideal customer profile to pursue. Understand first, then segment. It's also worth noting that picking the right market and the right customer can decrease your customer acquisition cost (CAC).

Here is a brief look at the benefits SaaS businesses may expect from a well-defined ICP:

  • ICP provides you with a blueprint you can use to acquire more customers similar to the ones who are the best fit for your product. ICP reduces the time it takes to generate leads and vet them. Sales and marketing teams have more time to focus on high-value accounts without wasting time on prospects who will either not make a purchase or churn after the buy. By focusing on the ICP, you can produce personalized content that will be much more effective than generic content in converting people.

  • Your ICP represents the people who will be your most loyal customers once you convert them. They will buy more, upgrade more and make your product a bigger part of their lives. Nailing the ICP is a surefire way of increasing the customer lifetime value.

  • ICP provides you with a scalable template for your account-based marketing strategy. ICP refers to the low-hanging fruit for your customer acquisition engine, as these are the companies with a problem that your product solves and a willingness to solve the problem. They are receptive to your value proposition and messaging, which brings down your customer acquisition cost. As the ICP is a better fit for your product, it is also more likely to be an evangelist. By creating an ICP, you are actually developing an actionable plan, not just engaging in a simple thought exercise.

Pillars of a well-defined ICP

There are four parameters you should work on to ensure that your ICP can inform your future marketing and sales effort.

Firmographics

Firmographics are the attributes of a company that help you place that particular company in a segment. These attributes give you a reference point, enabling you to compare metrics with those of other companies with similar firmographic data. Firmographic data should include:

  • Company size
  • Vertical
  • Country
  • Annual revenue

The HubSpot-Stripe integration allows the user to pull 'country' data from HubSpot and combine it with 'pricing plan selected,' 'amount charged,' and 'invoice paid' data from Stripe. This integration gives you valuable insights into how your MRR and revenue differ from one country to another. It also reveals whether the demand for different pricing plans varies depending on the location.

Technographics

Technographics refer to the tech stack a company uses. Information on the tech stack can reveal valuable insights into how a particular company works, its pain points, and how processes can be improved.

Technographics is a great tool to find the best match for your product and make a shortlist of best-fit customers. There are tools like Built With that can help you explore the tech stack of a company. The fact that a business is using products from your competitors can qualify that company as a good candidate for your marketing and sales efforts. Knowing in advance the kind of technologies a company employs can help you understand which one of them your product can work with and which ones it can replace. The existing tech stack is a good indicator of the fit between a customer and a product.

Demographics

While firmographics involve the attributes of a target account, demographics refer to the characteristics of the buyer personas within that account. These characteristics give you a better picture of who you will personalize your content for and work with to close a deal. The demographics include information on the following parameters:

  • Age
  • Gender
  • Job title and position
  • Place in the decision-making mechanism
  • Skills and expertise
  • Needs and pain points
  • Motivations and triggers to seek a solution

Psychographics

Psychographics are the sum total of the values, motives, goals, and aspirations that cumulatively make up the culture of a company. Psychographic data provides us with information on critical issues like the power structure, how authority is shared and decisions are made, risk tolerance, and what the organization aspires to become in the future.

Here's how Dan Martell goes over these four pillars and more in nine minutes:

4 steps to create the perfect ICP for your SaaS company

Identify your highest-value customers

  • Make a list of your current customers.

  • Identify the high-value accounts on that list. This involves determining the customers who have generated the most revenue for your business, spotting the repeat buyers, and those who upgraded to a more expensive pricing plan or bought other products from you.

Establish a segmentation pattern for your best-fit customers

  • Analyze the attributes of your high-value accounts and find out commonalities.

  • Study the firmographics of these customers and try to discover a pattern. Where are they located? In which industry do they operate? How many employees do they employ? Are they bootstrapped? If not, how much funding have they raised?

  • Connecting the dots between the common attributes will reveal the outlines of your ideal customer profile. However, this still is a rudimentary definition, which you will clarify in the next phase. Here, a tool like Peaka that can join and blend your revenue and CRM data can help you isolate the characteristics of your best-fit customers by allowing you to break down the data into meaningful components.

Hone your rudimentary ICP

  • The silhouette of an ICP you formed in the first phase will not be enough to build an actionable plan. To create a more granular picture of your ICP, you must enrich your initial findings with demographic, technographic, and psychographic data.

  • Discover the stakeholders who make up the buying committees in your target accounts and try to understand the way decisions are made. Distinguishing between the daily users, managers, and check signers goes a long way toward understanding who can be your allies and who will likely block your efforts in the future.

  • What kind of tools do your best-fit customers have in their tech stacks? Do they use any products from your competitors? What are the friction points the daily users of these tools complain about?

  • Does the company culture in your best-fit customers allow for feedback from frontline workers? How open is the management to purchasing new tools, employing new techniques, and fine-tuning established processes? What are the growth objectives they are chasing?

  • Your research into the demographic, technographic, and psychographic data of your customers gives you visibility into a typical "day in the life of your customer." By walking in the shoes of your high-value accounts, you will understand the problem they had, what made your product a good fit for them, and the triggers that made them purchase your product. You can use this information to develop a customer acquisition template that can apply to companies with similar pains.

Adjust your value proposition

  • There has to be a near-perfect fit between the value you propose at the beginning and what your ICP expects from. It is thanks to this fit that you will be able to gain customers without incurring high acquisition costs.

  • Your value proposition can be compelling for your initial customers, but that group will probably be too small to help you achieve your revenue goals.

  • You will have to expand into adjacent segments to secure a customer base big enough to fund your operations. This means drifting away from your initial ICP and appealing to customers who are not as motivated to purchase your product.

  • Therefore, your ICP definition will have to change a little bit. Your value proposition has to change, too, to accommodate the broader ICP you target.

Mistakes to avoid while searching for an ICP

Nailing the ICP can be quite a challenge, with lots of parameters factoring in. The following are the three most common mistakes:

Going too broad or narrow with the ICP

Your ICP refers to the group of customers who have a pain your product solves. Companies fitting this description will be the most receptive to your messaging, and their motivation to buy will be strong. However, there is a delicate balance to strike while defining your ICP. If you keep it too narrow, it will be easy to create hyper-personalized content for your target accounts, but their number will be too few to help you hit your revenue goals. An ICP that is too broad will dilute your message and make it difficult for you to focus on a subsegment that can drive your growth.

Make sure that your ICP is limited to the narrowest possible group that will allow you to realize your business objectives. ICP definition can be expanded as the need arises, which brings us to the second common mistake.

A stagnant ICP definition

Your first ICP is based on intuition. You haven't launched your product yet and have no data to speak of, just a gut feeling telling you who will be your best-fit customers.

If everything goes well, your initial ICP will serve as your engine of growth, and your product will appeal to people outside this core group of customers. You will soon acquire new customer groups who adopt your product, hack, and use it in ways that you did not foresee before. If you aim to create a customer acquisition flywheel for these customers, your initial ICP definition will not offer you much help.

This is why you need dynamic ICPs that you constantly update. ICPs that do not perform up to expectations get eliminated while new ones are created. Keeping an eye on revenue from different customer segments and enriching them with customer data, you will be continuously optimizing your ICPs so that target accounts with different characteristics can get the personalized content to convert them.

Failing to blend qualitative and quantitative data

While creating an ICP, historical data may fail to tell the whole story without a human touch. What looks like a decent segment right now may be a shrinking one or about to be completely replaced by something else (like the EV technology replacing the internal combustion engine today).

Field teams who directly deal with customers can provide the ABM teams with the contextual information they need to evaluate the potential of different segments and help mitigate these risks. The SDRs can spot growing trends and latent problems in a segment that will be hard to detect in revenue data, providing feedback that can be used to fine-tune the ICP. That's why successful ABM teams have an active SDR component that keeps the rest of the team up-to-date about the market.

How can Peaka help you fine-tune your ICP?

ICP is the product of customer segmentation and represents the highest-value segment in your target audience. This segmentation needs to be based on the revenue from each customer profile. Forming an ICP requires enriching the revenue data with the customer attributes you keep in a CRM.

This is one of the strong suits of Peaka. Peaka allows users to pull in the revenue data from a payment processing platform and blend it with the CRM data. Peaka's HubSpot-Stripe connector makes things even easier, providing a one-click data integration between two popular SaaS platforms. Having consolidated their data, users can run queries and break down the data into different firmographic components, which reveals the best candidates to become the ICP.

ICP content to consume

Conclusion

Sometimes "less is more." It's this kind of thinking that guides people to invest in creating ICPs. A well-defined ICP can create high levels of growth by concentrating resources on better prospects.

However, defining the ICP is both an art and a science. It has to be a data-driven process, for sure, but data alone will not suffice. It takes a comprehensive approach and a lot of iterations to blend data with first-hand experience from the field. It all starts with intuition, builds on research, and requires human expertise to find its final form.

faq-icon

Frequently Asked Questions

<p>A target audience is the market segment consisting of people sharing a common pain.</p> <p>Potential customers are a specific group within a target audience who represent a good match for a product.</p> <p>ICP refers to the potential customers who also have the motivation to make a purchase to solve a pain.</p> <p>A buyer persona corresponds to a specific role within a targeted account and is subordinate to the ICP.</p>
<p>ICP should be neither too broad nor too narrow. It should refer to the smallest group of customers that will allow you to realize your business objectives. Too broad an ICP dilutes the messaging. On the other hand, if your ICP is too narrowly-defined, then you won't be able to hit your revenue targets.</p>
<p>ICP is all about putting a face on your highest-value accounts. This requires identifying customers with the highest lifetime value and blending that data with customer attributes. Peaka helps you do just that with its HubSpot-Stripe connector, which enables you to bring your revenue and CRM data together. Having unified your data, you can then break down your consolidated data into industry-, country-, and company-based components, which will help you identify the accounts you need to target.</p>
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