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How to Define Your SaaS Ideal Customer Profile (ICP)

To define your SaaS Ideal Customer Profile (ICP), you’ll need to evaluate more than demographics such as company size and industry. The challenge is to understand your target audience by understanding their characteristics that differentiate your ICP.

 

In this guide, we want to investigate the process of creating an ICP to explain how to identify the factors that have value, and assist you in detailing some of the gray areas of this undertaking. Then you’ll have a clear idea of your ICP and understand who to target and the proper way to go about it.

Step 1

Gather Data on Your Existing Customer Base

Start with the companies that have used your SaaS product and consider what they have in common.

 

Consider the following:

 

Industry: The distinct fields they operate within (e.g., healthcare, finance, e-commerce).

 

Company size: SMBs, mid-market, or enterprises? Determined by both revenue and employee count. Typical ranges:

 

  • SMB (Small to Medium Business): <$50 million annual revenue, <500 employees
  • Mid-market: $50 million – $1 billion annual revenue, 500-2000 employees
  • Enterprise: >$1 billion annual revenue, 2000+ employees

 

​​Growth Stage: Are they an established business or a startup?

 

Revenue: Does your pricing correspond with the budget of a certain revenue range? FInd estimates and publicly available data. 

 

Location: Are your customers in specific countries or areas?

 

Technology stack: Is your service designed to integrate, complement or replace other products they already have?

 

Buyer Persona: Who makes purchasing decisions (e.g., Head of Marketing, VP of Sales, CTO)? Do the decision-makers usually come from a specific department?

 

Tip

Use this worksheet to structure your figures and include columns for each of the data point. As you collect details, try to identify any patterns or commonalities.

Example

Let’s say your product is project management software. Your data might reveal patterns such as:

  • Industries: Primarily tech startups and e-commerce companies, along with some digital marketing agencies and non-profit organizations.
  • Company Size: 50-200 employees
  • Revenue: $10 million – $50 million
  • Location: Concentrated in North America and Western Europe
  • Technology Stack: Employs tools such as Slack, Asana, G Suite, and Jira, and cloud-based file storage solutions.
  • Buyer Persona: Mostly Project Managers, sometimes department heads (Marketing Director, Head of Engineering)
Step 2

Collect Qualitative Data

With the numbers in mind, it’s time to dig into the details behind them.

 

Why it matters:  While quantitative data reveals who your customers are, qualitative data tells you why they purchased your product. With this data, you will craft your marketing to align with your audience.

 

Consider a day in the life of your customer. Think about their daily activities, responsibilities, and goals. With this in mind, consider the trouble your ICP faces and the results they hope to achieve. Focus on these key areas:

 

  • Pain Points: Before your customers came to your SaaS, what solutions were they looking for? For example, did they have lack of visibility into progress, difficulty with team collaboration or problems with manual data entry?
  • Trigger Events: What caused a company to use your services? Was there a specific occurrence that motivated them? Examples such as new funding rounds, unflattering reviews, scaling issues due to rapid growth or regulation changes.
  • Desired Outcomes: Consider KPIs or goals that were set. Do they wish to boost customer satisfaction, simplify internal processes, lower cost but increase productivity?
  • Benefits: What has improved since they implemented your product? This could be higher revenue, better efficiency or saving time.
  • Why Your SaaS? Why did they choose you over a competitor? Use this information to clarify your benefits when selling to potential customers.
Tip

Lead customer interviews,send out surveys and use social media to engage with them and obtain information. Some possible questions to ask:

  • “What was a significant challenge you were facing before using our product?”
  • “In what ways has our product helped you accomplish your goals?”
  • “What factors influenced your decision to choose our product over others?”
  • “How would you describe your overall experience with our product?”

By understanding their motivation, you can customize your marketing messaging to address your ICP’s needs.

Example: Project Management Software
  • Pain Points: Difficulty tracking tasks across different teams, lack of visibility into project progress, inefficient communication and collaboration among team members.
  • Trigger Events: A new project with a tight deadline, onboarding new team members, or experiencing delays/cost overruns on existing projects.
  • Desired Outcome: Streamlined workflows, increased team productivity, improved project visibility, and better communication.
  • Benefits: Reduced project delays, increased team efficiency, improved transparency and accountability.
  • Why your SaaS: Intuitive interface, robust features, seamless integrations with existing tools, excellent customer support. 
Step 3

Segment Your Customers

After studying your ideal customers, segment the wider market for targeted outreach. The strategy will rely on the nature of your business.

 

Ask yourself these questions to segment your potential customers:

 

  • What do my best customers have in common?: Is their location and size of their teams similar? Is the value of my product relevant to the same type of leader roles?
  • Is my product perfect for a certain type of business?: If the industry or company size is clearly relevant, start there.
  • Who’s the decision-maker? Knowing who has the final say whether it’s the CEO or the Marketing Director, will allow you to target your message.

 

Don’t try to segment everything at once! With 2-3 categories that have the most relevant characteristics, you will find your ICP. Consider the following common approaches:

 

  • Industry Focus: Categorize your customers by their industry (e.g., e-commerce, marketing agencies, software development firms).
  • Company Size: Separate by small and medium-sized businesses (SMBs), mid-market enterprises, or large corporations.
  • Role-Based: Prioritize by job title those who are likely to use your product (Marketers, Sales Managers, Developers, etc.).
  • Pain-Point Focused: Group by the specific issues you resolved (need more website traffic, struggle to track expenses, have slow customer service, etc.).
Example

If your product is a project management tool for teams, here’s how you could segment: 

  • By industry: Marketing agencies, construction companies, software development teams (each of these industries likely has unique project-related pain points).
  • By company size: Small businesses and start-ups with limited resources or big companies with lots of moving parts.
  • By decision-makers: Project managers, team leads, and anyone responsible for coordinating work.

Your segments might look different based on your product and target market. The key is to use data to form detailed profiles.

Step 4

Analyze Metrics for Each Segment

To understand beyond performance you need to look deeper than the raw data and drill down at the segment level.

 

First off, be sure your analytics tools show the segmentation from Step 3.

 

In your CRM (Customer Relationship Management) system, make tags or fields for each customer segment to track them (like Industry, Size, Role). For instance, tag customers as “Small Business”, “Enterprise”, “Tech” and “Manufacturing”.  If you use other analytics tools, make sure you can filter data based on these same segment criteria.

 

Let’s take a look at the metrics for your customer success data to analyze segment health.

 

  • Churn Rate: Calculate the number of customers lost over a set period of time in each segment.(yearly, quarterly) (e.g., “10% of marketing agency customers were lost in the last quarter“). Your goal is to see a monthly churn ratesbelow 5% for small- to medium-sized businesses and below 1% for enterprise-level clients. FYI, early-stage SaaS companies may see rates closer to 10%
  • Customer Lifetime Value (CLV): This is the calculation for how much the average customer in each segment spends over the entire relationship. (There are free online calculators for this – e.g., Upgrowth CLV Calculator). The benchmarks vary by industry, costs and business model type, your goal should be at least three times higher than your CAC (Customer acquisition cost).
  • Customer Acquisition Cost (CAC): The amount you spend on sales and marketing to acquire each customer in a segment. The ideal does vary, but the point is to avoid eating all your profit from CLV. For SaaS businesses, a general rule is that your CAC should be recouped within 12 months of the customer’s lifetime.

 

Determine the segment that shows a relatively low churn (higher CLV) and acquisition costs that are relatively manageable. These numbers may reveal which customer values your product and is likely to remain loyal, thereby being a cost effective acquisition.

Example

Imagine you segmented by company size:

  • Segment A: Small businesses (fewer than 100 employees) 
  • Segment B: Mid-sized businesses. (100 – 1000 employees) 
  • Segment C: Established firms. (1000 and more) 

Your analysis might reveal some data like this:

Segment 

Company Size

# Accounts 

Churn Rate

CLV (annual)

CAC

Segment A 

Small business

150

10% (monthly)

$2400 

$350

Segment B

Midmarket

300

4% (monthly)

$4800 

$500

Segment C

Enterprise

50

2% (monthly)

$10,000+ 

$1,500

 

  • Segment A: Small businesses make up a large part of your base, but they haev a higher churn and lower CLV in comparison with the others which suggests a tailored retention strategy. Take a look at some alternative options like customer support, targeted onboarding and feature upgrades to engage and prevent churn.
    Segment B: Mid size businesses are the biggest part of your base and have a moderate churn ate with a relatively high CLV, so this could be a key area of data to investigate. Consider upsells and cross sells with this segment to expand opportunities.
  • Segment C: Though smaller in quantity, Enterprise typically have the highest CLV and the lowest churn rate. But the (higher) CAC indicates that these customers require more resources to acquire. In order to shorten the sales cycle and reduce costs, optimize your marketing and sales strategies with this group.

Remember: these numbers are hypothetical, your data will rely on the industry, target market and pricing structure.

Step 5

Refine, Test, Repeat

A static ICP will likely need updating. It should evolve as your business, the market, and your customer base change. Regularly reviewing and altering your ICP will help your sales and marketing teams focus on the right prospects.

 

Track Results 

Monitor your SaaS analytics, sales, and marketing performance and analyze how your target segments are interacting with your product.

 

Are they utilizing the features that matter most? How engaged are they with the service? Look at churn rates, too – are certain types of customers leaving more quickly?  Understanding why they leave is gold for refining your ICP.

 

On the sales side, pay attention to conversion rates for each segment. Are some exceling while others struggle? This tells you where your targeting is accurate. Also, keep an eye on how long it takes to close deals. If some segments are dragging their feet, it could mean your ICP isn’t quite lining up with their actual buying process.

 

Marketing performance is a piece of the puzzle. Which campaigns are attracting the most qualified leads? What channels are resonating with your target ICPs? This information could potentially help you adjust your approach.

 

Gather Feedback 

Speak with to your sales team. They interact with potential customers, so they have valuable knowledge about who buys, and why. Ask them about the traits they observe in your most successful customers, the objections they encounter, and the reasons deals fail to close.

 

Also, speak with your customer success team. They build relationships with your customers. Pick their brains about what your customers love most about your product, what problems it solves for them, and any pain points they might still have. If their feedback doesn’t quite match your current ICP, that’s a valuable clue.

 

Iterate and Test

Use the data and insights to adjust your ICP. Refine those segments, and narrow your focus or broaden it if you uncover a new opportunity. Tweak your messaging to speak to the specific needs and pain points of your refined segments. And don’t be afraid to experiment with different channels to see where your ICPs are hanging out.

 

Schedule regular evaluations of your ICP (e.g., annually or semi-annually) 

 

Since your market is dynamic, your ideal customer definition should be too. Schedule check-ins to re-evaluate your ICP, once or twice a year. Look at market trends, competitor activity, and product/service changes to ensure your ICP is accurate.

Real-World Example

Asana, a project management tool, regularly collects customer feedback through surveys and other channels and uses this feedback to refine its ICP and product roadmap. This approach helps them to respond to market changes and maintain a consistent user base.

Conclusion

Designating your Ideal Customer Profile is a work in progress, not a one-time assignment. By continuously refining your ICP, you’ll better understand your target market, allocate resources more effectively, and improve your goal of achieving sustainable growth. It may not guarantee success, but it can provide a roadmap for your sales and marketing efforts. Remember, even with a well-defined ICP, continuous redefining is key to navigating the ever-changing SaaS landscape.

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