Who is your ideal customer? Today, most businesses know who they are targeting and may even develop detailed profiles of the customer types they market to (also known as customer “personas”). But are the customers you have now actually your ideal customers? Or are they just the customers you have, because they’re the customers you were targeting?
These are tricky questions to answer, which is why 2Checkout (now Verifone) recently hosted. a webinar called “How to Identify Your Ideal Customer Profile and Build a Lead Scoring Modelwith Andrew Michael, Co-Founder and CEO of Avrio and the host of Churn.FM. He shared many actionable tips on how to generate more high-quality leads with lead scoring strategies and marketing strategies that depend on data.
In his session, Andrew shared his framework for profiling your ICP, covering:
- How to identify your ideal customer profile:
- Gather data
- Use retention analysis
- Understand that product-market-fit is a moving target
- Use a price sensitivity analysis
- Look at the properties your customers have in common.
- Look at conversion rates
- How to build a lead scoring model and why
How to Identify Your Ideal Customer Profile
1. Gather Data
It’s crucial to understand that there is no single correct way to identify your ideal customer, rather, you need to use a method that suits where you are in your journey as a company. You may want to use a combination of any of the following tools, in whatever way makes the most sense for your business:
- Panel studies
- User interviews
- Usability studies
- Cohort analysis
- Market analysis and research
- Processing research
- Packaging research
Once you’ve gathered the data, you will then want to segment it, or divide it up and group its elements, in whatever ways will provide you with the most actionable information. Segmenting allows you to answer questions such as:
- Who values the product the most?
- What is their willingness to pay?
- What is their likelihood to buy?
Information like this can help you get a good feel for the most important factors affecting your sales and business growth in a particular market. You can then take the steps needed to position your product in the most advantageous way—but it all starts with data.
Tips: As you gather data, always practice good data hygiene. This means standardizing the way you ask for information and the way you define group demographic properties, for instance. Later, this will mean that you can compare “apples to apples” and use different data sets in tandem.
2. Use Retention Analysis
Now it’s time to break down the data so that it shows you who your best-performing customers are over time and why they are sticking around. This is called a retention analysis. What is the value proposition you want to offer customers? Does it line up with the reasons your best-performing customers mention to be keeping them from churning? Asking questions like this will help you understand whether you are on the right track or need to adjust how you attract customers and how you market your product or brand.
3. Understand That Product-Market-Fit is a Moving Target
Your retention analysis can show you who your best customers are now, but Andrew underscores that the customers we have today “are a direct reflection of the marketing that we’ve done up until today and the product that we’ve built. But that doesn’t mean that they are the ideal customer profile that you could be going for.”
The truth is, even if you positioned your product perfectly and reached ideal customers when you launched, you can’t rest easy. The market is constantly evolving, which means that you must also constantly “check back in” with your product’s market positioning. Luckily, you can use data to evaluate how the market may be changing over time, as well as how your customers may be changing over time.
4. Use A Price Sensitivity Analysis
Very helpful in filling out the picture of your ideal customer is the process of analyzing price sensitivity, or how customers react to different prices. Customer data can help you understand what price point is optimal for your product by emphasizing who are the people who purchase at the lower price vs the higher price, for example, and how likely it is that certain types of people would be willing to purchase at the superior price. This should give you a good idea of an important feature in your ideal customer profile: the price they are willing to pay.
Ultimately, your ideal customer is going to be the customer who is willing to pay the most for the product, and who is also extremely likely to purchase the product.
5. Look at the Properties Your Customers Have in Common
Breaking down the data you have by customer properties—such as role within their company, the company’s monthly recurring revenue (MRR)even age or sex—can yield powerful insights about your ideal customer.
First, look at the group of customers you have been able to retain long-term; where do they all share something notable in common? Maybe they are largely from small and mid-size businesses, with very few enterprise-level businesses represented. Or perhaps they have MRRs in a certain range. You might notice that they tend to be engineers, rather than designers. These insights can become crucial as you refine your strategy.
Second, examine your newly acquired customers. Comparing users you have retained and customers you have acquired most recently should help show where the brand came from and how it may differ from where it is going. What if you see that, unlike your long-term customers, many of your recently acquired customers are enterprise-level businesses? This might tip you off to the fact that there are different interesting industries that you could look to expand into, and new demographics you can cross-sell or up-sell to.
6. Look at Conversion Rates
Don’t forget to examine the conversion rates of your customer base. Say you have a ton of one type of customer coming to your website, but when you cross-reference the data with conversions, you realize that this customer cohort isn’t likely to convert. This is a good tip-off that you may not have been reaching the right segment for the right industry, or the right customer profile with your marketing.
Pull this data together and you should have a very full picture of your ideal customer. Where you find strong retention, high conversion, and high willingness to pay, you will find your ideal customer.
How to Build a Lead Scoring Model and Why
All of this data analysis has helped you flesh out your ideal customer profile. But we also need to build a model to understand whether you are reaching these customers.
Andrew recommends the simple process of building a lead scoring model, that is, a points system that ranks different properties in the data and assigns points values to them. This scoring model will tell you how closely your customers fit the ideal customer profile. While this may sound labor-intensive, “you can literally put it together in about 20 to 30 minutes from this step,” Andrew states.
Interestingly, the lead scoring model is less limiting than the ideal customer profile. Once you have fed some variables into your model, you will see that there’s no longer a single ideal customer, but rather a range of scores. To follow Andrew’s example in the webinar, even if your ideal customer is “engineers at companies with over a thousand employees with annual revenue of 100 million,” you won’t necessarily want to discount engineers at companies with over a thousand employees and an annual revenue of 200 million. Your lead scoring model gives you the tools to see how classifications of your desired variables correlate with revenue, retention, and, ultimately, help you make informed decisions like:
- How to spend your time and resources and the customers that are actually going to be serving your best interests
- How to prioritize, so that you spend less time and resources on companies that aren’t good fits, and double down on those that are
- Who to discount without leaving valuable opportunities on the table
Decisions like these will determine whether your business grows and how healthy that growth is. However, Andrew shares that “the key to success when it comes to any business is knowing your customers inside out.” In the end, all of the data-gathering and -analysis discussed here is meant to support your ability to have a deep understanding of your customer’s needs.
Learn More About How to Reshape Your Approach to Leads
These are just the broad strokes of a whole host of actionable insights that Andrew shared in the full webinar. Go have a look at the full sessionand take these valuable tips on how to generate more high-quality leads into your next strategy meeting.
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