Breyta

Touchpoints 07.03.2022

How To Establish A SaaS Ideal Customer Profile (ICP)

Learn the ropes for identifying who you're selling to and why.

SaaS Ideal Customer Profile

Close your eyes. Take a deep breath.

Can you picture your ideal customer? Did you just fall asleep? No worries, either way, we're here to help you find your ideal customer profile (ICP) for the SaaS industry, and we will try our best to keep you awake while we do it.

As a business owner in the SaaS space, your customer base may seem like a broad, heterogeneous group of people. Still, your ability to understand and create sales strategies that target them is your golden ticket to success.

How can you do that? By creating an ideal customer profile.

B2B startups must scale and distribute ICP identification from one to ten to hundreds of people to grow. A narrow, clear, and identifiable ICP is critical to that growth.

Tomasz Tunguz Managing Director at Redpoint Ventures

You might be reading this thinking, “great, that sounds awesome, but how on earth am I going to narrow my entire customer list down and create an ICP?” In fact, you probably were already wondering, if you typed “ideal customer profile for the SaaS industry” into your search engine.

Good thing our SEO team has been hard at work, and you found your way here. We will simplify this concept and give you a roadmap to creating an ICP that works for your SaaS company.

Luckily, there are no right or wrong answers when creating an ICP.

There is no universal definition of an ideal customer; not for your company, not for any company. Your ideal customer profile is a living, breathing “definition” that you'll come back to – and modify – often.

Lincoln Murphy, Customer Success Growth Expert and Thought Leader

However, once you've read through this post, you should have a much better idea of the type of customers you want to attract.

So, let's get to work.


What is an ideal customer profile?

For B2B businesses, your ideal customer profile is a business (not a person) who has the problem you solve and is most likely to buy your product.

That sounds like a synonym for buyer persona, right?

Wrong.

While the two sound similar, there is a key difference.

Your buyer persona refers to the person making the final purchasing decision at the company (your ICP).

However, before you can create an ICP, we need to dive deeper into the differences between target audience, potential customers, and your ideal customer profile.

Ideal customer profiles vs. personas vs. target audience

On the surface, these three archetypes look and feel similar, but when you start to pull back the layers, there are clear differences that will impact how you define your ICP.

Who is your target audience?

Your target audience is a market segment. These people share a common pain point that you solve with your product.

Let's look at an example.

You're the CEO of a social media publishing tool. The problem you solve is time. It's time-consuming to post on various platforms at different times and stay consistent. Your software helps users schedule posts 5x faster.

Who would have this pain point?

Heads of Marketing, social media managers, solopreneurs, and virtual assistants.

Who are your potential customers?

While your target audience is different people with the same pain point, that doesn't mean everyone is the best fit for your product. The way you solve the problem will separate your potential buyers from the herd and help you achieve product fit.

Sounding a bit murky?

Let's workshop a few examples.

  • Social media publishing tool: The pain point you're solving is reducing the time users spend on scheduling posts. Your potential customers are social media managers who have a minimum of 3 clients and need the ability to manage and cross-post to more than 10 different social media accounts.
  • HR recruitment software: Enterprise organizations usually outsource recruitment to agencies and have a bigger hiring budget. Early-stage startups and smaller companies? Not so much. These companies need to rely on in-house recruitment and are your potential buyers.
  • Sales training software: On average, it takes a new sales rep 3 to 6 months to ramp up fully. For Enterprise, that number is pushed to almost a full year. Your software helps reduce ramp-up time inefficiencies, and your target audience is the Head of Sales. To drill down further, your potential customers would be companies who hire a minimum of 15 new reps in a year.

As you can see, you're slowly creating a funnel and focusing on a target customer profile that's the right fit for your business.

Who is your ideal customer profile?

Lastly, we tie everything together with your ICP.

A good ideal customer profile will combine the problem you solve, product fit, and relevancy.

Relevancy refers to the customer being aware of the problem and how it's negatively impacting their business and actively seeking a solution.

Going back to the previous examples, an ICP would look like this:

  • Social media publishing tool: Social media managers who manage a minimum of 10 accounts across various platforms. The pain point of having to log in and out of different accounts and create posts in multiple dashboards is causing a time drain for the customer and makes it different to keep track of posting schedules.
  • Sales training software: VP or Head of Sales at a company that hires a minimum of 10 new sales reps each year. The company's annual turnover is below 20M. The pain point of long onboarding times and ineffective training is causing the company to lose 50K ARR, have stagnant pipelines, and lose market share.
  • HR recruiting software: Head of HR from a B2B SaaS startup or small business with 5+ open jobs. The company has a 2M ARR. The problem of slow recruiting is causing top candidates to accept competitors' offers, low productivity levels, and $50k of lost monthly revenue.

How defining an ICP can grow your business and improve your customer journey map

Not sold on the idea of focusing on an ICP?

Are you straddling two or more target personas?

Whelp.

You're hurting your business in the long run.

That's exactly what happened to Hubspot.

For years, the CRM giant couldn't decide between "Owner Ollie" and "Mary Marketer."

While both personas have the problem Hubspot solves, the expectations of how to solve it (pricing, support requirements, product requirements etc.) are different.

The result? Hubspot kept making uninspired compromises and never struck gold with either persona.

Until Hubspot made the decision in 2012 to pick "Mary Marketer".

That one decision led to content built specifically around attracting her and putting a stop on business owner content.

Sales reps had a much easier time honing Hubspot's value proposition and were only given qualified leads that fit the Mary ICP.

The product UX team stopped splitting hairs over what features to develop next for both personas and instead focused on delighting only one.

The customer success team knew exactly how to help users find value in the product and achieve their goals.

...But did it work?

Yes!

  • Customer retention went up from 65% to 82%
  • Customer lifetime value doubled from $25k to $52k.
  • Revenue retention grew from 70% to 100%

5 core aspects of an ICP for the SaaS industry

We identified five core aspects as the most essential to creating an ICP for SaaS companies. When creating an ICP, you should ensure you're identifying most (if not all) of these factors and adding them to your profile.

1. Firmographics

Firmographics are characteristics that can be used to segment and define organizations. Essentially, firmographics are demographics for organizations.

Firmographics can be especially useful for B2B marketers. If you're strictly a B2C company, you can ignore this aspect and skip ahead to demographics.

Firmographics for a SaaS ICP can be factors like:

  • Company size
  • Generated Revenue
  • Industry type
  • Location

2. Demographic attributes

Demographics break down the population into factors that can define them as a person.

Here are some common attributes you should consider for your ICP:

  • Age
  • Gender
  • Race

3. Psychographic Drivers

Psychographics break down consumers based on their activities, interests, and opinions (AKA AIOs). Psychographics can take the information you learn in demographic studies one step further and give you more granular customer data.

Here are some examples of Psychographic Drivers:

  • Personality
  • Lifestyle
  • Interests

4. Technographic tools

This one is fairly self-explanatory but crucial for your ICP. Knowing and understanding this factor is especially important for B2B companies in the SaaS industry.

You need to be sure that the customers you are targeting are in charge of or impact a company's ultimate purchasing decision.

Typical company roles include:

  • Salesforce
  • Facebook
  • Canva

5. Company role

This one is relatively self-explanatory but nonetheless crucial for your ICP. Knowing and understanding this factor is especially important for B2B companies in the SaaS industry.

You need to be sure that the customers you are targeting are in charge of or impact a company’s ultimate purchasing decision.

Typical company roles include:

  • Sales Manager
  • HR Director
  • Marketing Manager

Now, let’s get into the good stuff and talk about how you can create an ICP.

How experts create an ICP for SaaS companies

Before we dig into the nitty-gritty of creating an ICP, let's look at some examples of experts who have created and used ICP data to their advantage, starting with the story of Nathan Barry and ConvertKit.

Nathan Barry and ConvertKit

Have you heard of ConvertKit before? If you have, it's likely because of Nathan Berry's commitment to discovering and using ICPs to further his company goals. If you haven't, just play along; we're trying to tell a story.

Our story starts in January 2013 in Boise, Idaho, when Nathan decides to set himself a lofty goal. He will invest $5k to create a SaaS web application and grow it to $5k MRR in six months.

Now, this wasn't an automatic fairytale ending for Nathan. He didn't reach his goal, not by a long shot. That would have made for a very dull story, and we already promised we wouldn't put you to sleep.

It took him 23 months and much more investment to reach that ambitious goal. But, we're happy to report that Convert Kit has exploded recently and helped more than 428,152 creators reach 253 million fans.

How did he do it, you ask? By creating a solid ICP and championing personas throughout his organization.

Instead of targeting anyone who needs email marketing, ConvertKit niched down on the content creators who need email marketing software. By tapping into this niche, they could build a loyal following that amplified their marketing efforts.

Nathan sought out his ideal customers using his competitors instead of his service, and he pitched them on switching to ConvertKit. Here is what those cold emails looked like:

Sarah,

Is anything frustrating you with MailChimp?

The reason I ask is that I run ConvertKit, which is an email marketing platform for professional bloggers. We've got a lot of great bloggers using us, like Katie and Seth from Wellness Mama, Pat Flynn from Smart Passive Income, and Chris Guillebeau.

I'd love to hear more about how we can build it to better serve bloggers like you.

Talk soon,

Nathan

Now, Convert Kit is making $1.7 Million in MRR, and Nathan has far surpassed his goals.

Here's what we can learn from Nathan: don't just rely on your email marketing strategy, advertising, and other typical marketing tactics. Find your ideal customer and speak directly to them.

SaaSStock using social media to define personas

Who isn't on social media these days? *Crickets*

One company has found a unique way to use paid advertising on social media platforms to find their ideal customers and build out personas. That company is called SaaSStock, and they have released a five-step guide.

SaaSStock is a management company that helps early-stage B2B SaaS companies supercharge their growth.

Short on time? We'll break it down for you.

  1. Set up marketing infrastructure. This includes:
    1. Google Tag Manager JavaScript snippet on your website
    2. A Google Ad Account & conversion tracking
    3. A Bing Ad Account
    4. LinkedIn Ad Account & Pixel set up on your website
    5. Facebook Ad Account & Pixel set up on your website
  2. Identify five to ten high-intent keywords for your brand. Here are their tips:
    1. Be specific with your keywords.
    2. Use different keyword match types to extract the right keywords.
    3. Start with a larger number of keywords.
  3. Launch search ads for these keywords on Google & Bing
  4. Wait until you get 300 matches
  5. Go to LinkedIn Insights to get detailed, user-provided audience data points. Here are some data points you can extract from LinkedIn:
    1. Job titles
    2. Company Industry
    3. Job seniority
    4. Company Size
    5. Job Function

Do those data points look familiar? That's because they're some of the core aspects you need to find for your ICP. Using LinkedIn paid ads will put you on a great path to creating your ICP and finding key customer data for your personas.

Try an ideal customer profile template

If you're having trouble getting started or want to see what a good ICP looks like. Try our ideal customer profile template.

How to create the perfect ICP for a SaaS company

The more you understand your customers, the easier it will be for you to tailor your sales process and marketing campaigns to seek them out and speak directly to them.

You will be amazed to see how much your marketing team and sales reps will thrive when they can quickly identify who they should be targeting.

Your ICP should do three key things:

  • Enable your sales, marketing, and customer success teams to identify high-quality leads quickly.
  • Be simple and clear enough to convey it in a way that will enable others to identify ICPs going forward.
  • They are defined so your internal systems can be built to identify and target them.

The main takeaway is that your ICPs will benefit your company only if they're clear and quantifiable. It's also crucial to ensure that your team is on board with your ICP and that they can understand it.

The goal is to focus on the big picture, not just your enterprise-level customers but your ideal customers.

Don't get sucked into devoting all your product growth to your enterprise customers' special requests. Make sure you stay true to your ideal customer to achieve optimal product development and business expansion.

Amelia Ibarra, Author at SaaStr

Here's how you can do it:

Quantify your buyer personas

Personas. We know this marketing approach well. You likely already have a list of your company personas that is used by your sales reps and marketing team.

Unfortunately, that doesn't mean you can skip this step. You will need to expand your information into more quantifiable data.

Quantifying your personas goes way beyond finding your buyer personas and giving them cutesy names like "Golfer Greg" or "Mary Marketer." Most companies don't go far beyond generalities when creating their personas. But you're different.

You're going to send out in-depth customer surveys or a list of questions to your key customers and use their invaluable customer data to quantify your personas using the core aspects we talked about above (Firmographics, Demographic Attributes, Psychographic Drivers, Technographic Tools, and Company Role).

If your customer personas aren't quantified and backed up with data, you can't create a valuable ICP for a SaaS business.

Determine your ideal customer's pain points

A key element in creating and quantifying your ICP is identifying the problem you are solving for your ideal customers. If you aren't doing this, that is a red flag that you need to consider.

Now that you have quantified and expanded your personas use these ideal customers to go through the buying process in their shoes. What is working and what is not? Those are the things you need to make a note of and add to your ICP.

Use data you found in your process of quantifying your personas, like customer churn rates, feedback, customer acquisition cost, and customer insights to improve your customer experience.

Know your value proposition

Now that you know your persona's pain points, how will you fix them? Mary Marketer and Golfer Greg need to know!

This is crucial in creating your ICP and utilizing it in your business processes.

A step which is sometimes glossed over, or entirely ignored in many ICP articles, is the need to understand your focal value proposition.

You likely know what your company brings to the table, but it's time to look at it from the perspective of your ideal customer. Understanding this will help your development and sales teams improve their processes.

Look at your competition

A comprehensive competitor analysis is a significant step in any marketing and sales strategy, but you should also consider this in your ICP.

You can use data and information from your competitors to address the common pain points of your customers.

Identify the company size, industry, region, individual title, technology landscape, and pains, problems, and challenges that make these companies a fit for your product.

There may be a common industry pain that you can learn from, or you could take a page out of Nathan Barry's book and use your competitor's customers as leads. Reach out directly to them and tell them why your platform is better.

How to refine your ideal customer profile definition

You're in the final stretch.

To craft a winning ICP, you need to tie your definition to data.

Why?

Data is objective.

You can rely on it to keep the conversation on course when discussing your ICP with your whole team. When opinions take charge, you're opening yourself up to blindspots, and bias takes control.


Remove the fluff from your ICP definition

What is "fluff"?

It's a vague statement like "we sell to small companies".

That could mean:

  • Companies with 10 to 50 employees.
  • Companies that are in any industry.
  • Companies that are in any growth or maturity stage.

This is where your data comes into play.

Use it to strip away broad blanket statements and drill down into the specifics of who you want to attract.

Comb through your ICP and remove any subjective language and opinions you can't back up with data and replace them with your objective truth.


Don't shy away from filtering your customers

Do you only want to serve a specific slice of the market? Go for it. Make your claim and tell the world. As a business owner, it's normal to feel reluctant to cut out segments is normal. After all, aren't you leaving money on the table?

Yes and no.

While you could spend resources trying to find a foothold in every part of the market, you'll quickly run into Hubspot's problem and become a master of none.

When you niche down and focus on serving a specific subset of customers, you establish yourself as the go-to expert. When customers feel that you understand their problem acutely, you're much more likely to see sales, growth, and dominance over the market share.

As you create your ICP, explore what you want from the customer.

  • Do you want to offer your product in multiple languages?
  • Are there any specific tools your ICP uses?
  • What is your ideal company size?

Put it all together

Before you go through the ICP progress, you might come up with a definition like this:

"Helping businesses grow with all-in-one marketing software."

It's going in the right direction but lacking data and specificity.

You go through the steps outlined above, and your ICP becomes:

"A marketing manager who works in a company between 10 and 1000 employees and struggles with using various tools that speak to each other."

Much better, right?

  • You've swapped out the "helping businesses grow" fluff and replaced it with a specific job title, problem, and firmographic data.
  • By zeroing in on company size, you know you're targeting businesses that have the funds to invest in your marketing solution and the opportunity for you to land and expand.

Creating your ideal customer fit score

The final step in your ICP process is to match your definition to your customer data model.

...Erm, what?

In a nutshell, you're defining the data points you need to identify the right leads and re-route them to your sales team.

Once you have your customer data model outlined, you will have your target customer profile framework. Then, when a lead comes into your CRM, you'll get a "customer fit score" and can see at a glance if the customer is worth pursuing.

At Breyta, our integration does the heavy lifting for you. Plug in your CRM data, assign the attributes of your ICP, and you'll get hot leads delivered straight to your inbox and an easy-to-use dashboard that syncs with the tools you're already using.

It gives you a single source of truth, kicks data silos to the curb, and keeps your teams focused on selling to the right list of target accounts.

customer fit score breyta

How to define your ICP attributes

Let's use PLG giant Slack as an example.

When the app first went to market, its early adopters were software developers. Fast forward to today, and their biggest enterprise customers are software companies like IBM and Lyft.

Slack doesn't make money with the users on their free plan. The focus is on enterprise customers or companies who have the potential to grow into more seats.

In Slack's SEC filing for their IPO, the app defined an enterprise customer as a company generating >$100k in annual recurring revenue. These accounts make up 40% of Slack's revenue in a fiscal year.

With this information, we can glean the data points to fill in attributes to create a customer fit score:

  • Industry: software companies
  • Company size: 101-500 employees
  • Job title: software developers
  • Revenue: >$100k ARR

You can get more granular with your list of attributes. You can filter your leads based on their CRM, fundraising stage, location, and whatever else you need to define your ICP.

Be prepared to modify your ICP

As a growing organization, you need to be flexible enough to change your ICP. Do some yoga, and limber up. Things are going to change as you grow.

Here's a roadmap of what this can look like:

Early-stage startups

You're just starting as a young and growing company. You likely don't have many customers yet, and your profits are under $5 Million.

At this stage, you should be doing your first iteration of an ICP, and you might find that patterns and prominent ideal clients aren't emerging automatically. You likely don't have a large pool of clients to draw from yet.

This first stab at an ICP will validate your core values as a company and will show you a roadmap of where you should go from here.

Mid-sized organization

Your company is growing; you are now a mature startup or have passed the startup phase. You're making over $5 Million, employing more and more people, and your list of customers is growing fast.

As you add more employees and customers, you will likely find yourself outgrowing your first ICP. It's time to go back to the drawing board.

You'll have more valuable insights and data to use this time, and your ICP will likely look more detailed and quantified. You should look at your top clients and redo the ICP processes we discussed above.

But, a word of caution here is don't just focus on your high-value or your most profitable customers.

If you don’t get your ICP right, you kind of become this custom software development shop for your top customers.

Katrina Wong, VP of Product Marketing at Segment

Keep your mind on the big picture to ensure you get your ICP right.

Thriving corporation

Congrats, you made it. You're likely making $100 Million+ (is this a good time for us to remind you how helpful we were in creating the ICP that got you there? We'll accept our appreciation in the form of cash or chocolate, thank you).

By now, you've reached the point where you can afford to hire help when needed. And that is just what you should do, get an outsider's perspective and employ a research firm or a specialized agency to create an expansive and detailed ICP.

Next steps

Once you've defined your ICP, where do you go from there?

Please, don't make the mistake of going to the effort of creating your ICP and then leaving it to rot in a file cabinet somewhere. Actually, in the digital age, you'd likely leave it to rot in a desktop folder. Don't do that either.

Instead, use this information to build your client base. Your sales and marketing efforts should all be based on your ICP.

Enter your ideal company and key attributes into a B2B lead generation tool to create a list of leads your sales reps can approach. Use the information you learned to build marketing materials and strategies that specifically target your ICP.

You'll be amazed at how your client list grows as your ICP is developed and implemented.

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