Many SaaS products or B2B companies struggle to find their footing in today’s intense marketplace, where 90% of startups fail and disappear without a trace.
The big reason for this is the lack of a clear understanding of who their ideal customers are.
As a SaaS business owner or marketing manager, you might have heard the sayings, “Make a customer, not sales,” “The customer is king,” and many more.
But how could you spot the right customers?
And how to do that?
In fact, what is it, you ask?
This is where the SaaS Ideal Customer Profile(ICP) comes in.
Fret not! You’ll find everything you need right here in this article to kickstart your marketing efforts with fundamentals—SaaS ICP.
What is an Ideal Customer Profile (ICP)?
An Ideal Customer Profile (ICP) is a detailed description of your customers where you will put yourself in the customer’s shoes, whether the product or service you offer perfectly fits their needs.
This method helps every business -be it small, medium or large businesses to identify and understand their product’s value proposition as well as potential prospects through 360-degree analysis.
The idea behind the Ideal Customer Profile is simple. If you find a customer profile does not match the product scope, you don’t want to waste money and time of your team by implementing a strong game plan with them.
This method of identifying customers isn’t limited to a specific industry. Wherever there’s a customer, there is an ICP to guide the strategy.
After all, what business exists without customers, right?
Each ICP varies depending on the product it supports, giving you an idea of which people are worth targeting, pitching, upselling and pursuing purchases and which ones aren’t.
Why is Ideal Customer Profile (ICP) important in SaaS Marketing?
Though SaaS was considered a fad in the early 1990s, it became a digital economy with rapid growth after the COVID-19 pandemic, where there was a prompt rise in new SaaS startups.
However, the market size is expected to grow by $325.8 Billion in 2028 with a CAGR of 6.2%.
Just think how competitive it’ll be among SaaS businesses.
But it’s an uncomfortable truth that not everyone is your customer and is seeking the same level of solution you offer.
Initially, SaaS business owners target a broad audience in the market and think that they will get an idea about who is interested in their product to generate the most value for their business.
That was a blunder.
It dilutes the marketing effort and misses the opportunity to effectively engage with their ideal customers.
Building an Ideal Customer Profile simplifies decision-making for the SaaS marketing and sales team, clarifying whom to target, where to allocate marketing budgets, and how to structure sales pitches.
This ensures a heads-down focus only on high-value prospects for better customer acquisition rates and meeting Customer Lifetime Value(CLV), which SaaS businesses can achieve.
Such progression improves resource management and results in a faster sales cycle with reduced churn rates.
But as a SaaS entrepreneur, they get their hands dirty without knowing that sheer effort on fallow ground makes the soil remain barren.
Result?
No chance of growth in the long run.
Even if the team is skilled enough to choose the customer, winning them without a proper SaaS ICP makes the internal team feel like a poisoned chalice that drains the entire marketing initiatives and the team’s support to retain the customer.
It’s always good to get guidance from proficient specialists in B2B SaaS Marketing to prepare an effective ICP to maximize ROI.
7 Factors to build an Effective Ideal Customer Profile (ICP)
Beyond the basic demographics, you must swoop into the aspects defining your most valuable customers.
This understanding gives who exactly benefits most from your product and turns into loyal customers.
Luckily, you’re here to get those factors to spot before finding the right fit:
- Industry: Go with industries with super users of products or services similar to yours. They are more likely to switch to your product if they see it as a sound option over their current one.
- Company size: Your product should fit the Total addressable market(TAM), ensuring Annual Contract Value (ACV) and user growth rate to acquire new users.
- Geographic location: Buyers should be within the targeted regions with a high density of ideal customers.
- Buying potential: The customer should have the greater financial capacity to align with your pricing model, often resulting in quick purchasing decisions.
- Technological maturity: Organizations using advanced technology stacks have the internal capability to handle complex implementations. This helps you find those looking for more basic and out-of-the-box options.
- Scaling potential: Technology companies, no matter whether they are startups or Series-funded companies, should be more likely to scale and grow, leading to long-term partnerships and expansion opportunities.
- Decision-making process: Prefer a minimal point of contact for quick onboarding, as many organizations use a buying committee approach where multiple people are involved, including stakeholders, which delays future progressions.
Ideal Customer Profile (ICP) Examples:
- A perfect ICP isn’t written in ink; it varies depending on the business goals.
- As your business grows, the customers, channels, regulatory factors, and industries targeted will shift to another dimension.
- With that said, it is mandated that the template be updated with the respective questions the targeted profile is likely to answer, satisfying your goals.
6 Steps to create an Ideal Customer Profile (ICP):
A basic understanding of creating a customer-curated Ideal Customer Profile can lead you directly to your best business opportunities.
Instead of chasing every lead, an ICP helps you focus on the ones that truly matter.
By defining exactly who your ideal customer is, you can align your sales, marketing and product strategies to meet their needs.
Well, if you’re looking to cut through the noise and focus on the customers that really matter, creating an effective and applicable Ideal Customer Profile (ICP) is your sword to slice through the chaos.
No more casting a wide net hereafter and hoping for the best, follow these 7 steps that help you build a winning ICP for your company.
1.Spot your High-Value Customer Base
If you’re just starting to prepare your ICP, observe your competitors to identify their ideal customers and understand whom they’re targeting. That’s not about imitating but learning from their playbook.
Trust me, this will give you a head start!
If you already have an existing customer base that provides the most value, list down the common behaviors that define them as top-performing clients.
Some of those are:
- Revenue contribution:
They are intended to generate substantial income and contribute the highest percentage of your total revenue, which is integral to your business’s financial status.
- Customer Lifetime Value(CLV):
Clients who purchase repeatedly renew subscriptions or opt for higher-tier services.
- Profit Margin:
Beyond bringing in high revenue, clients who bring high profits with reduced costs in terms of resources like support, maintenance or extra services.
- Upsell/Cross-Sell Potential:
If done right, more than a one-time sale, customers ready to experience even more value will be loyal to your brand and willing to invest more as they trust you to provide the right solutions.
- Ideal Business match:
It’s quite a divine boon to get clients whose goals and needs align with your long-term vision or product roadmap. More than that, you receive feedback, which is particularly helpful for working on future solutions.
2.Finding the Common Pattern among Top Customers
Common traits can be the industry they’re in, company size, pain points, and behaviors in marketing decisions that can help you drive the same type of customers to choose your product or services.
It eventually shortens the sales cycle and gets you to the way to target qualified prospects more efficiently.
Make these your ideal attributes while finding the commonalities between top profiles:
- Geographic location
- Industry
- Company size
- Technology stack
- Customer challenges
- Budget they’re open to
- Purchase frequency
- Growth Phase Position
- Customer Behavior
- Customer Lifetime Value(CLTV)
- Potentiality for referrals
- Metrics they prioritize
3.Understand what's holding your Customer Back
Once you’ve prepared the list of Marketing Qualified Leads (MQL), it’s not 100% certainty that every qualified lead will make a purchase.
Every customer has their own challenges while choosing you and making purchase decisions.
When it comes to growing your business, start by analyzing their pain points, whether it’s budget constraints, lack of trust in the product, or integration challenges with their existing systems.
You can figure out with certain questions:
1.What specific problem are they facing with their current solution?
2.Why are they hesitant to make a purchase?
3.Why do they need a solution now?
4.What are the risks if they don’t choose your solution?
5.Why might they struggle with integrations?
6.What specific feature they’re prioritizing?
7.Why might they prefer a competitor’s solution?
These are often known as ‘barriers to conversion’ where you need to engage more with the sales and support team to pinpoint recurring friction points customers mention.
After this step, You will better understand whether the corresponding lead suits your business.
4.Highlight your Unique Value Proposition (UVP)
In this phase, articulate the functional and strategic benefits of your product as it’s an opportunity to demonstrate how your product or service uniquely solves their problem.
Simply think of it as your brand’s promise.
When your Unique Value Proposition(UVP) is strong, it is your ace in the hole to overcome customer objections and build trust.
- It can be core benefits relevant to the customer.
- Solves specific pain points and addresses key needs.
- Drives customer acquisition and retention.
- Higher ROI.
- A solution that makes their lives easier.
- A solution that improves their efficiency and revenue growth.
Preparing this is not just limited to sales and marketing teams; it also involves product management teams, UX designers, Research and Development (R&D), and Senior management to ensure that the UVP is actionable and achievable.
5.Document and Create a Profile
Throughout these steps, you will get an idea of how long it would take to create a profile and how crucial it is.
The same level of importance extends to the documentation phase as well.
Upon complete screening, organize the information, including:
1.Demographics (Decision makers, Age range)
2.Firmographics (Industry, Company size, Revenue, Location, Business model-B2B, B2C, etc)
3.Customer pain points
4.Unique value proposition
5.Channel Preferences for Sales Process
6.The budget they planned for marketing
7.Feedback (if needed from existing customers)
This process shortens the time spent preparing an ICP for a lead from the same industries and helps you streamline the lead qualification process.
6.Review and Update Regularly
The market you see today will never be the same tomorrow. This change will be associated with market trends, industry expansion, customer behavior and much more.
It’s always recommended to review the ICP not regularly but at least set quarterly or bi-annual meetings to assess the current SaaS ICP against recent data and trends.
For this, surveys, testimonials through forms and other mediums can help you get fresh perspectives on your customer expectations.
Also, sales metrics, conversion rates, and customer retention figure data from the internal team help you identify customer segments that perform well and those which are not.
7 Common Mistakes to avoid When defining your Ideal Customer Profile (ICP)
It’s totally normal to turn your eyeballs to dollar signs when you come up with prospects who might be inquisitive about your product and sit in front of you for a demo.
But a misstep during this can lead you into a treacherous situation, derailing your efforts.
As an expert SAAS marketing agency, we’ve come across huge stories that made them trust us for our actionable solutions.
From those we’ve distilled seven common mistakes that you should avoid while preparing your ICP:
1.Rushing the Research
Your ICP isn’t just about selecting the profile that catches your eye. Only with surface-level data, you could not finalize the profile to network or target with.
If you’re planning to attain the long-term sustainability of a business with blind efforts, trust me you never end up attaining a goal.
Many business owners make this mistake and completely fall upon the team’s unawareness.
Result?
Back to the starting line.
And, it’s going to be like wandering blindfolded in a dark forest.
You must plan a time frame of at least 2 to 4 weeks to gather the information and segment the profiles based on your interests.
Upon all the crucial steps, figuring out which profile categories best represent those that the sales team has been able to close successfully to achieve the sale.
Focusing on a similar profile will help you break the way.
2.Not Focusing on all Data Aspects
Limiting the ICP to either firmographic or demographic information is akin to judging a book by its cover.
Though both have it’s own significance, you also need to dig into things that really help you make purchase decisions as smooth as possible.
Simply, go deeper!
Apart from basics, include psychographics like values, and responsiveness of the customer and technographic like whether the profile has to have a pre-existing technology stack or integrations to make your selling even more easier.
3.Not Acquiring Possible Accounts
Many businesses fall into the trap of seeking the perfect resources to find potential accounts.
But what’s here to think about perfectionism?
This can lead to missed opportunities and complete stagnation.
Instead of finding flawless resources and thinking that you don’t have sufficient data, look for a broader array of resources.
This could include networking events, online marketplaces like Crunchbase, customer referrals, content marketing, and social media platforms like LinkedIn, which I would say are the best.
Your goal should always rely upon your sales strategy, not to achieve perfection and limit yourself to running out of profiles. There are many ways out there to pick the right one for your business.
4.Not Notifying other departments
This is another critical oversight. When teams operate in silos, they may miss current insights and adjustments in sales strategy.
Let’s say the marketing team creates the SaaS ICP without input from sales, they may overlook the main factors.
While initiating any strategy, schedule an interdepartmental meeting with clear protocols.
This ensures everyone knows their responsibilities in the communication process.
5.Failing to update the SaaS ICP
Just like people, your customers evolve. Their goals change, their challenges shift and their priorities realign.
Moving along with the ICP you prepared a year ago, wouldn’t go well, would it?
An outdated ICP is like talking to someone who no longer exists.
When the business fails to update the same, they are stuck talking to yesterday’s customer.
A small picture of this is when marketing campaigns fall flat, sales pitches miss the mark, and products don’t quite hit the sweet spot.
This results in a loss of potential revenue and a failure to connect with the very people who matter.
6.Overcomplicating the Profile
When an ICP is filled with excessive details, it becomes difficult and even harder to implement.
Providing a clear picture is completely different from the maze of information. The more detail you add, the more scattered your targeting becomes.
This may lead to analysis paralysis, which may slow down your team’s progress as they try to figure out which parts of the profile matter most.
Less is often more. Keep focusing on the core attributes not in its detail but in its clarity.
7.Preparing but not using the ICP
Many organizations fall into this category of treating ICP as a “one-and-done” exercise. It’s created, shared with the team and then forgotten.
Only a handful of people understand the importance of ICP. Without structured processes, teams tend to default back to old habits.
The real impact can be driven only when ICP becomes integral to how you operate strategically.
And it won’t be static, ICP evolves as your business grows and market conditions change. All departments should be trained on how to use it for customer interactions.
Though in the initial days, it is preferable to draw the apples in the ground, you must look for something disciplined and rewarding in the long run.
For that above-discussed mistakes should give you an idea of things that you must be aware of and fix.
Key SaaS Metrics you should track from Ideal Customer Profile (ICP)
SaaS’s success won’t always hinge on delivering great products. It’s again in your hands to validate whether customers really satisfied with the solution you provide.
To that, you should know what to track and what to adjust in your ICP in a quantifiable way.
For evaluating the performance of an ICP and making informed decisions, there is a list of SaaS metrics to anticipate changes ensuring that time and efforts your team made in areas that yield the best returns.
- Customer Acquisition Cost (CAC):
The cost you spend acquiring a new customer is what we say, CAC. Make sure it should be less than the revenue you make from the respective customer.
That’s when you could attain high profit including marketing and sales expenses.
CAC = Total sales and Marketing expenses/ No of New customers acquired.
- Churn rate:
Track the percentage of customers who cancel subscriptions within a specific time duration.
If this is higher and more frequent, then it indicates a customer mismatched with your ICP.
Churn rate = Number of customers lost during a period/ Total customers at the start of the period x 100
- Average revenue per user (ARPU):
The real outcome of ICP efforts can be drawn when you see the average revenue generated per customer.
This gives you an idea of the firmographic category that’s been a major part and has revenue-making potential for your business.
You have also heard about this as a term called, Average Revenue Per Account (ARPA).
Average revenue per user (ARPU) = Total revenue / Total no of customers
- Monthly Recurring Revenue(MRR):
The revenue that can be made from profiles on ICP monthly is monthly recurring revenue (MRR).
This may change based on the business revenue model where you can predict cash flow your business expects every month.
Monthly Recurring Revenue(MRR) = Total no of subscriptions x ARPU
- Quick ratio:
It will give you a quick snapshot of whether the company is adding more revenue or it’s losing.
Especially, when comes to a SaaS company, it depicts the data that’s growth relative to its churn and expansion. The ideal value of the quick ratio should be greater than 1.
Quick ratio = New MRR + Existing MRR / Churned MRR
- Customer Lifetime Value (CLTV):
Measure the estimated revenue your SaaS business can expect from a customer over time and their relationship with your business. This may vary based on the business model to assess long-term profitability.
Customer Lifetime Value (CLTV) = ARPU x 1/churn rate
- Customer Retention Rate (CRR):
The percentage of customers your company retains over a specific period of time is said to be the Customer Retention Rate (CRR). Simply put, the percentage of customers who stay. Tracking this is very important as the cost and the time you spend for acquisition is higher than the effort you made for retaining the customer. You can calculate this by,
Customer Retention rate (CRR) = (Total no of customers at the end of the period – customers acquired during period) / Total no of customers at the start of the period.
A CRR above 80% is often considered good for SAAS businesses and it varies based on the industry.
Tracking all the above metrics alongside your client acquisition will be a structured strategy that provides a fuller picture of overall business health.
How to use your Ideal Customer Profile (ICP) for better Lead Scoring?
At times, a descriptive form of recording data will give the sales team, an idea about where and when to proceed.
But not as accurate as a numerical number can be. This is where a lead score comes in.
This value is assigned to a prospect based on their fit and engagement level with your ICP.
It helps your sales team prioritize leads where they can focus on the most promising opportunities.
Let’s take:
Industry: Healthcare, Real Estate, Fintech
Company size: 200-500 employees
Revenue: $ 10M to $50M
Responsiveness: Email and LinkedIn engagement
For the above you’ll assign a score to these criteria:
Industry → 40%
Company size → 20%
Revenue → 20%
Responsiveness → 20%
Likewise, assign the different levels of scoring and track the conversion rates of leads.
i.e. lead scoring above 70-75% might convert at 30% whereas below 50% convert at just 5-10%.
Ideal Customer Profile (ICP) for Account Based Marketing
The approach developed by a small cash register company trained salespeople not just to sell, but to build relationships with quality profiles which paid off and set a benchmark for every sales strategy in B2B SaaS companies today; it is known as the Patterson approach, which is now widely known by everyone is Account-Based Marketing (ABM).
For that, the ICP you create should be more than just usual.
Before creating it, you must segregate the factors that allow you to do personalized outreach and gather inputs that help you zero in on the accounts most likely to convert.
On LinkedIn, just start with what you’ve got.
- Industry
- Company size
- Annual revenue
- Demographics
- Firmographics
- Active status of decision-makers
- Pain points
- People’s post they engage
- Topics they involve in conversation(from comments/groups/forums)
This helps you track sufficient ABM metrics that keep you aligned, not with silver bullets, but still yield a solid benefit.
To Wrap-up with
Not limited to the SaaS, your ICP is your North Star and more than a checklist to drive revenue through both Inbound and Outbound.
And it won’t stop up to where you created it. You need to keep on adding more factors that define your prospect.
It can even end up hypothetical but on average you’ll cull 30% of handful profiles that let you attain 10% conversion that drives the revenue you planned if the above concepts are applied right.
