An ideal customer profile (ICP) is a detailed description of target, or good fit customers for a given use case. Put simply, a good fit customer is one that can achieve value from your product and can be acquired and serviced cost effectively. Note the first element of my definition: achieving value underpins many of the benefits of an effective ICP. Defining good and bad fit customers is also essential to getting marketing, sales, customer success and product teams working together effectively.
But once you have built an ICP, how do you know if it is working? Here are ten measures that will inform you. Whilst not the only cause, if several are going the wrong way, your ICP may need revisiting.
- Cost of acquisition (CAC): An effective ICP will lower the cost of acquiring new customers. Available dollars can be focused on more targeted campaigns that should convert at higher rates. A good ICP reduces disputes and friction across the different teams, allowing them to focus better on the job of winning customers and delivering their expected ROI.
- Deal cycle time: An ideal customer relates better to your value proposition and therefore tales less convincing. Remember the adage; a good opportunity closes quickly; a bad one dies slowly! The same number of sales reps can therefore close more business.
- Logo churn: Ability to achieve value is an important component of an ICP. A good fit customer is therefore less likely to churn as they are more likely to achieve value. Assuming of course that you have an effective customer success process
- Net revenue retention (NRR): Bad fit customers are less likely to achieve value from using your product and therefore unlikely to buy more.
- Cost to service: Good fit customers recognise the issues/opportunity they face and are motivated to address them. As a result they typically respond better to the advice and guidance needed to achieve their goals. A defined customer also reduces the need for custom content, increasing further CS productivity.
- Word of mouth sales (WOM$): Customers that achieve value are far more likely to recommend you to others. That also contributes to a lower CAC as referrals are typically the lowest cost and highest converting lead source.
- Lifetime customer value (LTV): The LTV calculation includes churn as one of its components so good fit customers are highly likely to improve LTV.
- Feature adoption: Customers with similar needs are more likely to want similar capabilities in the product. New features are therefore likely to have higher adoption rates. This can also lead to simpler products and lower development costs per customer.
- Average customer ROI achieved: Given that achieving value is a key component of an ICP, it is obvious that good fit customers are more likely to achieve ROI, raising the average ROI per customer. Don’t track it? You must: it is the biggest driver of retention for most B2B SaaS companies.
- Sat/NPS:Customers that achieve value are more likely to return higher satisfaction scores because they are more likely to achieve the value they bought the software for. It is also easier to design and deliver an experience for customers with similar characteristics, improving your chances of delivering a great experience.
This free resource will help you define your ideal customer profile and build an end-to-end customer lifecycle to acquire and service them.