How to Find Your Ideal Customers

Trying to market your product without knowing whom you should market to is like walking blindfolded. You might still end up in the right place. But it’s not very likely.

Any Customers Vs. Ideal Customers

A new startup might try anything to get its first customers. At this exploration stage, you cast the net wide. You approach different individuals and companies and do whatever it takes. Any customer is a great customer.

But as the company grows, it learns that not all customers are created equal. Some are easier to acquire. Others benefit more from the product and are easier to retain. Yet others are easier to expand and upsell to.

This raises a question. How do you know who is your primary target audience?

At an early stage, you “just know” your ideal customer. Your ideal customer profile is whoever was willing to buy your first product or sign an agreement before you even developed a prototype.

Of course, you can always stop here.

But if you’re planning to become a world-class company, you might need to take it to another level and make sure that your marketing is also world-class. All top technology–, and more narrowly, Software as a Service (SaaS) companies have a very clear understanding of their ideal customer profile. Even though this post will be particularly relevant to this type of companies, the general principles can be applied to any industries.

A side-note on terminology: terms such as “ideal customer profile” and “target audience” are often used interchangeably. “Buyer Persona” is another similar term that emphasizes the focus on individuals – as opposed to companies.

Why Define Ideal Customer Profile (ICP)

An ideal customer is a customer that is more likely to like your product and pay for it. Knowing your ICP should help you grow revenue while investing less. This higher return on investment is achieved through better targeting among other things.

Imagine, you sell software that helps cities analyze traffic patterns and make better urban planning decisions. You could place a TV commercial and hope that the right people will see it. This would be utterly inefficient.

Alternatively, you could identify a subset of cities that are most likely to adopt this type of software, then identify the right officials who are most likely to be decision makers and target them with a proposal that addresses their specific pains and explains how your product can alleviate them. Needless to say, this would be infinitely more effective.

And, by the way, customers will also appreciate this targeted approach. See “Principles of Ethical Marketing” for more on this.

If you need more reasons:

Ideal Customer Profile benefits: marketing targets, sales enablement, customer-centric products

How to Develop ICP

The approach will depend on a number of things:

  • Company size and stage
  • Available resources
  • Available data

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Key Growth Metrics, Part 2: CLV/LTV, and CAC

I wrote this blog post as part of blog series on growth and marketing. See more here: Growth Map: The Missing Guide That Connects Marketing Strategy, Research, and Campaigns.

Managing a business is a little bit like flying an airplane. Keep your eyes on the speed, altitude, drag, and fuel and you’ll get to your destination fast. Try flying blind and you’ll crash and burn.

Who Should Read This

Startup founders, marketing managers, and growth hackers who are new to the growth game. Anyone who’d like to understand basic business metrics tech startups use. Here is why you might care:

  • You’d like to grow your business faster and understand the highest-leverage areas to focus on
  • You’d like to evaluate performance of your marketing
  • You’re raising a new round and want to be ready for the questions VCs are going to ask

So, let’s dive right in.

What We’ll Cover

Last time we focused on user growth. We looked into acquisition, retention, and virality metrics, as well as interactions among these three. Today, we’ll assess the dollar impact one user has on our business. To do it, we’ll learn to calculate and use another metric: customer lifetime value.

Summary (TL;DR)

  • Customer Lifetime Value (CLV) = dollar value a company can earn from serving one customer.
  • Retention ↑ => CLV ↑
  • Price ↑ => CLV ↑
  • Discount rate ↑ => CLV↓

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Key Growth Metrics, Part 1: Churn/Retention, and Virality

I wrote this blog post as part of blog series on growth and marketing. See more here: Growth Map: The Missing Guide That Connects Marketing Strategy, Research, and Campaigns.

Managing a business is a little bit like flying an airplane. Keep your eyes on the speed, altitude, drag, and fuel and you’ll get to your destination fast. Try flying blind and you’ll crash and burn.

Who Should Read This

Startup founders, marketing managers, and growth hackers who are new to the growth game. Anyone who’d like to understand basic business metrics tech startups use. Here is why you might care:

  • You’d like to grow your business faster and understand the highest-leverage areas to focus on
  • You’d like to evaluate performance of your marketing
  • You’re raising a new round and want to be ready for the questions VCs are going to ask

So, let’s dive right in.

What We’ll Cover

First, we’ll focus on user growth. Here we’ll look into acquisition, retention, and virality metrics, as well as interactions among these three.

Second, we’ll focus on the monetary value associated with users. Here we’ll look into customer lifetime value and customer acquisition cost.

Summary (TL;DR)

  • There are multiple variables that will define business growth dynamics
  • Main ones are acquisition rate, retention rate, and virality coefficient
  • At any given time you might choose to prioritize some of these metrics over others
  • This decision will depend on the business strategy, available resources, customer feedback, stage of the product lifecycle, and hundreds of other factors
  • Models like the one shown here can assist you in making better decisions by letting you see where your business will be at in the future under different scenarios

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