While working with a new customer recently, I found a great example of the value of customer segmentation. The CEO hired me because he knew their churn rate was bad. He realized the 3.2% monthly average churn rate resulted in 38% of their customers leaving each year. Some companies don’t realize this annual loss of customers because it is masked by the 50% year over year growth in new customers.
As a customer success professional, this CEO asked me to recommend strategies to grow revenue by reducing churn. However, he didn’t have a lot of money to spend on new Customer Success Management (CSM) software and the company couldn’t afford to hire a full-time customer success manager. Since my company, CustomerSuccess.Pro specializes in helping companies without internal CSM programs, I knew we could help.
After receiving a variety of databases, we processed their customer data in our analysis software and identified the following 24 customer segments. The below table contains fictitious numbers to protect the innocent.
The CEO built the business with specific focus on segment 16. While this segment includes a quarter of the total customers, the other numbers show major concern. The CEO thought he had a problem with a 38% churn rate but it turns out the problem is worse. His ideal customer is churning at 54%! When discussing this, the CEO mentioned segment 7 as the one they should focus on because he was seeing a lot of bookings.
But it turns out there is a hidden segment with very promising results. By turning on color formatting in the chart (below), some very helpful trends jump out of the report.
Segment 11 is interesting because it has the lowest churn rate and the highest lifetime value (LTV.) However, this segment amounts to only 1% of the total customers. We recommended some test marketing to this unique customer type to see if this neglected segment grows.
Segment 1 completely surprised the CEO. It has the second highest LTV, includes 20% of their total customers and is growing more than twice as fast as their ideal segment. Until now, this set of customers was hidden under the mask of general averages. By diving into the data on this specific segment and talking to some of them, we found some unique characteristics that allowed this type of customer to receive value earlier in the process.
A month after hiring CustomerSuccess.Pro, this CEO was delighted with the results. He has a new strategy to grow revenue, a profitable segment to grow through targeted marketing, and a better understanding of why his previously ideal customer takes longer to find value from the service.
If you suspect there may be hidden segments in your customer data and want to find ways to grow revenue without hiring more staff, sign up for one of our subscription plans.