Understanding Customer Targeting: The Basics Matter
I was approached by a pair of founders at an event the other day. They are struggling to grow their business. I started with my usual first question, “Who is your customer?” This may seem basic, but “success in the basics spells success everywhere else.”
The founders had theories and ideas but didn’t actually know who their customers were. This is not surprising, as most of the teams I speak with have misidentified their customers. They make common mistakes while developing their ideal customer profile (ICP).
The Pitfalls of Guessing: Identifying Your Ideal Customer Profile
First and shockingly common, they guess. They throw spaghetti against the wall to see what sticks. “Most businesses are making educated guesses about their customers.” They will use various tactics to find them — website analytics, buyer persona workshops, lookalike modeling, A/B testing, and even “intuition.”
As they develop an ideal customer persona, they do it without the most critical element to driving scaled growth in organizations — profitability. None of these methods account for customer profitability. Even using A/B testing to build an ICP doesn’t guarantee that the people resonating with your messaging are the 20% of your customers driving 80% of your profits.
The danger here is that without accounting for profitability, companies risk wasting limited resources targeting customers who don’t drive growth or building a model that’s impossible to scale. It’s unsustainable. But profitability isn’t the only major oversight. Companies also assume that all their customers don’t change as the company matures.
Beyond Assumptions: Evolving with Your Customers
Many marketing teams assume that early adopters, widespread adopters, and laggards are all the same. But this is never the case. Early adopters aren’t just widespread adopters who got on the boat first. They are vocal and long-suffering. They’ve been kicking over tables trying to find a solution that will ease their pain and are willing to put up with a lot of challenges because what you’re doing helps them progress.
Widespread adopters are more tentative. They waited to pull the trigger because they didn’t want to be guinea pigs. They want a reliable solution that consistently works. And if yours doesn’t, they’ll churn and never tell you why.
Laggards are the change-resistant skeptics. These are the people who still have the DVD/VCR combo. They’ve watched others get burned, so they’re in no rush to change unless it’s absolutely necessary. They’ll only consider your solution once it’s industry standard or they have no other choice.
The Critical Role of Profitability in Customer Segmentation
These two mistakes — guessing and assuming that customers remain the same over time — lead to bad customer targeting, missed opportunities, and wasted resources. “Without accounting for profitability, companies risk wasting limited resources targeting customers who don’t drive growth.” To build scalable business models, companies must evolve with their customers. Otherwise, marketers will struggle to attract the right people who will say “yes.”
This raises a critical question: How can marketers ensure they’re targeting the right customers? The key lies in understanding customer profitability.
The first step to properly identifying your ICP post-revenue is to assess the existing customer base against profitability. The goal is to understand the 20% of your customers that generate 80% of your profits. To get a holistic view of customer value, you can use:
- Activities-based costing, a managerial accounting tool to more accurately determine customer profitability.
- KPIs like LTV, CAC, and repeat purchase rates.
It’s easy for companies to feel like they’ve developed a strong ICP — one that’s profitable and backed by solid data. To enhance the ICP further, marketing teams must shift away from the traditional customer definition and toward a more accurate framework — the customer ecosystem — to create more accurate, effective targeting.
Redefining the Customer: The Ecosystem Approach
Traditionally, the customer is someone who selects, pays for, and uses your solution. However, as business models get more complex, the traditional definition of a customer becomes less applicable. The likelihood that the person saying “yes” to your offer is the same person paying for it and then using it is increasingly rare.
By ignoring that fact, we’ve created a confusing mess for our marketing teams. The person saying “yes” to hiring you may not be the person who pays you and may never touch the solution. “Bad targeting can hurt a marketing team’s ability to perform when it really matters.” It’s far more valuable to break the traditional customer definition into three distinct roles: deciders, payers, and users.
- Deciders choose to hire you.
- Payers write the check.
- Users use your solution to create a specific outcome.
While hybrid roles are possible (decider/user, decider/payer, etc.), customers rarely wear all three hats simultaneously. Once marketing teams are crystal clear on who the deciders are and focus on bringing them into the sales funnel, the confusion disappears, and it’s easier to find results.
Identifying Deciders: Looking for Pivot Points in the Business Model
How do marketers identify a decider? They look for the hinge or pivot point in the relationship or the person who actually chooses whether your company gets hired or your product gets bought.
The “customer ecosystem” becomes clearer when we look at real-world examples.
The Medical Practice
I worked with a highly specialized medical practice a few years ago. Their revenues plateaued at low seven figures, and they realized that if things didn’t change, they’d have to close up shop. They thought their customer was “the patient,” but they were wrong.
The patient was just the user. They couldn’t refer themselves to work with us, and they certainly weren’t paying for the expensive services we rendered. The referring physician was the decider. They chose whether we saw a patient instead of our competitor. Insurance providers were payers.
Once we clarified the customer ecosystem, we focused our sales and marketing efforts on referring physicians, leading to 40% year-over-year growth for three years.
Why Going Back to the Basics Matters
John Wooden, considered the greatest college basketball coach ever, was known for his “back to basics” approach. He meticulously covered everything — even how to put on shoes and socks. Why? Improperly worn shoes cause blisters, which impact performance. For Wooden, mastering the fundamentals was the key to success everywhere else.
In marketing, knowing your true customer is as fundamental as properly putting on your shoes. It may seem trivial until you’re tied in the final two minutes of the national championship, and your star player gets sidelined with blisters. “Identifying your true target customer and focusing on the decider makes it easier to close sales.” It’s like putting the ball in the hands of your star player during the most critical moment of the game. It’s a cinch.
