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Customer Segmentation for Customer Success (aka stop calling SMBs who spend a lot “Enterprise”)

Show me the customer segmentation you are using for your customer success organization, and I can tell whether or not you are truly customer-centric.

Almost every B2B company can benefit from some sort of customer segmentation model – a framework for slicing up your client base into chunks that have like characteristics and behave similarly. Segmentation is not a new concept. The marketing and sales functions in most companies have been doing this for years. But developing customer segmentation is relatively new to customer success. (This should come as no surprise – customer success as a discipline is still in its infancy.)

As customer segmentation has become a hot topic in the world of customer success, I’ve noticed an interesting and troubling trend at companies who should know better. These companies start with the best intentions – carving up their customer base into segments to provide a more tailored experience. And they start with a best practice, establishing an Enterprise segment and an SMB segment. So far, so good.

But here is where “company-centric” thinking starts creeping in. 9 times out of 10 when I ask how these companies define who goes into Enterprise and who goes into SMB, the answer is Annual Contract Value (ACV). Customers who pay more are Enterprise, and customers who pay less are SMB.

You can see the quasi-logic that sits behind this decision. After all, your Enterprise customer success segment probably has lower account ratios and more senior ratios. Shouldn’t you want your “best” customers – that is, those who are paying the most – to have the deepest relationships with your most senior people?

While at first glance this approach makes sense, it actually ends up driving really goofy behavior that does not put the customer at the center of your customer success strategy. This sort of segmentation approach results in actual Enterprise clients (customers with tens of thousands of employees and billions of dollars in revenues ) in the SMB bucket, and actual SMB clients (companies with a couple hundred employees and <$100M in revenue) in the Enterprise bucket.

A Tale of Four Clients

As someone who has had the opportunity to work for both Enterprise and SMB companies, I know first hand that these are two different beasts. The decision-making process around implementation, onboarding, adoption, expansion, and advocacy is incredibly different for big companies versus small companies. And when you define “big” and “small” by what the client is spending with you, you inadvertently end up treating them like they are the same.

First, let’s look at the so-called “Enterprise” bucket. Let’s pretend you have two clients, both of which are very high ACV. Client A is a $10B multinational with tens of thousands of employees. Client B is a $50M pre-profitability startup with 100 employees.

Most Enterprise customer success playbooks are going to be tailored to Client A. The implementation and onboarding plan will likely assume a complex project plan with a bunch of interdependencies. The account plan might ask the Customer Success Manager to achieve 3-up, 3-across account penetration. The contract renewal process likely assumes that there will be involvement from procurement, and legal, and finance – and a committee created solely to charter another committee to oversee a third committee.

Does any of this seem to fit Client B? How do you achieve 3 levels of account penetration at a small company that has a flat org chart? Why does your implementation playbook have a section about partnering with the client’s program management office when the client doesn’t have one?

Now, let’s look at the “SMB” bucket. Again, let’s create two fictitious clients. Client C is a $75M, 200 employee company. Client D is a division of a $20B multinational. Both clients are on your lowest dollar plan and have a low ACV.

Like many companies, let’s say that you’ve decided to take a 1-to-many approach to customer success for your SMB segment. For Client C, that is probably a smart allocation of resources. But for Client D, you are losing out on the opportunity to expand into the rest of the company and growing the client into one of your largest. (And there’s always the chance that your competition is in another piece of this business and is treating them like a true Enterprise client, leaving you at risk.)

Treating an Enterprise client like they are a small business, or treating a Small Business client like they are an Enterprise, just doesn’t make sense. You’ll end up overserving some clients, underserving others, and might just frustrate all of them.

A Different Approach

So if this approach causes so many problems, why is it that so many companies use it? Simple – the short-term economics make sense. The thinking is that you should spend the most in Customer Success resources on the customers that are paying us the most today. And while this is quite short-sighted, I understand the financial pressures that most Customer Success leaders are under that would lead them to this conclusion. Because of this, I often advocate an approach that balances the “outside in” need to serve the client the way that they need to be served, with the “inside out” need to put resources where they will have the best short- and long-term return. To do this, segmentation should take place across both dimensions – the size of the client (are they really an SMB or an Enterprise?) and size of the contract (are they paying us a lot of money?). This yields a model that looks something like this:

AccountSegmentation

Depending on the size of your Customer Success organization, you might actually have CSMs aligned to each of the quadrants, or you might group two pairs of quadrants together (i.e., Major & Enterprise, or Large Opportunity & Enterprise). Or if you are just starting out, you might have one Customer Success Team (or even just one Customer Success Manager) who has to cover all four. But regardless of your team size and structure, for the best outcomes, you should develop distinct approaches for all four segments. That means four different versions of your key playbooks, four different groupings of metrics, four different sets of goals and strategies.

By building your Customer Success segmentation strategy from an outside-in perspective, you will achieve tighter alignment to your clients business objective and drive mutual success.