Win Better Deals Faster With An Ideal Customer Profile
One of my initial questions to a new startup client is “What is your ICP?” This is sometimes met with a blank stare and often answered with “anyone who _______”. And when I encounter a situation where a new client understands the assignment and has an Ideal Customer Profile defined, I jump for joy and then dig into further refinement.
You see, it can be extremely difficult—as a business owner or startup team—to feel like you’re limiting yourself to who you should be selling to. Right now, the goal is revenue growth. Period. End of story. Right? I’m here to tell you that a well-defined ICP will not only help you grow your revenue, it will also secure and protect your recurring revenue for future growth and eventual valuation.
First, let’s discuss a couple of concepts: ICP and Net Revenue Retention (NRR). One is a guiding principle and the other is a metric that every startup in tech should be aware of—together, they will lay the foundation for your go-to-market strategy.
Gartner defines an Ideal Customer Profile (ICP) as the firmographic, environmental and behavioral attributes of accounts that are expected to become a company’s most valuable customers. You’ll hear me preaching “Ideal does not mean only” and this is because it’s very easy to take a binary approach to understanding how and why we develop an ICP. It’s important to remember that it’s not just about winning deals—it’s also about retention, delight and expansion into these accounts. An ICP will help your sales team focus their efforts on accounts that have a better chance of converting (and more quickly!), but also the accounts that will ultimately have a higher lifetime value (another metric your recurring revenue model should be laser-focused on!)
Net Revenue Retention is a metric you should understand and track as early as possible—NRR takes into account retained revenue, expansion and churn. Why do I bring this metric up in this blog post about ICP? I’m glad you asked—first, it’s my favorite growth metric because it’s how SaaS companies are valued. That’s right, your valuation is determined by your NRR. But more importantly, for this blog post, having a strong ICP, that is aptly focused, is a main part of the long game to improve your NRR. More on this in another blog post, but I want you to keep this metric top of mind as we dive into the 3 main reasons your startup will benefit from a rock solid ICP.
My approach to building an ICP starts with internal research—generally when I ask 3 people from 3 different departments about who their ideal customer is, I get 3 different answers. The idea here is to first, collect information about why each team member owns their perspective. Finding a red thread always helps when it comes to a company-wide focusing exercise. I’ll then jump into external research. Do we (the client) understand the total addressable market? What about the serviceable addressable market? What to the win/loss reports look like? What are the competitors offering? What does the buying behavior look like historically and in the current economic climate? Some of my clients have a healthy handle on this type of information and some do not—either way, it’s not common that all of this information has been synthesized into the building blocks that are necessary to erect an ICP that will be adopted company-wide.
Let’s have a look at the top 3 reasons that I believe you should start building an ICP today. What it comes down to is developing a north star for your startup—a guiding principle that keeps everyone, from executives, to sales, to product development in common focus on building an install base that is happy, retained and ready to grow with your ever-expanding offerings.
Accelerated Sales Cycles—Being about to close deals faster makes for happy reps, happy investors and happy founders. This shouldn’t be news to any of you! A well crafted ICP will keep your sales team focused on accounts that, based on all of that research we went over earlier, are more likely to convert. And because you’ll have referenceable customers and case studies, as well as a practiced understanding of how their business works and how your offering improved business outcomes, these sales cycles will inevitably decrease in length.
Customer Retention—Winning a net new deal is exciting and integral to company growth, and it’s only the beginning when it comes to customer lifetime value (CLV). I know you want to sell to anyone who will fork over their credit card right now, but a word of caution: churn creates an expensive experience for everyone involved. I want you to focus on the customers who will be successful and delighted with your product—you should be focused on collecting them early and often. These are the customers that will naturally become your evangelists. They will be eager to buy the newest addition to your product portfolio. And they’ll stick around through the inevitable bugs, updates and product adjustments because your offering improved their business outcome.
Development guidance—Your ICP doesn’t just guide sales and marketing. It’s a valuable tool to align all departments, from the executive team’s strategy planning, to the development team’s roadmap planning. When your company has a clear understanding of who the best customer is for your offering, that picture will guide future product development. From updates to new product releases, making sure your company is tracking towards what the market demands and what your best customers want will create a system of sustainable growth.
You need an ICP, yesterday. As I bring this post to a close, I’ll leave you with a couple of parting thoughts. First of all I want to remind you that ideal doesn’t mean only—you’ll hear me say this a lot. I want you to think of this as a focusing framework for the entire company—sales should be focusing 80% of their time on going after ICP accounts, or development should be focusing 65% of their time building to ICP desires and demands.
Second, part of the ICP work that I offer includes the Exploratory Customer Profile (ECP), which I’ll discuss in depth in another blog post. Developing an ECP, along with your ICP, can further hone your company’s focus and help alleviate some of the concerns that come with that binary perspective when it comes to developing a tight ICP. I use this as part of the internal alignment exercise to gain buy-in across the company. These are second tier accounts that may be wrapped in some caution tape, but can have elements of becoming an excellent customer.
Finally, I want you to remember that sustainable growth and profitability is exceptionally important right now. Whether your startup was recently funded, or you’re bootstrapping your way to success, tracking your NRR remains integral to your longevity and prosperity. If you want to continuously improve your ability to retain revenue, expand into accounts and keep churn low, you need a rock-solid ICP.