From bad-fit to your ideal customer
Customer success managers can make all the difference but they can't work magic.
They can’t fix bad-fit customers and turn them into success stories.
The impact of a bad-fit customer on your business’ performance is heavily underestimated.
So here’s the full scope of it:
Negative margins: Research indicates that bad-fit customers are 10x as expensive as your best ones. It rarely ever happens that they pay enough to justify the excessive amount of time they need from your support- and success teams.
Opportunity costs: In the end, most bad-fit customers will churn anyways. But at this point, you’ve wasted a lot of resources trying to fix them. Time, you could have spent with high-potential-high-growth customers and created expansions, upsells, and referrals.
Diluted product: A trap SaaS companies tap into frequently is trying to keep customers by building features on their demand. But they will still churn and you end up diluting your product for your best customers.
Negative reviews: If your bad-fit customers leave they might be blaming you for the lack of success. If they take their frustration public, it will hurt your reputation. With every additional one, the losses may grow exponentially.
Lost productivity: Working with bad-fit customers over and over is burning your CSMs out. Their overall performance will continuously deteriorate until they finally decide to leave.
1. What is a bad-fit customer?
Let’s first note that a bad-fit customer is not everyone who is challenging to work with.
Sometimes you may not have found the right tone yet or important background information is missing.
My definition of a bad-fit customer:
Does not follow your advice but complains about the lack of results
Does not want to put in the effort required to make things work
Lacks the basic skills and knowledge required to succeed
The product does not fit their needs (obviously not the customers’ fault)
If there’s no positive future possible you have to break up with them. How? Simply state the obvious truth that due to the ongoing struggles you feel that there’s not a good fit.
The odds are high, that your customers feel the same but required you to make the first move.
2. Who is the ideal customer?
The exact opposite of a bad fit is the ideal customer. That’s not a groundbreaking revelation but few SaaS companies have figured out how to define them effectively.
They usually rely on superficial firmographics like industry, revenue, headcount, etc. But here’s the thing: None of these characteristics is relevant to your customer's success.
But you need successful customers because if they are not, they won’t keep paying for your product. If there’s not enough retention, you don’t have a viable business.
So let’s give this more thought:
In order to create high value for your customers they need to possess a valuable problem to solve, to begin with. Too many SaaS companies try to solve all kinds of problems. That’s how you end up being a nice-to-have.
Do they have the potential to solve this problem? What skills and knowledge do they possess? Are they eager to learn and willing to put in the effort? Do they have the discipline to execute properly? This is what I consider the customer success potential. Not everything can be taught or transferred.
Do they have sufficient growth potential? Because at the end of the day, you want to monetize your customers’ success and grow your customers’ profitability. In the beginning, the costs of customer service might exceed the revenue and you can’t afford it in the long term.
3. How to find them
The most effective way to identify your ideal customers is to reverse-engineer them from your existing customer base.
Start with determining your customers’ profitability because there’s always a high correlation between customer success and profitability.
It’s really simple, the more successful your customers become the more they buy. In addition, they often require little input from you (anymore).
The key to making this work is your customer relationships. Because they give you access to the insight you need like
the problems they’ve solved
where they started in the journey
the skills and knowledge they possessed and what they acquired in the process
and ultimately what they have in common
You should have to do it only once in the retrospective and then track it forward with every new customer.
In the final step, you add the firmographics to add a name and face to your ideal customer profiles.
Will you ever achieve a customer portfolio that consists of 100% ideal customers?
It’s more than unlikely but every single one that’s replacing a bad-fit customer is a big win.
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