A guest post from our Partner – ChannelCreator.
We run a lot of Go To Market clinics. In these clinics we speak with many start-up, growth and scale-up software companies that are engaged in outbound sales activities to their target market:
We often ask the question ‘What is your ideal customer profile?’ (ICP for short), and more often than not we get the answer ‘CIOs, CTOs, Head of Digital…’, or maybe ‘Tech-savvy Tim, who is 36, owns a Range Rover Evoque and likes eating lentils…’
There’s then an awkward silence, and we respond with ‘That’s very interesting, but what is your actual ideal customer profile?’.
After a bit of digging it all becomes clear: the ideal customer profile is ‘large manufacturers in Europe’. Our response? ‘Not good enough!’.
With the B2B software market becoming hugely contended in nearly every sector, each year it becomes more important to be precise about who your product is intended for and why they should buy it. Why? Because with a minimal sales resource it’s essential to have a laser focus on where you expend your sales effort. If you get it wrong the results can be pretty catastrophic, and too many start-ups spend their time servicing the wrong leads, wasting precious sales bandwidth, and missing the big opportunities.
The 5 steps to ICP success
The objective in defining your ideal customer profile is to identify companies that have the greatest propensity to buy your solution, and so maximise your revenues. But how do you refine your ideal customer profile to reduce the size of your addressable market, and then find these high propensity target accounts? Here’s ChannelCreator’s 5-step guide to defining your target list and identifying the companies that are really going to buy your tech:
1. List your ICP Characteristics – Create an “ICP spreadsheet” and list characteristics that narrow down your target market – structure the sheet with company names in the rows, characteristics in the columns.
- Firstly, consider horizontal factors such as: total revenue, number of employees, geographical footprint, ownership (privately, public, government), level of digital maturity, focus in terms of customers (consumers, SOHO, SMB, Enterprise, Government), do they have an innovation team or lab?
- Next, consider vertical factors such as: industries and niches in which your customers operate, ecosystems of which they are a part, customers they service, providers and supply chains they use, platforms and products they use (e.g. SAP, MS Dynamics 365, Xero, Sage, Magento, HubSpot etc.). You can often find these out by using solutions like built-with, datanyze and other similar web apps to establish which technologies and trends are present in your target accounts.
- Finally, consider motivating factors, or the things that will really make your proposition resonate. If you are a sustainability platform, your ideal customer will have a CSR charter, published goals on sustainability and carbon reductions, and a CEO commitment to shareholders/customers on meeting specified sustainability targets. In other cases it might be indicators such as poor employee review scores on Glassdoor, poor ratings on TrustPilot, a terrible NPS score, or low margins in cross-border logistics services. The more of these highly specific motivators you can think of, the more likely you will be to find target accounts that really need your product.
- Don’t forget to consider your best existing customers (if you have any…). What makes them so good? Why did they buy? If you can extract the characteristics from these accounts it will make the above process much easier.
2. Score your leads from outreach and inbound enquiries against these criteria:
- First, test some ‘old sales cycles’ to see how they score. The ones that were a waste of time will likely score very low, and those that have become great customers will score high.
- Identify data sets (usually from specific verticals you are targeting) in the tens or hundreds of companies and drop them into this sheet. Score them all using the characteristics in your spreadsheet.
- Now prioritise these for additional time and resources with a 70%+ fit; give them the ‘red carpet treatment’ – anything that scores lower than this should be treated on a much more reactive basis.
- As your ICP spreadsheet becomes more sophisticated you can ‘weight’ characteristics that are more important to you with greater priority.
3. With the above ICP in place you should be able to create a key account target list of around 100 to 200 must-win accounts in your target market. Focus all of your direct sales efforts on winning these accounts, and put anything that doesn’t fit on the back burner.
4. You can grow the ICP or add segments later once you have ‘picked this low hanging fruit’, but the above will help to maximise results in your initial phases of outreach.
5. Later on, you can use this ICP to help partners find the right customers that best fit your proposition. You should use your ICP not only in the short term, but as you scale to indirect sales as well.
Learn to say ‘NO’!
It’s the hardest thing to do when you are running a start-up, but it can also have the greatest impact. If a customer doesn’t fit your ICP they may cost you more than they make you, so don’t be scared to say no.
If saying no doesn’t come naturally, consider ‘pricing out’. By offering a premium-price solution to customers that don’t fit well, and surfacing budget right at the start of the conversation, you can very quickly remove prospects that are not a good fit from your pipeline.
Start by asking ‘what is your budget for this?’ and then suggest that your solution is more than this amount, and therefore they may want to consider alternatives. Some prospects will be surprised by this position, and insist that they can afford your product. You can then decide whether you want to take them on at the quoted higher price-point.
It’s a numbers game, even with an ICP
Don’t forget, sales are messy. Not even a laser-focused ICP can save you from that!
The ICP is about increasing your conversion rate, and finding better customers that are happier and stay with you for longer. With a solid ICP you might sign contracts with 10% of you target list over 12 months, instead of 5% over the same period, and maybe your ACV will be 30% higher. This means you will still have to experience unresponsiveness, rude and difficult prospects, and frustrating sales cycles where no decision is reached or the project is put on hold.
Just bear in mind that sales is and will always be a numbers game. However, the ICP rigs the game in your favour, so get cracking with that spreadsheet!