Why and how to define a target customer profile

Posted:

05/03/2021

| By:

Topher Barrow

Can a small MSP operate at a high operational maturity level? The answer is absolutely. Operational maturity is less about the amount of revenue you bring in and more about your growth, scalability, and having an actionable plan for the future, regardless of your company size.

Having operational maturity can lead to 2.6 times the bottom-line revenue than a lesser mature MSP. The reasoning is that when your operations are more efficient, growth and scalability are easier to achieve, your team is easier to manage, and you have a clear value creation strategy. But operational maturity doesn’t happen overnight. It takes strategic planning and goes all the way back to defining—and pursuing—a specific, ideal customer.

One area service providers get stuck at is the “anything for a buck” phase. Less mature MSPs can get caught up in the mentality that any revenue coming in is good. Yet grasping at any and all prospects and customers can create a sort of chaos that makes service and delivery more challenging and less profitable.

Best-in-class MSPs realize the real value of targeting a specific customer profile and how it creates synergy within their organization and even across their teams. The best advice for service providers is to identify your target customer profile (TCP) as early as possible to tailor your service operations, choice of solutions, marketing, and sales. Once you’ve done that, you can go out and get more customers that fit your defined TCP to continue to build and mature.

Why create a target customer profile?

Simply put, you can’t be all things to all people, but creating a TCP can lead to…

Higher ROI

Although your service offerings may seem the same or similar, customer size differences require different sales cycles, account management, delivery staff skills, systems and tools, reporting, and so on.

Providers who open their offerings to a wide range of customer sizes typically under-perform or end up exerting too much energy—and costs—to develop multiple tactics for marketing, sales, and delivery operations. Instead, providers should focus their efforts on the range of customers that bring in the highest amount of revenue for the work.

Decreased costs

By choosing a target customer profile, you can minimize the range of skills, tools, and processes that you need so you can control costs and quality. The ability to do this is all dependent on the domino effect of the TCP.

Service quality, differentiation, scalability, and profitability all depend on having efficient processes, and the only way you can make your processes more efficient is if all of your customers run the same technology. Yet, to run the same technology, you must have a narrow target customer profile. When all these aspects align, only then will you increase quality, differentiation, scalability, and bring in more revenue.

Better retention

The greatest differentiator in the services business is service quality. And for most service providers, customer experience is the hardest thing to do, especially as you scale. If you choose your target customer profile correctly, it allows you to set those standards. This also means you’re leveraging and protecting the customer segment that is most important to you.

When you do more things for a customer, you not only capture more revenue per customer, which makes you more efficient and effective, but you're less likely to be easily replaced because of the variety of values you provide.

Faster sales cycle

With a well-defined TCP, you’ll do a better job differentiating yourself based on quality pricing offerings. When your sales team can easily define what they’re after, they’re able to be more compelling and sell faster by qualifying and quoting more efficiently and close more deals.

Value-based pricing makes it easier for you and your sales team to talk about the values you bring to customers rather than cost. This approach is most appealing to strategic buyers, and those are typically the ones fast-growing. High-profit MSPs pursue them because those customers see the real value in your services and will drive revenue.

This model also helps your sales representatives find the size of commission work needed to address the customer to be more compelling. Your sales reps will be more motivated by the commission they can make and the return on investment of the target customer profile.

What customer size range do you currently sell your services and solutions to?

1 – 25 users
26 – 100 users

101 – 500 users
501 – 1000 users
1,001 – 3,000 users
3,001 – 10,000 users
More than 10,000 users

If your answer falls in multiple groups, you might already be spreading your operations too thin and lack the quality of delivery that your customers want and expect. By defining a target customer profile, you’ll be able to reel in expenses, improve operations, and deliver for greater customer satisfaction.

How to create a target customer profile

When it comes to defining your target customer profile, you shouldn’t simply pick a size segment and just “go for it.” Often, CEOs and MSP-owners believe they know where their revenue is coming from and what’s the best target size they should go after. But the reality is that they’re not always correct, and instead of going off a hunch, you can actually make a mathematical decision.

Step one: List all the offerings that you sell

Choosing a target customer profile begins with creating a spreadsheet that lists all of the offerings you sell across your lines of business. So, each item/service will be broken out into its own column.

Step two: Count the customers

Next, list all of your customers that buy those services down the left-hand side of your spreadsheet. Everywhere that one of your customers is spending revenue on one or more of your offerings, you’ll put your revenue amount in for the last twelve months. By doing this for all of your customers and all of your offerings, you will have accounted for all of your revenue within the last year.

Step three: Sum all revenue

Add up all the revenue you have in each offering and each customer-size segment.

Step four: Divide step three by step two

Divide the revenue you have by customer size and then divide that by the number of customers you have in each customer size. This will tell you the average revenue you would get from each customer in each customer size range.

Step five: Define TCP based on the results

Using the table created in step four, you can determine which customer size gives you the most clients buying the greatest number of your different offerings. This shows which TCP is most productive for you and is likely the one you should continue to aim for as your sweet spot. Picking a different size segment is likely risky in terms of time, cost, and risk to your core customer segment.

Conclusion

After you’ve defined your TCP, this doesn’t mean you have to fire your clients who don’t fall into this category. This is just where you’ll want to put all your efforts going forward and pursue prospects within your new target customer profile. The goal is to change your client ratios to be more favorable to your TCP. At the end of the day, what gets incentivized gets sold, and you can use this perspective to help motivate your teams.

Creating a target customer profile is an easy way to see the results of your efforts today, set up your goals, and anticipate the future. Over time, continue to align skills, tools, and processes towards your TCP, and you’ll be able to create efficiencies you couldn’t before to reach operational maturity.