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Defining an Ideal Customer Profile by understanding customer problems

Updated: Sep 26, 2023

An Ideal Customer Profile (ICP) is a description of the customers that you would most like to acquire for your business. In other words. If one more customer walked in the front door, brackets metaphorically). What do you want them to look like?

The ICP is a more specific version of the long-used “target market” concept in marketing. The ICP, however, goes beyond demographic/firmographic information and can include customer problems, the triggers that have caused the customers to start considering a purchase, organizational structure, decision-making processes, and more. This level of specificity has become increasingly common for two reasons in my view: (i) digital marketing offering more precise targeting and segmentation options; and (ii) Customer Relationship Management (CRM) software, like Salesforce, allowing companies to gather more nuanced customer data, making it possible to build out detailed profiles.

Both marketing and sales teams can use an ICP when setting up marketing activities and selecting target audiences, creating messaging and designing the customer journey. They can also help product and operations team to maximise the relevancy of your proposition and customer experience to your target customers.

Your ICP should embody your collective understanding of your target customers and maximise your organisational alignment around meeting their specific needs. As organisations grow, many will develop multiple ICPs, perhaps for different product/service offerings or just for different use cases – but without an understanding of your ICP you risk low conversion, dissatisfied customers and poor retention.

To read more about the problems of not having a specific enough ICP, I’d recommend reading this classic HBS case study.

How to define an Ideal Customer Profile?

There are three inputs to consider when defining an Ideal Customer Profile for your business. Think of these inputs as overlapping circles in a Venn Diagram:

Ideal customer profile definition

They are:

  1. “Likeability” – which customers are going to be worth the most to your business over time, because they spend the most and/or stay the longest? This is equivalent to their Customer Lifetime Value, which I’ve talked about previously. You need to dig into your headline analysis of customer lifetime value to understand which profiles lead to the highest LTV, to avoid falling into the Flaw of Averages.

  2. “Available targets” – this is the number of potential customers of any type that are available for your to target, which should be an output of a market & customer segmentation exercise. If possible, I like to think about this as the number of prospective customers who are likely to be ‘in-market’ at any given time, say within a year. For example, if the typical model for your product/service is a three year contract, than at most 1/3 of your prospective customers will be in-market in a single year. You also need to adjust for customers you have already won in any given segment.

  3. “Likelihood” – which prospective customers are most likely to convert, based on how well your product/service meets their needs, or in other words – solves their problem(s).

Your ICP(s) should by identified by combining these three elements – think about it like an (illustrative) formula that you can use to estimate the potential value of an ICP:

If you are starting out an exercise of thinking about defining your ICP, one approach is to create three options, each one maximising these three variables – the profile with the best LTV, the profile with the highest number of available customers, and the profile with the best conversion rate. Then think about the commonalities and differences between these profiles. This process is very iterative in my experience - sometimes you need to ‘pilot’ an ICP and go through a few rounds of ‘test and learn’. Signs that you’ve got the right ICP include improved new business performance, shortened sales cycles and improvements in customer satisfaction.

One watch-out is that your ICP needs to be specific enough that it will exclude a reasonable proportion of the wider market. Without this level of specificity, your organisation won’t be able to make the trade-offs needed to truly meet the needs of the customers you are targeting. For example, if you are selling B2B, an ICP that describes a target company size of ‘50+ employees’ without an upper limit, is probably not specific enough. I’ve seen that reticence to be too specific can make the whole exercise a bit pointless.

I’ve talked previously about both understanding customer lifetime value (LTV) and how you can create a market & customer segmentation to understand the number of potential customers that match a potential ICP – so let’s dig in a bit more on ‘likelihood’.

The importance in understanding customer problems

Let me share a personal example to illustrate the importance of understanding customer problems.

I hit a very significant personal milestone recently, one that I’ve been working towards for nearly a year – Gold status with the Pizza Express loyalty programme. A culmination of many weekend trips with the children for pizza and pasta all over the UK.

For me to be such a loyal customer, Pizza Express is clearly solving some problems for me. However, it isn’t the quality of the food alone that has driven my loyalty – sure the food is good, but living in London there are certainly some better options for Italian food close by.

So what have they got right? For me, there are three problems they solve better than any other option:

  1. Speed – my children are impatient in the extreme (I don’t know where they get that from…). Pizza Express averages food and drinks for the kids on the table within ten minutes of being seated, which saves a lot of stress. I’m also able to pay on the app so there is no hanging around for the bill at the end of a meal.

  2. Consistency – my son in particular is an anxious eater. Knowing his food is going to look and taste the same at any Pizza Express location means he is relaxed throughout the experience.

  3. Availability – there are so many Pizza Express sites, that almost wherever we go we can find one nearby. This means that often it will be the first thing I look for when thinking about where to go for a family weekend lunch – I know it makes my life easier!

Now these problems may be entirely different to that of other prospective customers, making Pizza Express less of a likely choice for them. But the proposition of Pizza Express is so well suited to solving my problems as a customer, they’ve won my loyalty.

To stop thinking about food briefly, understanding the different problems that your prospective customers face is an essential part of selecting your ICP. Working out the profiles of customers for whom your current proposition is a ‘perfect fit’ can lead to higher conversion, shorter sales cycles, lower Cost Per Acquisition, higher customer retention and more customer advocacy.

You should think through each aspect of what you offer your customers and how you deliver value to them. In the case of Pizza Express, it isn’t really the food that has differentiated them for me, but the service and scale. The same can be true in many commoditised markets – you might in theory offer the same product as your competitors, but you can still create meaningful differentiation through your service – for example by using technology to make your organisation faster or easier to work with for customers, or giving the customer more flexibility, choice, and control. Just think about Amazon as an example of this.

Understanding customer problems is best achieved through talking to your customers – usually a combination of both qualitative and quantitative research. I always find it insightful to ask what is happening before a customer decided to start searching for businesses like yours e.g. a major life or business event. It is also important to understand what has made stay a customers. You can look at other internal data for example which profiles of customers convert the highest today, or move through your pipeline with the best velocity.

I’ve created a checklist for customer research and to help you avoid the common mistakes I’ve seen people make when collecting and analysing customer research data.

In summary

Your Ideal Customer Profile is something that should run through the core of your organisation, shaping the choices you make at every single customer touchpoint. It is data-led, based on understanding your market & customer segmentation, drivers of customer lifetime value, and the customer problems you are setting out to solve. It is specific and prospectable – not just a pen portrait. You might have to iterate a few times to get it right. Leverage the power of an Ideal Customer Profile to align your organization, streamline your customer journey, and drive sustainable growth.

If you’d like to discuss how you can create and use Ideal Customer Profiles in you business, please Contact Me.

All views expressed in this post are the author's own and should not be relied upon for any reason. Clearly.



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