How to determine Ideal Customer Profile (ICP)
First, let’s define what an “Ideal Customer Profile” or ICP is specifically in the context of a Software as a Service (SAAS) business. There are various definitions over the internet already. My personal definition is simple: Your ICP is the customer who fits the following criteria:
Uses your software very actively (daily or at least weekly) on a recurring basis.
Your software solves a very specific and burning problem for them for which they really need/want your software. It is not just a nice to have but a “must have”.
They have no problem paying for your software at all.
They want to keep coming back to your software
If there is a disruption in your service, they will get impacted.
They usually raise support tickets. Fun fact: I used to not like this because these customers may also raise more support tickets on an average but I realized they are the ones that are sticky.
Now, all of the above determination can take months or even years. So the question then becomes: how do we determine this over a period of time ?
Start with who is not your ICP (Process of Elimination)
To determine your ICP, you can first start determining Who are NOT your ICP ? I always like this process of elimination idea to reach a deterministic conclusion in many cases. Note that this step is not possible unless you have been in business for at least 6+ months (ideally 18+ months). Anything less, you don’t have enough data in my opinion.
So how do you do this ? Once you have enough data, start with your “Churn Data”. Look at the type of customers that churned even though they signed up. Look at any common patterns among those customers. For example, were they the lowest paying customers and churned within 3 months ? At Academy of Mine, we realized that we were not the best fit for customers who are just starting out and every time we signed up a customer who was too early in the world of Online Training, they churned within months.
Also, look at what their needs were. In our case, our platform was not a good fit for customers who didn’t really need to customize the platform because at our price point, we were too expensive for those who just needed something simple to go with even if established. Those customers could just go to many of our competitors and didn’t really need our customized platform and service. This took me a while to accept even though I kind of knew it a while ago.
Active Customers Data
Once you have done the process of elimination above, you can now focus on the Active Customers. As I mentioned earlier, is your product/service solving a burning problem for them ? One way to fin that out is how actively they are using the platform and what benefits does it provide to them ? In our case, making money selling Professional Training and Continuing Education is a huge problem to solve and all our active customers who were doing that used our platform thte most and kept coming back. Once I had enough of this data, I realized that any other segment of customers are not our ICP (even though some continue to be an active customer which can be dangerous in the whole ICP determination. More below)
The danger of “sort of ICP”
If you run a SAAS business for at least a few years (5+ years), you will always have this segment of customers that are happily using your platform but you know deep down they are not your ICP. Why ? Because these customers don’t really need to stay with you. They could easily leave you and it wouldn’t hurt them a whole lot. They just decided to stick it out with you for a while (may be they like your support or just the early adopter). Regardless, be very careful considering this group of customers as ICP. In other words, don’t just go by the age of the customer. We still hae a few customers today that are ideally not ICP but signed up early on and for some reason, don’t leave. We are happy to serve them but I know that they don’t need us that bad. It is just a matter of time anyway before they churn someday.
Hope this was useful. Getting your ICP right is one of the hardest challenges in any business so take what I said with a grain of salt. There is no fixed rule on how to determine the ICP. It depends on your business, your product, your domain and various other factors. Some of which are not even in your control at times. Regardless, be obsessed with your ICP and you can grow your business a lot more.