Venture Capitalist at Theory

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2 minute read / Nov 20, 2012 /

Segmenting customer pipelines

When building a freemium SaaS company or an ecommerce company or any product that requires users to move through a funnel towards an objective, it’s important to track this funnel to understand where the funnel can be improved.

But tracking one funnel may not be enough. The aggregated funnel may be masking conversion differences across customers segments. For example, at Expensify conversion rates to paid vary quite a bit across customer size. But the total conversion-to-paid rate hides these nuances.

It’s critical to understand each segment well. For each, which features are missing or are too complex? How do they prefer to try and pay for the product? Which acquisition mechanic is the most effective? What marketing message resonates with the segment?

This understanding is ultimately critical to the success of the product and marketing teams who must determine how to serve the different segments of the customer base effectively and efficiently. It’s also another example of why founders should teach their teams statistics.

We recently built a segmented marketing funnel at Expensify. These are the steps we followed.

  1. Identify your segments. This can be done through intuition, customer interviews, or data science. I used company size as the first pass segmentation for Expensify, but I intend to explore clustering to see if there are more nuanced segments.
  2. Define the key steps in the funnel: registration, activation, contact and purchase might be an example.
  3. Define other related metrics: the fraction of users that must be upsold through online channels vs inside sales, the average value per customer, the current penetration of the account vs the total possible value of the account.
  4. Run the analysis and see what results come about. If no insights are present, or the data is relatively homogeneous, it might be worth redefining the segments.
  5. Structure the marketing, product and sales team goals around funnel performance.
  6. Optimize the funnels.

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