Thought Leadership

3 Mistakes to Avoid When Using Segmentation in Customer Success

July 28, 2023

Editor’s Note: Escalent sat down with 20 Customer Success leaders from global tech firms to discuss the most pressing issues facing Customer Success organizations today. This is the third blog post of a multi-part series that explores the tectonic shift in the technology industry’s approach to Customer Success. SaaS companies in particular witnessed explosive growth when the pandemic hit and the world went hybrid/remote, followed by a slower period in the last six months which has created scaling issues around capacity management, resource allocation, and more. This is direct feedback from Customer Success leaders on what’s needed to thrive.

One of the key themes that emerged from our conversations with Customer Success (CS) leaders is the need for effective segmentation, both in terms of approach and process. In this article, we examine three important topics to help Customer Success teams get the most out of the process and learn from some common mistakes.

In a perfect but hypothetical scenario, where resources are unconstrained, most SaaS businesses would offer a truly one-to-one, personalized experience to their customers. In reality, companies organize their customer base into a few clusters with similar characteristics, which makes it feasible to align resources based on the segment’s strategic and commercial value. For SaaS companies, Customer Success teams are among the most resource-intensive commitments that directly drive revenue retention and ongoing growth. As CS leaders remain under pressure to deliver more with less, they are often forced to allocate resources based on the unique challenges of each customer segment. CS teams often prioritize their largest/most valuable customers when it comes to expediting ROI and retention, through a combination of proactive engagement and data-driven insights. However, this effort-intensive, high-touch approach is not scalable to the longer tail of customers, who are being increasingly serviced through digital touchpoints and automated workflows.

That brings us back to the questions customer segmentation can help answer – how do you most effectively decide where to spend your energies, which customers should you spend more time with, and what are your goals for each of those customer types?

Customer Success Teams Should Not Rely Solely on Marketing-led Segmentations

Traditionally, marketing teams have leveraged segmentation as a tool to organize prospecting and go-to-market efforts with the primary goals of maximizing awareness and consideration as a precursor to the sales process with qualified leads. Because marketing efforts are focused on the acquisition of new customers, the clusters created may over-index on demographics and publicly available attributes, and less on behavioral variables like product adoption, prominent use cases, and brand loyalty. It is, therefore, critical that your CS teams have access to a modified segmentation frame that is aligned to the post-sales journey of your users, who have unique needs and expectations that may be different from decision-making buyers.

“These segments allow you to create targeted marketing strategies and offerings, ensuring you provide relevant and personalized experiences to each customer. By adopting a data-driven approach and leveraging tools and analytics, you can identify patterns and insights that enable effective customer segmentation.” —Senior Director, Automated Financial Solutions

Leaning Too Heavily on Annual Recurring Revenue (ARR) Can Be a Customer Success Segmentation Error

According to the experts we spoke with, clients are typically clustered by ARR and then assigned to the available Customer Success Manager (CSM) pool based on highest ARR, directing the lowest ARR segment toward self-serve tools and DIY manuals, such as help center articles and, more recently, AI chatbots. This approach might make sense commercially but almost certainly misses the mark in maximizing the team’s strategic growth potential. However, instead of dismissing completely, ARR is still a crucial, quantifiable metric to segment your customers during the early phases of their journey; the key is to not overlook other factors as the customer’s journey progresses and as the relationship/organization matures.

The problem with focusing so intensely on ARR is that high-value customers often have needs that differ drastically from smaller companies that make up the majority of your customer base. As a result, CS leaders must weigh the energy and resources it takes to deliver this high-touch experience to big accounts that is often hard to replicate/scale across the customer base. Secondly, this level of dedicated attention is often counterbalanced by the opportunity cost of ignoring a promising but smaller customer.

“There are a lot of philosophies on segmentation. I like to keep it simple and focus on ARR segmentation. Purely because it’s simple. And then as we mature, there are opportunities to look at it differently like industry verticals, market segmentation, and revenue potential.” —Christine Lavery, VP of Customer Success at AgentSync

Beyond demographics and firmographics, a few other criteria to look at while segmenting your customers relate to industry, specific SaaS use case(s), business process, and opportunities for growth, some but not all of which may dovetail easily with ARR. This is where CS leaders can gain hugely from being part of the executive strategy planning team and help the organization prioritize resources for initiatives that matter to their customers, and not just investors. This is also where CS leaders can be a champion of your customer’s needs since your counterparts in sales and account management are already under stress in a difficult selling environment. A clear charter for the function signed off by the executive leadership can give CS leaders a tool to help drive this shift in culture. How deeply Customer Success is involved in these discussions will vary by the maturity and structure of your organization, but having a line of sight to the company’s strategy is a great start.

“I think there are many ways to [segment] and customer size or engagement level is the most common and probably makes the most sense just because of how you are going to manage your teams. That way you are going to have different plays and different expectations and KPIs for teams based on different levels of engagement. The way they engage, the frequency and depths are all going to be different.” —Head of Customer Success, Network Solutions

Customer Success Organizations Cannot Ignore the Customer Journey

Designing a robust segmentation methodology is only the beginning though – implementing the framework is a complicated, ongoing endeavor that perplexes most companies. It goes beyond just tagging customer records in your CRM and other enterprise systems with the segment type, which, while important, is only part of the solution. In the context of Customer Success, the real value is in your ability to understand not only the stage of where your customers are in their corresponding customer lifecycle, but also in the ability to track individual users and teams within that customer org to deliver a cohesive experience. To make that happen, it is crucial to map out the customer journey for each segment and outline their unique touchpoints, challenges, and desired outcomes at each stage so you can tap into the online and offline triggers that move people from thought to action.

The customer journey encompasses the entire lifecycle of a customer’s interactions with your company, from initial contact to post-sales support, and is something we’ll be exploring further in part two of this piece. In the meantime, we invite you to read the previous installments of this series, “Five Hallmarks of a Strong, Purpose-Built Customer Success Organization” and “Customer Success Leaders Share How to Earn a Seat at the Table.”

You can also check out our POV on segmentation. Here are two blog posts:

And here are two examples of what segmentation success looks like:

If you need help getting started, reach out to us to learn how Escalent’s Customer Success experts and segmentation research specialists can help you operationalize customer segmentation. We look forward to hearing from you!


Logan Wangsgard
Director, Customer Success

Logan Wangsgard is director of Customer Success in Escalent's Technology group and runs the North America team out of Salt Lake City. He began his career in the tech world working for a robotics and medical software company based in Cambridge, MA. After spending time in higher education administration at Harvard and Northeastern University, Logan found his way back to the SaaS world in Customer Success. Prior to joining Escalent, he helped build the Customer Success team at San Francisco-based MyTime. Logan built the Escalent Customer Success team from the ground up and continues to be requested by some of the largest companies in the world to help them improve their processes. He graduated with a bachelor’s degree in philosophy from the University of Massachusetts - Boston and received the departmental book prize.