How high-performing companies approach their Ideal Customer Profile (ICP) strategy

At Riverside Acceleration Capital, we have access to a wealth of data from the B2B SaaS companies we fund and advise, and we’re constantly looking for patterns to help our companies learn from one another. What makes some companies perform better than others? What habits and practices distinguish the most successful companies in our portfolio?

Recently, we asked our portfolio companies to complete a survey about their Ideal Customer Profile (ICP) strategies. We wanted to know things like what internal resources they use to define their ICP, how closely their customer base reflects their ICP, and what efforts they make to track related data.

What did we learn?

Based on our survey, we found statistically significant data suggesting that the highest-performing companies (see how we define “high performance” below) in our portfolio really do think about their ICP differently than the rest. And since the results were so definitive, we decided to highlight three things those high performers have in common.

What is an Ideal Customer Profile?

An ICP describes the type of company you intend to serve and the problems you want to solve for them. An ICP differs from a buyer persona in that it focuses at the level of the company rather than at the level of the individuals who might influence the buying decision within an account.

In other words, while your buyer persona would identify an imaginary, ideal ‘person’ like “Sarah the busy software CEO,” your ICP would identify an imaginary, ideal account, such as “a well-funded, late-stage Training & Development software startup.”

Most Ideal Customer Profiles stick to high-level attributes like:

• Industry
• Company size (number of employees)
• Revenue
• Budget
• Pain point

Naturally, what you choose to focus on when creating your ICP will depend on your product, goals, go-to-market strategies, and other factors.

How do we define “high performance?”

After reviewing our survey data from our partners, we split them into three tiers based on their overall performance around the two most important account-related KPIs

• Gross Revenue Retention (GRR)
• Net Revenue Retention (NRR)

We labeled the highest performers as Tier 1, the mid-range as Tier 2, and the rest as Tier 3. Then we looked at which qualities each group shared.

What separates Tier 1 performers from the rest?

Here are the three most salient factors:

1. Companies with high revenue retention do business with those that closely align to their ICP

SaaS startups are reluctant to turn down business from a paying customer, and we’d never expect you to do that when you’ve got a burn rate staring you down. When it comes to targeting new business and qualifying leads, however, the data suggests that focusing squarely on your ICP is a winning strategy. In fact, our Tier 1 performers receive almost all of their revenue from customers that fit into their ICP.

How much revenue comes from companies that match our partners ICPs? In median terms...

• Tier 1 companies estimated that 90-94% of their revenue comes from accounts that match their ICP
• Tier 2 companies estimated that 70-80% of their revenue comes from accounts that match their ICP

This data suggests that high NRR and GRR companies take a highly disciplined approach when adding revenue that matches their ICP. This may also suggest that revenue retention is higher when a larger share of the revenue comes from ICP customers—since they are less likely to churn than their non-ICP counterparts.

2. Companies with the highest revenue retention use fewer inputs to define their ICP

We asked our companies how many distinct inputs they used in defining their ICP, such as feedback from a customer council, their sales team, or data on their existing customer base (among 10+ other inputs). We strongly suspected that focus and simplicity would be important. Indeed, we found a strong inverse correlation between the number of key inputs used to define a company’s ICP and that company’s GRR and NRR. In other words, when creating their Ideal Customer Profiles, the Tier 1 companies used data from a smaller number of sources—heavily weighting what they learned from specific departments.

How many inputs did each group use on average?

• Tier 1 producers averaged around 4-5 inputs
• Tier 2 producers averaged around 8 inputs
• Tier 3 producers averaged around 10 inputs

While correlation doesn’t necessarily equal causation, the data hints at a causal connection. Our data suggests that high retention companies pay particularly close attention to the input they receive from their sales team, and usually incorporate data strategies around their existing customer base.

Sales has the most contact with leaders and decision makers, providing strong qualitative feedback. Closely monitoring/analyzing your existing customers provides opportunities to be proactive and detect potential churn events before they happen; and can also surface valuable insights into how customers are using your products (which can then be used to steer the product roadmap).

3. High performers track profitability at the customer level

Our research found a positive, linear correlation between tracking profitability at the customer level and GRR. In other words, the more companies delve into the metrics surrounding profitability by account, the more revenue retention they enjoyed.

In median terms, we found that:

• 50% of Tier 1 companies track profitability on the customer level
• 0% of Tier 2 and Tier 3 companies track customer-level profitability

To us, this indicates that companies with high Gross Revenue Retention spend much more time analyzing the fundamental unit economics that drives their business. In turn, this enables them to focus their efforts on serving customers that better fit their value proposition, and allows them to use hard, customer-level data to continuously refine their Ideal Customer Profile.

Have you optimized your ICP?

Do you have a clear idea of who you want to serve and what problems you want to solve for these businesses? You may have defined your ICP when you launched, but if you’re not continually refining that definition—with input from your sales team and using data on your existing customer base—it probably needs some updating.

By continually refining your ICP and focusing your efforts on serving that segment of the market, you’ll set your business up for success. Of course, you’ll only really know whether your strategy is successful once you track performance at the customer level.

Who are your highest grossing customers? Which ones churn the least and continue to generate revenue month after month, year after year? Once you can answer these questions, consider having a regular process to confirm (or revise) your ICP, building a sales and marketing strategy that caters to the companies that fuel your growth.

Note: Survey was conducted by the Riverside Acceleration Capital team and results are for informational purposes only.