How Do You Segment B2B Customers?
The new marketing plan names three target segments (manufacturing, healthcare and professional services), chosen because they're the three largest values in the CRM's industry field, and the head of sales points out in the meeting that the company's best accounts of the last five years don't fit neatly into any of them. The plan describes who exists in the market well enough, but it says nothing about which of those companies are worth the budget, so how do you segment B2B customers?
To segment B2B customers, group your existing customers by traits sales already recognizes, such as industry, size and buying process, then rank each group by lifetime gross profit after the cost to win, and aim marketing at the top one.
Grouping customers tells you who they are but not which of them are worth chasing, so the sections below concentrate on the ranking and the questions that follow it.
How Do You Segment B2B Customers, Step by Step?
Start from the customers you already have rather than from the whole market, because your own records already show who buys, what they pay and how long they stay. A year or two of history in a spreadsheet is enough to begin.
- Export last year's customers (two or three years if you have them) with revenue, gross margin, the date each one started and how each one found you.
- Tag each customer with the two or three labels your sales team already uses, such as industry, company size, ownership, buying process or the situation that made them buy.
- Combine the labels into a handful of segments, usually three to five, each with enough customers that an average means something.
- Work out lifetime gross profit after the cost to win for each segment: average yearly revenue, times gross margin, times the years a customer stays, minus what it cost to win one.
- Rank the segments and score the top few on the IMPACT lenses, to catch what a profit figure can't show.
- Write a description of the top segment that sales could use to recognize that buyer on a first call, including the signs of a poor fit.
Step 4 is the same calculation we walk through in how to calculate customer profitability, and the lifetime value comparison on our IMPACT Prospect page runs it side by side for your own segments.
Which Criteria Should You Use to Segment B2B Customers?
Use criteria that change what a customer is worth or how they buy, and that sales can confirm early in a conversation. Firmographics (industry, company size and location, the facts you'd find in a company database) are a reasonable start, but they describe who exists rather than who is worth winning.
| Criterion | What it tells you | A question sales can answer on a first call |
|---|---|---|
| Industry | Shared problems, regulations and language | What does the company do? |
| Company size | Budget, contract size and how many people sign off | How many sites, employees or buildings? |
| Ownership and control | How much say the person you talk to has in the decision | Do they own or control what you'd be working on? |
| Buying process | How much room you have to compete on anything besides price | Direct decision, procurement, or a public bid? |
| Situation | Why they're buying now, and how urgently | What changed that made them call? |
| How they found you | Which sources bring this kind of customer | Referral, search, an association, outreach? |
The last four rows of that table are where the profit differences usually hide. Two companies in the same industry and of the same size can be worth widely different amounts if one negotiates directly and the other runs every purchase through a formal bid, and a segment built on industry alone puts them in the same bucket.
How Do You Find the Most Profitable B2B Customer Segment?
Calculate lifetime gross profit after the cost to win for each segment and put the results side by side, because the gap between segments is often wider than the revenue report suggests, as it was for the contractor.
ExampleA commercial HVAC contractor's three customer segments
The example we follow across the site is a commercial HVAC contractor doing about $40 million a year, whose most profitable offering is a yearly maintenance agreement priced at $12,000 per building. Grouping its maintenance customers by who signed gives three segments sales already recognized.
The calculation behind each figure is in how to calculate customer profitability.
- Property management firms
- $89,760 · IMPACT 25/30
- Owner-occupied businesses
- $19,200 · IMPACT 18/30
- Schools and public bids
- $6,400 · IMPACT 10/30
Property management firms cost the most to win and still come out roughly 14× ahead of public-bid customers, and they top the IMPACT scores as well.
The IMPACT lenses are the checks we run alongside the profit figure: Interest (who wants the offering most), Margin, Potential (how many more of them exist), Attract (how easy they are to reach), Competition (whom competitors underserve) and Tenure (who stays longest). They matter because the contractor's owner-occupied businesses scored highest on Interest, since they call on their own when something breaks, which is exactly why its inbound leads had drifted toward a segment worth less than a quarter as much. You can score your own segments with the IMPACT scorer on the IMPACT Prospect page.
When Does B2B Customer Segmentation Go Wrong?
Segmentation fails most often when it produces more groups than anyone can act on, rests on data nobody has, or follows what's easy to target instead of what's profitable.
- Too many segments. A model with fifteen segments can't each get its own message, budget and description, so marketing quietly goes back to talking to everyone. If two segments would get the same campaign and the same sales approach, merge them.
- Segments with no data behind them. A segment with a handful of customers, or with margin and tenure nobody has tracked, will produce an average you can't trust, and how to calculate customer profitability covers what to use until you have that history.
- Segmenting by what's easy to target. Ad platforms make it simple to pick an industry and a company size, and public bids are published for anyone to find, so plans drift toward segments that are easy to reach rather than profitable to serve. The contractor's public-bid customers were the easiest to find and the least profitable, which is why its written description names any buyer who requires a public bid as a poor fit.
Where to Start With Last Year's Customers
Export last year's customers, tag each one with the two or three segment labels your sales team already uses, and compare lifetime gross profit after the cost to win for each segment. If you'd rather not build the spreadsheet yourself, the lifetime value comparison on the IMPACT Prospect page is prefilled with the contractor's numbers and takes your own in a few minutes.