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What Is Customer Segmentation?

by Mathew Gollow. Last updated on June 28, 2024

Key takeaways:

  • Customer segmentation is the process of categorizing customers based on set characteristics
  • Segmentation can help your marketing, sales, and product teams learn more about who their actual customers are, as well as their buyers’ journeys, product use, and reasons for churn
  • Brands can use segmentation to improve marketing campaigns, sales processes, and product features to boost retention and revenue
  • There are different types of segmentation to help you better understand your target audience
  • Customer segmentation software can help visualize and better understand your audience segments

Customer segmentation is the process of dividing your customer base into groups based on common characteristics. The customer segmentation process helps you understand who your target audience is, refine your customer experience and reduce churn. 

While you can use a CRM or spreadsheet to determine customer segmentation, it’s much easier to leverage an automated customer segmentation system that combines behavioral and demographic data. Read on to learn everything you need to know to get started.

Start your customer segmentation analysis with a free trial of Baremetrics.

Why Is Customer Segmentation Important?

There are many benefits of customer segmentation for SaaS businesses, which rely heavily on loyalty, repeat purchases and reducing churn. In order to achieve these goals, you must be able to offer a personalized customer journey to each group of customers.

Understanding diverse groups of customers lets you hone in on your target audience and improve your marketing efforts. You can use all customer demographics, such as age, gender and marital status, as targeting criteria in marketing campaigns on search platforms and social media. In addition, you can tailor your messaging based on affinity and behavioral segmentation criteria.

Customer segments help your sales team reach their goals and improve customer relationships. By having a clear understanding of each customer segment, you can improve the customer experience. You will easily identify your best customers and be able to reward customer loyalty by offering a seamless and personalized customer experience. 

Segmentation is also absolutely critical for customer retention analysis efforts. When you’re trying to figure out why a customer has ended their subscription or moved over to one of your competitors, it’s helpful to have insight about who they are, what they value and what their mindset might be.

You can see some customer segmentation examples here using the Baremetrics’ dashboard.

Market Segmentation vs. Customer Segmentation 

Some SaaS brands use the terms “market segmentation” and “customer segmentation” interchangeably, but market and customer segmentation take a similar approach to two different audience groups.

Customer segmentation, as we know, breaks down your customer base into distinct segments based on traits like demographics, product use case, or location. You’re focused on people who are actually subscribing customers here— not the market overall. 

Types of Customer Segmentation

When you go about segmentation analysis, keep in mind that there’s no one way to develop customer segments. There are several customer segmentation models to choose from, and you may go through the segmentation process multiple times based on different approaches. 

Demographic Segmentation

Demographic segmentation divides your customers into distinct groups based on demographic data such as age, gender, marital status, parental status, education level and household income. These insights can give you a clear understanding of the mindset of each subset of customers: For example, a married woman in her 40s with several children is going to have very different expectations and pain points than a single man in his early 20s. 

Psychographic Segmentation

Related closely to demographic segmentation, psychographic segmentation breaks customers into groups based on their mindset and psychological criteria. Rather than examining the hard facts about a person, psychographic segmentation looks closely at their lifestyle, decision-making process and habits to define customer segments. 

Geographic Segmentation

Geographic segmentation groups customers into segments based on their location. This type of segmentation lets you tailor messaging based on seasonality, weather and other location-specific information. If your SaaS business is international, it also lets you account for translation needs and regulatory requirements in different regions and countries. 

Behavioral Segmentation

Behavioral segmentation arranges your users according to actions they take along the customer journey. You can approach the segmentation process for behavioral data in a few different ways. You might choose to group customers by how they began their customer journey, whether it was through a free trial, a direct purchase or a form fill.

You may also add people to segments as they go through key conversion points along the customer journey. Or you can group them based on their purchase behaviors, such as different subscription levels, average revenue per customer or customer lifetime value. Your most valuable customers, those who have demonstrated customer loyalty, will have very different expectations than brand new customers who have just completed a free trial. 

What Are Customer Segmentation Dashboards?

Customer segmentation dashboards are visualization tools that make it easy to organize customers into segments. You can view metrics for different segments to learn more about their buyers’ journeys, interests, purchase history, retention rates, and more. In many cases, you can learn more about who your target audience is and how they’re interacting with your tool. 

Some customer segmentation dashboards— like Baremetrics— allow you to easily segment your audience by key metrics. Examples of metric segmentation include cohort segmentation, user churn segmentation, and monthly recurring revenue (MRR) segmentation. 

See how to use Baremetrics’ customer segmentation features to get started

How Baremetrics Can Help

Developing customer segments doesn’t have to be a manual process. When you use a customer segmentation tool that combines multiple data sources into a single dashboard, you’ll be able to drill down the different segments and improve your marketing strategy.

Baremetrics offers detailed People Insights, giving you a glimpse into each of your individual customers, their behaviors and their history with your company. Working in tandem with rich segmentation features, you'll be well on your way to detailed, insightful customer segments in no time.

Tired of wasting time on spreadsheets? Get a free trial of Baremetrics today!

Mathew Gollow

Mathew spends his days bringing the brilliant ideas of the Baremetrics team to the blog. When Mathew’s not chasing after his team for more accurate and clear information, you can find him teaching voice at the local music academy.