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What Is Customer Segmentation?

by Mathew Gollow. Last updated on June 13, 2024

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.

Baremetrics makes behavioral segmentation simple by combining customer data from multiple sources into a single dashboard. Get started with a free trial of Baremetrics.

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. 

How Baremetrics Can Help

Developing customer segments doesn’t have to be a manual process. When you use a marketing analytics 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. Ready to get started? Sign up for a free trial of Baremetrics.

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.