Ideal Customer Profile made easy

Karolina Kukielka
4 min readJun 1, 2021

--

When you run a startup, it’s important to manage your scarce resources effectively, whether that’s your sales and engineering teams, funding or runway. For all, it’s down to prioritising what matters the most; for the sales team the most critical resource is time! Assuming you have product-market fit, focusing on prospects with problems to which you actually have the solution is vital to your company’s success.

That’s why, as a founder/CEO, one of the most crucial challenges for the company is to identify the right companies to target and sell to. To that end, getting better results for your sales team means it’s imperative to have a clear understanding of your Ideal Customer Profile (ICP).

So, instead of going after anyone with a heartbeat, it’s important to make sure you and your sales team are talking to the right potential customers and avoiding wasting time on those that are unlikely to close. What’s more, if for some reason your sales team manages to convince an unfit customer to buy from you - i.e. a customer whose problems aren’t going to be solved by your product - they probably won’t derive value from your offering. Ultimately they will churn and walk away unhappy, potentially leaving a negative review, which is definitely something you want to prevent. You might also find your ‘wrong customer’ providing unwelcome feedback on how to improve your product, even though it’s not designed for them - consuming valuable customer support and engineering resources that could have been used by your ideal customers.

That’s where your ICP comes in. Having a laser-sharp focus on key prospects increases your likelihood of winning. Below, I would like to share a simple six-step exercise that we use at InReach Ventures and that we’ve recently tested with one of our SaaS portfolio companies:

Step 1 - Value proposition: The ICP journey should start by defining your value proposition. Be concise on its characteristics and how your solution solves the problem.

Step 2 - Product/pricing assumption: Bring up your assumptions. Try to articulate how you plan to sell (i.e. product/channel assumptions) and the average MRR per customer you’re going after. For example, if your product is complex, you probably won’t be able to use a web self-service channel. Being clear about your average MRR assumption helps a lot in ensuring that you’re using the right market/sales channel mix. For example, if you’re using a sales force closing deals in 3 - 4 months, your average MRR per customer should be around €3 - 5k; otherwise you might find it difficult to scale up a profitable customer acquisition engine.

Step 3 - Target definition: It’s important to clearly define your target customer. In our example, we were able to define the right target customer based on two dimensions: 1) affordability (see step 4) and 2) size of the sales organisation (see step 5).

Step 4 - Affordability: If we’re aiming to receive, for example, an average MRR of €1–3k per customer, let’s go through the exercise to find out who is potentially able to justify such expense. In this example, we’re considering a product that should cost about 5% of the revenue generated per month. With our assumption (let’s say €2k MRR), we’re looking for companies adding around €40k new MRR per month (€40k x %5 = €2k). The idea is that if a company is adding about €40K MRR, they should feel comfortable with spending 5% of their revenue in helping the sales and marketing team to be more efficient.

Step 5 - Size of the sales organisation: There are many ways for companies to get to an additional €40k MRR per month. In this example, the value proposition of the product we want to sell is best when the sales process has medium velocity (number of deals generated per month), characterised by contracts with an average MRR per customer of €2k. Following our assumptions (see diagram below), it’s about a sales team of 10 people quota bearing, and probably about 15 people total in sales and marketing (10 salespeople x €2k x 2 contracts per month = €40k MRR).

Step 6 - ICP: by putting all our assumptions together, we should be able to create a profile — your first ICP to test! According to these steps, we should target:
- SaaS companies
- With an inside sales team (around 10–15 people)
- Adding €40k in monthly MRR growth
- Assuming a 10% CAGR, probably a company doing €400K in MRR
- Probably a company funded by VC firms after six months from A round or just after a B round

Here’s one we did earlier. This diagram shows a working example of how to apply the steps above to a real-life ICP.

This exercise has demonstrated how, from the initial value proposition, it’s possible to create a set of assumptions defining the key characteristics of an Ideal Customer Profile to such a level of detail that it’s now easy for a marketeer to generate a list of target prospects. However, as we run it based on numerous assumptions, the so-called ICP journey might not be just a one-time activity, so make sure you test it well, analyse your results and iterate if necessary.

I hope this is helpful! If you liked this post, feel free to connect with me on Twitter or just leave a comment below - I would be delighted to answer any questions.

Finally, don’t forget to follow our publications to see more insights featured by the InReach Ventures Team.

--

--

Karolina Kukielka
Karolina Kukielka

Written by Karolina Kukielka

Seasoned tech investor, super keen to discover and uplift the most visionary and data software startups in Europe!

No responses yet