February 5, 2025


Caveat: As my experience relates to large enterprise companies using high-value, complex products or services, this may skew the article; however, the premise that customer costs are critical to identifying the customers you serve best is still applicable for other customer profiles and product types.

Introduction
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Having worked over 20 years in complex customer-facing roles, the common thread of each experience, regardless of industry or buying centre, is that only a subset of your customers fully benefit from your company's products and services, and the secret to success is to find out who they are. Satisfied customers who confidently describe how your products and services generate value for their business are less likely to churn. They are more open to exploring additional opportunities to work with you and leverage your offering sustainably (i.e., without excessive customisation or support requirements). Conversely, retaining customers whose needs aren't well met by your product or service can be costly and frustrating for you and your customers.

Connecting the Dots: Financial Performance & Commercial Strategy
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Early-stage companies focus on achieving product-market fit, which is the foundation for growth and a prerequisite for scaling. They often prioritise top-line growth and unilateral retention across their customer base. However, as businesses mature, profitability becomes the dominant concern. With investors shifting their focus away from pure growth to sustainable financial performance when evaluating scaling company health, commercial leaders must adopt a cost-conscious approach to strategy.

Why Improve Focus on Your Existing Customer Base?
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Many businesses remain fixated on new customer acquisition while missing a powerful opportunity—expanding the right relationships within their existing customer base. Prioritising targeted customer expansion helps you:

- Unlock cost-effective growth opportunities by increasing the share of expansion revenue in the growth mix.
- Refine your Ideal Customer Profile (ICP) based on a deeper understanding of your existing customers' experience, enhancing your ability to scale efficiently.
- Empower customer-facing teams to work smarter, win more deals, and build fulfilling careers.

Benchmark figures indicate that the 2024 median SaaS company's acquisition cost was almost 80% higher than its expansion cost. Companies can improve net revenue retention (NRR) by implementing a targeted expansion strategy, generating revenue more effectively.

Customer Profitability Analysis: The Foundation of Effective Segmentation

There is no smoke without fire. In the customer world, financial metrics will objectively help distinguish the customers you serve best from the rest. To scale effectively, you need a data-driven approach to customer segmentation.

Hidden costs, such as additional resources or services required to retain customers your products and services are not optimally serving, can significantly impact profitability. As a commercial leader, you will want to focus on these costs because many of them are within your control. Tracking customer retention costs (CRC) for each customer segment (ideally, at an individual customer level) is a great place to start. Defining what components to including in your CRC calculation can be tricky as this is not a standardised measure, however the following article provides a great overview to help get you started.

How to Evaluate Customer Profitability

1. Calculate service, support, AI compute and customisation costs for each customer over time
2. Add these up to compare total customer retention costs (CRC) against the customer lifetime value(CLTV)
3. Use these insights to inform your customer segmentation strategy

This analysis enables you to:

- Validate customer fit based on objective financial metrics before putting them at the heart of your growth strategy.
- Optimise service to improve efficiency, balancing custom requirements and service with financial implications.
- Identify customers you do not serve well and integrate this information into the new business strategy to discourage new business teams from adding similar profiles to your customer pool in future.

The Overlooked Link: Cost & Financial Metrics in Commercial Strategy

While commercial leaders often focus on customer acquisition metrics, few explicitly integrate cost metrics into their customer growth strategy. However, aligning financial and commercial strategies:

- Enhances credibility with investors by demonstrating a commitment to profitable growth.
- Improves functional collaboration by linking financial, commercial, and operational goals.
- Creates efficiency by helping teams focus on the right actions.
- Strengthens customer partnerships that drive long-term, profitable growth.
- Guides new customer acquisition by feeding valuable customer insights into the go-to-market strategy.

Conclusion

Building strategic customer partnerships isn't just about acquiring more customers: it's about fostering the right relationships, optimising costs, and aligning commercial strategy with financial performance. By focusing on profitable expansion, segmenting customers effectively, and tailoring your approach based on key success indicators, you can drive sustainable growth while increasing customer satisfaction and strengthening your position in the market.

​Are you ready to rethink your approach to customer partnerships and unlock smarter growth? Let's start the conversation.