What it means
Most businesses find that a minority of their customers produce most of their profit. These customers buy more, stay longer, cost less to serve and recommend the company to others.
An ICP is the company's attempt to describe those customers so it can find more of them. The profile is built from evidence rather than guesses.
Finance and sales teams look at which customers have the highest lifetime value, the lowest churn, the shortest sales cycle and the best margins, then look for what they have in common. Typical attributes include the number of employees, annual revenue, sector, location, the tools they use and the problem they are trying to solve.
An ICP should not be confused with a buyer persona. The profile describes the organisation, while a persona describes the individual inside it, such as the finance director who signs the contract.
Both are useful, but the ICP comes first because it decides which organisations are worth approaching at all. The financial value of an ICP is in focus and efficiency.
Marketing spend is concentrated on accounts most likely to buy, sales teams waste less time on poor prospects, and customer success teams see fewer cancellations. Over time, the cost of winning a customer falls relative to the revenue earned.
It also helps with forecasting and pricing. If the best customers are mid-sized companies paying annual contracts, the company can plan its pipeline and cash flow around that pattern.
Selling outside the profile is sometimes sensible, but each exception should be a conscious choice with a clear view of the extra cost and risk. The profile needs reviewing regularly.
As the product changes, the market shifts and the company learns, the customers who fit best can change, and a profile that is two years old may point the team at the wrong accounts.
In practice
Real-world examples
Example 1
A cloud accounting software company reviews its customers and finds that retailers with 20 to 100 staff churn least and spend most. It rewrites its advertising to target that group and drops campaigns aimed at sole traders.
Example 2
A recruitment agency finds that its most profitable clients are fast-growing technology firms that hire in volume and pay on time. The sales director sets up a list of 300 such firms and assigns each to an account manager.
Example 3
A manufacturer of industrial pumps notices that customers in food processing renew service contracts at twice the rate of other sectors. Finance builds the budget for the next year on the assumption that growth will come mainly from that sector.
Think of it
Imagine you are an expert tailor. Instead of trying to sell suits to everyone walking down the street, you focus strictly on tall athletes who struggle to find clothes that fit properly off the rack. They are willing to pay more because your suit is made specifically for them, and they will keep coming back.
Formula
Calculation
Customer lifetime value = annual revenue per customer x gross margin x expected years as a customer
LTV to CAC ratio = customer lifetime value / customer acquisition cost
Suppose customers in the ICP segment pay $24,000 a year, the gross margin is 75% and customers stay four years on average. Lifetime value is 24,000 x 0.75 x 4 = $72,000. If acquiring each costs $18,000, the ratio is 72,000 / 18,000 = 4.0. A customer outside the profile pays $9,000 a year at a 60% margin for two years, giving 9,000 x 0.60 x 2 = $10,800, and costs $12,000 to win, so the ratio is 10,800 / 12,000 = 0.9, which loses money.Case study
Seen in the real world
Pinecrest Analytics is an illustrative, fictional software company that sold to any business willing to sign. Its sales team closed many small accounts, but customer success was overwhelmed, and one in three customers cancelled in the first year.
The finance director analysed 400 accounts and found that companies with 50 to 200 staff and an existing finance team were four times more profitable than the rest. The company rewrote its ICP, stopped paying commission on very small accounts and shifted $150,000 of its marketing budget to the target group.
Within eighteen months, average contract value had risen by 40% and the cancellation rate had halved. The illustrative lesson is that growth and profit are different things, and an ICP helps a company grow in the places where it earns money.
Watch out
Common mistakes
- Defining the ICP from opinion rather than from data on which customers are actually most profitable and loyal.
- Treating every customer as equally valuable, which spreads sales and support resources across accounts that never repay the cost of winning them.
- Setting the profile once and never revisiting it, even as the product and market change.
Questions
People also ask
What is the difference between an ICP and a buyer persona?
The ICP describes the type of company that is the best fit, while a buyer persona describes the person within that company who makes or influences the decision.
How many ICPs should a business have?
Many have one primary profile and perhaps a second for a distinct segment, because too many profiles dilute focus.
What data is used to build an ICP?
Typical sources include revenue and margin by customer, retention and renewal data, sales cycle length and the characteristics of the accounts that refer others.