When B2B marketers think about how to focus their marketing activities and improve their funnel, they often start by asking themselves who their customers are. This question used to be quite difficult to answer, often determined by gut instinct and basic campaign insights. But with the abundance of data now available, today’s B2B marketers can drill down into insights and get highly specific about their audience.
As marketers try to ascertain who they should focus on, it’s helpful to think about potential customers at three levels of granularity: Total addressable market (TAM), ideal customer profile (ICP) and buyer personas. However, those terms are often thrown around interchangeably and can be confusing to even the most skilled marketers.
If you, like many others in the industry, aren’t quite sure of the difference, let me break it down for you.
Defining TAM, ICP & Buyer Personas
I’d like to start with a visual: Picture a target with three rings, with each ring representing a more granular customer definition as you move toward the center. The outer ring represents the broadest customer segment: TAM.
TAM estimates the total revenue potential for a product or service to help you decide where to invest your time and money — or rethink your solution if the TAM isn’t large enough. While you can arrive at TAM by gathering outside research, market reports and analyst data, basing your calculation on previous sales data can be very effective:
TAM = total number of potential customers X annual contract value
Now, let’s dive into your ICP. Remember that target from before? We are now moving into the second ring.
An ICP is a description of the companies that would realize the most value from your solution and generate repeatable, scalable business. A data-driven ICP is defined using a combination of company attributes, such as industry, geographic location, company size, business model, annual revenue, Alexa rank, technology used and more. An example might be agencies in Europe with more than 100 employees grossing $50 million and above in annual revenue.
A well-defined ICP helps you focus your sales and marketing efforts (and budget) on activities that are more likely to have greater ROI. These include lead qualification, advertising, outbound efforts, ABM, personalization and more.
Now that we are familiar with TAM and ICP, it’s time to move into the center of the target — buyer personas.
Buyer personas dive deeper into the people within your ICP who understand and realize value from your product or solution the most. Though personas have been around for a while, marketers typically haven’t used quantitative and qualitative data to form these profiles (imagine sending a marketer slides meant for a developer with irrelevant information or overbroad pain descriptions — not exactly helpful).
Instead, I recommend asking some key questions to define your buyer personas: What are common job-related demographic trends? Do they have purchase authority? What are their core responsibilities? What are their top challenges? What are their job goals? Who do they report to? What does success look like? How are they promoted?
These questions can help uncover product or feature relevance, go-to-market (GTM) motions and buying journey roles to help you improve audience targeting with tailored messages, campaigns and content.
It’s important to note that while buyer personas and ICP represent two separate rings on our metaphorical target, these two can sometimes overlap. When someone says, “ideal customer” or “ICP,” sometimes they are referring to company information and job demographic information (role, title, seniority, etc.), which can be useful across GTM teams by providing a common definition.
But when defining the three terms separately, TAM is the total accounts that could buy your product or service, ICP is the portion of your TAM you should be convincing to buy and personas are the best types of contacts within ICP accounts.
How & When To Use TAM, ICP & Buyer Personas
TAM, ICP and personas each play a role in modern B2B marketing, but segmentation varies across companies — everyone’s target is going to look a little different. Not every single paying customer will fall into your ICP and not every prospect will hit all of your ICP or persona characteristics.
As your business evolves, so will your definition of “best-fit” customers. The most important thing is that your definition represents who you want to serve and how those customers buy so that you can turn that knowledge into actionable strategies and, ultimately, strong business outcomes.
Nick Wentz is Clearbit’s VP of Marketing. In this role, he helps Clearbit reach B2B companies that are trying to better understand their customers and optimize their digital funnel. He has more than a decade of marketing experience, with deep expertise in demand generation and growth marketing.