Customer Segmentation and the Energy Supply Curve

In the last few months, a key theme in my conversations with executives, investors, and service providers across the Health & Wellness ecosystem is struggling with profitable customer acquisition. The prevailing sentiment is that plenty of smaller pockets of consumers can be acquired profitably to get to <$10M revenue, but that profitably scaling beyond that has been tough for many.

When I talk to leadership teams and investors about growth strategy, especially with a lens on feasibility and profitability, I like to visualize their customer segmentation as an energy supply curve.

For the uninitiated, here is an example of an energy supply curve:

In a typical energy supply curve, the full width of the X-axis is the total available energy supply, the Y-axis is the incremental cost to realize each energy source, and the individual blocks are specific potential energy sources. The reason I love this visualization is that you can very quickly see and discuss: (1) The size and cost of each energy source; (2) Which energy sources are viable vs. not at each price point; and (3) The total energy available at specific price points.

For customer segmentation (hopefully, you're already ahead of me here), the full width of the X-axis is the total available customer base, the Y-axis is the incremental cost to acquire / serve each customer segment, and the individual blocks are specific customer segments. (Note: Use whatever financial metric is most relevant, e.g., CAC, LTV, Net Contribution $s, etc.)

The importance of this exercise is not to be 100% correct. The importance is to serve as a forcing function to clearly delineate how many customers are potentially available at what cost, and if specific scale goals are achievable (e.g., get to 1M customers with the current marketing budget; get to profitability next year; etc.). This visualization also works fantastically for rationalizing your acquisition channels, unit footprint, geographies, and SKUs.

Understanding your customer segmentation data that is already available via the right visualizations and conversations is pivotal for refining your vision and long-term growth strategy. The right analysis today will lay the foundation for your company’s long-term success and your legacy. Engage your leadership team, evaluate the data rigorously, and remember that we are here to support you.

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