What is a Customer Health Score
A Customer Health Score is a calculated number that measures your customer’s relationship with your product and brand. It indicates your customer’s likelihood to remain loyal and expand their relationship with you (or alternatively churn).
A successful customer is one that is getting the best value possible from your product and service.
For B2B SaaS businesses - having an accurate indication of customer health is critical. Common objectives of tracking Customer Health Score include:
- Provides a data-driven definition of how healthy a customer is at a point in time
- Early identification of customers who may be at risk of churning so that you can take proactive intervention steps to safeguard recurring revenue
- Helps to identify the characteristics of high value customers
- Allows you to compare different customer segments and identify traits that may be specific to a type of customer
Value Proposition
The cost of acquiring new customers (CAC) is most certainly a multiple of the cost of retaining existing customers. Successful businesses will often quickly be in a place where recurring revenue (renewals) exceeds new business sales; so it would make sense that your recurring revenue forecast is more accurate than your new sales forecast.
A well constructed Customer Health Scoring system makes it easy to understand your churn and predict your upcoming renewals and corresponding recurring revenue.
Common Customer Heath Score Inputs
The inputs used in calculating a Customer Health Score will vary across different products and businesses. They will be based on factors that indicate if your customer is happy and getting value from your product and services.
Some inputs may be deemed to have a larger impact on your customer health/ risk of churn and can generally be weighted accordingly. When defining your Customer Health Score calculation it is important to look at a range of different data sources.
Product Usage and Adoption
Product usage is obviously a key component in determining the health of your customer. Underlying metrics can include number of logins in set period of time, activation rate or frequency of use of specific key product features.
Feature Adoption can be an indication of your customer’s depth of product usage, and also highlight usage of the ‘stickiest’ features of your product. High feature adoption can be a good indicator that your customer is likely to renew - and importantly if they are likely to progress down an expansion pathway (upgrade). The reverse is also true - customers with low depth of product usage may be at risk of churning.
It is important to ensure your scoring doesn’t solely rely on product generated metrics as they can often be misleading. For example a happy customer may not be logging in daily because they are on leave; and alternatively high login frequency doesn’t always mean your customers are using your product correctly/ getting value.
Customer Satisfaction
Raw data around product usage and activity may not always accurately determine the health of your customer. You may have frequent user activity as a result of business requirements - but they may be unhappy and looking for an alternative solutions.
Some of the common metrics for measuring customer satisfaction include:
- Net Promoter Score (NPS) - a measurement taken by asking your customers how likely they would be to refer your product to a colleague
- Customer Satisfaction Score (CSAT) - a metric that asks customers to rate their experience, usually related to a specific transaction or interaction.
- Customer Effort Score (CES) - captured by rate the ease of use of your product (eg sliding scale from very difficult to very easy)
Customer Sentiment
As you engage with your customers you will build relationships that allow you to understand details about their organization that may be critical in determining their overall health or risk of churn. Examples may include:
- you are informed that a customer is being acquired by a larger organization that is already using a competitor - even if your product usage and other metrics look good this could flag considerable risk of churn and you may want to provide extra support/ attention to that customer
- you have a large government client who’s usage metrics have dropped significantly. Through conversation you learn that it is an election cycle and projects are on hold - but they are very happy and the risk of churn is minimal
It is important to constantly track and measure customer sentiment as it could at times outweigh all other metrics.
Customer ROI
Where possible; tracking your customer’s return on investment (ROI) can be a very good indication of their likelihood to renew or churn. For example - if by using your product your customers are able to earn (or save) a multiple of the amount they spend - there is a very high likelihood they will renew and continue to use your solution. Understanding how customers achieve positive ROI also allows your customer success team focus on helping other customers use your product in the same way to achieve success.
Other Inputs
Depending on the type of solution you offer - you may also want to consider other useful inputs such as:
- Account Growth - number of admin users/ licenses etc
- Support and Operations - number of open support cases, time to case resolution
- Customer History - age of customer subscription, number of renewals, previous upgrades
- Integrations - if you customer has invested in integrations with their primary business systems it can indicate that they would be less likely to move to a competitor
- Marketing Engagement - happy customers often have high engagement with newsletters, events, competitions
- Services Revenue - the amount spent on training, consultancy and other services may influence your Customer Health score
Calculating your Customer Health Score
To determine your Customer Health you will need to create a scoring system.
When creating a scoring system it is common practice to generate the score rating as a percentage and class your customers as:
Red - Customer is at risk
Yellow - Customer is ok
Green - Customer is healthy
The calculations for each class may be as simple or as complex as required; and will generally be based on the inputs above. Inputs are often weighted based on their importance and will increase or decrease the Customer Health Score depending on their value.
For example - you may have defined customer login as a product usage input; a customer logging in 8 times in one week may increase the health score whereas a customer providing negative feedback may be configured to lower the score.
If your customer is happily using your product, getting value from using your product and enjoys working with your business then this should be reflected with a positive score.
If the reverse is true, they are unhappy, are not using your product correctly to get value and may be seeking a competitor you health score should alert you to this risk so that you can proactively attempt to get them back on track.
In both examples it is important to dig deep and understand the data that has contributed to the score as the numbers don’t always reflect the full scenario.
Multiple Heath Scores
It is quite common to require more than one health scoring configuration. For example; customers at different lifecycle or account phases (example trial, onboarding, Plan A, Plan B) will likely have different inputs that determine the Customer Health Score configuration.
Using a Customer Success Management tool allows you to configure and track each setup requirement at the appropriate lifecycle phase.
Maintaining High Customer Health Scores
If a customer is flagged red; you have delved into the data to understand why and you have verified them to be at risk - the good news is that you can leverage off automation to quickly intervene and get them back to green.
Customer Success Management Platforms (i.e UserLot) - allow you to create specific playbooks that can be quickly executed when a customer is identified at risk. Playbook sequences may include automated email workflows, scheduling tasks to send a personal email or make a phone call - or even to schedule a face to face meeting. Different playbooks may be required for different segments/ channels of customers to ensure the best outcomes.
Creating playbooks have the added benefit of standardising your approach across your team so that everyone follows most proven approach to return your customer back to a healthy Customer Success Score.
In Conclusion
Customer Success Teams are here to stay and need to be working as effectively and efficiently as possible.
Successful SaaS businesses are tracking Customer Health Scores and being proactive to ensure that they maximise their recurring revenue.
The value proposition is proven - and a well constructed Customer Health Scoring system makes it easy to understand your churn and predict your upcoming renewals and corresponding recurring revenue.
Customer Success Management Platforms take the pain away from tracking data from multiple streams/ sources, managing daily tasks, automations, playbooks and workflows and let you configure your Customer Heath Score models with ease. They also provide instant visibility of the health of your customs and show you where to focus your attention to maximise revenue.
While it may seem like a daunting task - the sooner you adopt the systems and processes to effectively track and act on Customer Health Scores the sooner you will realise the benefits.
