The customer health score: How to master this metric

For those of us who thrive in pragmatism and proactivity, having the means to judge whether an aspect of your life was going good, bad, or just plain average, would be a blessing sent from above.

Whether this was for work or in your personal life, with an indicator like this you’d be able to jump into action before things turned sour and prevent a situation that could cause further damage.

While you might have to be a little less control over your personal life, there are ways to implement this foresight into your work. Enter the almighty customer health score. 💪

In this article, we’re going to take a deep dive into:

Shall we crack on? 👇

What is a customer health score?

A customer health score is a predictive metric used by SaaS businesses to indicate the likelihood of your customer leaving (churn), staying (retention), or growing (renewals) in your organization.

Customer Success Managers (CSMs) will be well-versed in the art of the health score, as this metric offers an absolute goldmine for customer intelligence. When analyzing your accounts (your customers) the customer health score offers you the ability to predict the longevity of this business relationship.

Those with a low score are prioritized as high-risk with the likelihood of succumbing to churn. These customers instantly flag as a high priority for the dedicated CSM to start planning their strategies to pre-empt customer churn.

A customer health score is a comparative metric

By combining factors like frequency of product use, the number of support tickets open, and whether the customer is using a wide breadth of product features, you can ascertain a score to reflect the customer’s current health status.

Typically, the health score can range from 1-10 or 1-100, with lower scores addressing at-risk customers and higher scores indicating greater revenue opportunities like upselling and cross-selling. It’s up to the customer success team to categorize the scores and determine the actions you’ll take. For example, if an account scores 25/100, the CSM is required to take immediate action and reach out to them.

Accounts that are given a thumbs up usually will bag a score of 70-100 and will be color-coded in green; customers who score between 40-70 are at risk of churning and are usually color-coded in yellow; those who score less than 40 are in the red zone, and are likely to churn.

Why calculating customer health scores is important

The customer health score forecasts what’s to come. It allows customer success teams to act fast to nip poor customer satisfaction in the bud, reduce churn, increase customer retention rates, and ward off negative feedback.

We wouldn’t throw caution to the wind, mind you. It’s worth remembering that calculating a customer health score isn’t a problem-eradicator. A health score is a valuable metric to have in your remit, but it doesn’t solve everything there and then.

It needs to be monitored continuously as the post-conversion journey for the customer can be volatile and susceptible to the elements. Anything can change for the customer from the point of sale, which is why a watertight, carefully considered customer onboarding process is integral to actualizing time-to-value (TTV) and sustaining product appreciation.

But let it be said, the customer health score isn’t all doom-and-gloom; it’s not solely a last-minute scramble used to catch at-risk customers from churning. A high customer health score can alert you to a treasure trove of possibilities.

For example, an engaged customer – who uses your product frequently and demonstrates an interest in your company – will likely want to increase their subscription and buy additional products or services. A high customer health score is a godsend to a CSM, offering the possibility for expansion and repeat purchases. From a commercial perspective, keeping an ear to the ground by consistently monitoring customer health scores is a shoo-in for increasing revenue by identifying upsell and cross-sell opportunities.

NB: This is particularly important for high-value customers.

An account plan may be necessary to ensure your high-value accounts continue to renew and expand. Not only will this life-saving piece of admin help you to keep all your account information and actions in one place, but, hopefully, it’ll keep your high-value accounts happy.

If you’d like to learn how to upsell, or perhaps want to brush up on your current strategy, we have a template for that. 👇

How do you calculate a customer health score?

Several critical indicators form the basis of the customer health score, the majority of which reflect the customer’s overall engagement with your product and your organization as a whole.

Here are some factors that contribute to calculating a customer health score:

How frequently your customer is using your product or service
The depth in which your product is being used
How many people are using your product or service
How many customer support tickets are open for this account
Whether the customer engages with your in-app surveys
The total number of add-ons purchased by the customer
If the customer has upgraded their subscription
If the customer uses the in-app chat feature

How do companies calculate customer health scores?

But depending on your organization’s customer success strategy and product or service offered how you define ‘health’ is entirely subjective to your company’s needs.

We spoke to Smith Puerto, Director of Customer Success at Verb, about their thoughts on this coveted metric:

“My team owns customer success for a SaaS platform, and we’re building out a super basic health score that weighs a customer’s monthly active use of our platform, the number of support tickets per account (we use ZenDesk and JIRA), and then a one to three gut check by the CSM on the admin relationship.

“After this, we have those three data points weighted differently for different customer segments; in some segments, the admin relationship is considerably more significant than product adoption, and vice versa for different segments.”

Similarly, at Stripe, their customer success team uses customer engagement in their overall scores and looks if they’re participating in key activities like QBRs. This was noted by Melissa Hatter, Enterprise Customer Success Lead at Stripe, during a panel discussion at Future of SaaS’ 2022 SaaS Metrics Summit.

“We look at product utilization and optimization – that's probably similar across a lot of organizations. And then there's payment utilization and optimization, which is very specific to [Stripe]. But I also think there’s a portion of health that’s hard to track with data – there's absolutely no substitute for CSM sentiment.”

Melissa touches on a glaring tension in customer success: the delicate balance between data and human traits like empathy and intuition. For Melissa, CSMs have incredible and intimate knowledge of their accounts, and this gut instinct is usually the strongest signal of health, despite all the data available.

If your customer segment is high-touch and has a dedicated CSM, nothing can replace talking to the client themselves, and forming a relationship. For lower-touch customers, with a greater emphasis on a tech-first approach to onboarding and customer relationship management (CRM), relying on data will probably be your best friend here.

How to best utilize and improve customer health scores

Once you have decided upon the factors informing your customer health score, you’re able to extrapolate this intel to provide direction for your anti-churn and revenue-driving strategies.

For Smith Puerto, health scores “provide insights that allow teams to make strategic decisions around prioritization, resource allocation, and forecasting”. They also note that CS teams can then present these performance indicators to key internal stakeholders, noting that CS leaders can “communicate account status and health to the leadership team and board on a bi-weekly basis”.

How to improve? Well, that’s a constant work in progress. If you want to share a hot tip for improving the rating of your customer health score, reach out to your peers in our community on Slack – we know that all CSMs will be keen to find ways to improve on this unpredictable metric.

But for now, here are three ways to improve your health scores. 👇

1. Speak to customers

Telling a CSM to talk to their customers to better understand their feelings, is like telling an Olympic swimmer to remember to put on their goggles before diving into the pool. It’s a no-brainer – of course, it’ll enhance their performance!

The same can be said for regularly communicating with your customers. In our latest report, State of Customer Success 2022, regularly communicating with customers was considered to be the number one tactic for counteracting customer churn.

Health scores are indicators of a customer’s current status, but it’s up to CSMs themselves to intervene, to make things right.

2. Use in-app guides

With the rise of automation in customer success, there are quick wins that CSMs can adopt to better serve their customers.

If a customer is found to have a mid-low health score, they would be deemed unhealthy. Then the customer success team can act by using automation to specifically target these low-scoring accounts.

In-app guides can replicate previously successful cases by walking the customer through how to use the product. These guides can be slightly different from the product’s current onboarding process, highlighting different challenges for the seasoned customer who hasn’t been engaging with the product.

3. Multiple scoring systems

Implementing a range of health scores can help to prioritize CSMs' efforts and be more specific about success or failure patterns. CSMs can use patterns to replicate the success with in-app guidance or reduce frictions that lead to failure. At the other end of the spectrum, high scores can find the right moment to ask freemium users to upgrade.

Multiple scoring systems can help to prioritize CSMs' efforts and be more specific about success or failure patterns. To get a clearer picture of your customer base, you can run different scoring systems for different user segments e.g. new vs. old customers, and individual vs. enterprise accounts.

TL;DR

✅ There’s not a one-size-fits-all formula for customer health scores. Pick factors to make up the health score – whether that’s product usage, support tickets, etc. – that are right for your business and reflect your product. There’s no point copying what another company does if they have a completely different product.

✅ Lean into automation. Incorporating artificial intelligence into your health score strategy can be a lifesaver. Health scores need to be continually monitored and to be kept abreast of new changes. The best way to do this is with an integrated tech stack.

✅ Talk to your customers. Above all, health scores try to predict patterns of future behavior. But the only way to benefit from this metric is to communicate with your customers and listen first-hand to what can be done to improve their experience.