Calculating Health Score Based on the Stage of the Customer Lifecycle

Health score
Suprej Venkat May 1, 2023


Do you know that on average, it costs five times more to attract a new customer than to retain an existing one? That’s why customer retention is crucial for the success of your business. One way to improve retention rates is by generating a health score based on the stage of the customer lifecycle.

By tracking key metrics at each stage of the customer lifecycle, you can gain insights into customer behaviour and identify areas for improvement. This can lead to a higher health score, which indicates a customer’s likelihood to continue doing business with you. But why is a health score so important?

According to a study by Harvard Business Review, increasing customer retention rates by just 5% can lead to a 25% to 95% increase in profits.That’s right – improving customer retention can have a significant impact on your bottom line.

So, how can you generate a health score based on the stage of the customer lifecycle?

It starts by understanding the five stages of the customer lifecycle:

  1. Awareness,
  2. Consideration,
  3. Conversion,
  4. Retention,and
  5. Advocacy

At each stage, you can track different metrics, such as

  1. website traffic,
  2. conversion rates, and
  3. customer reviews, to gain a holistic view of your customer’s experience.

But it’s not just about tracking metrics – it’s about acting.

In this blog, we’ll deep dive into the methods to generate a health score and how a customer success team can sync up with a health scorecard.

The foremost stages of Customer Lifecycle

In the customer lifecycle, the Research Stage is where customers learn about a product or solution and try to understand how it can help solve their problems. While CSMs may not have direct engagement with customers during this stage, they can work with marketing teams to create a positive first impression. Important metrics to monitor durithis stage include customer engagement, the types of content customers are interested in, and their interest in marketing materials related to customer success.

During the Evaluation Stage, customers work with marketing and sales teams to determine if a company is the right fit for them. CSMs may be involved in answering questions about onboarding and renewal processes and should monitor the types of questions asked and how sales teams handle them. In the Buying Stage, customers make their final decision to enter a relationship with a vendor, and CSMs can work with sales teams to ensure a smooth handoff. They should also monitor any sticking points customers may have had during the buying process.

In the Onboarding Stage, customer success takes centre stage as new customers are introduced to the platform and undergo implementation or activation processes. CSMs should closely track onboarding metrics such as engagement, ease of implementation, and satisfaction. They also decide the engagement model to be used with a specific customer account, which depends on the previous lifecycle stages and client economics.

During the Value Stage, CSMs should measure how customers are using the platform, which features they’re using the most, and any success stories. They can work with marketing to create a customer success library and communicate ROI and monetary impact.

In the Growth Stage, CSMs can see the effects of their efforts as the platform is adopted by more users, departments, or across the entire customer organization. Metrics to monitor during this stage include the number of new users, departments, use cases, and feature interest.

The Renewal Stage is critical for reaffirming customer satisfaction and solidifying the relationship with the vendor. CSMs should track satisfaction metrics and their correlation with renewal occurrences, as well as metrics from other states such as user growth and customer success stories.

How to Optimize Your Customer’s Health Score and Boost Retention Using the Right Metrics at Each Stage of the Customer Lifecycle

A customer’s health score is an essential metric for tracking customer behavior and predicting churn risk. However, creating a reliable health score model may require some extra work upfront. But once you’ve established it, the goal is to make it easy to understand at a glance for your entire team. To achieve this, you must create a common scale for each metric that makes up the score.

To make the calculation possible, you can use a scale that has three categories, each receiving 0, 5, or 10 points: Poor (0 points), Concerning (5 points), and Healthy (10 points). But you must also determine what each category means for each metric since there’s no standard rule for this. For instance, a product usage rate of 5 may be healthy for your business but poor for another.

Additionally, weighing your health scores using a weighted average of the metrics will make the score a better predictor of customer behavior. Certain metrics naturally carry more weight than others, and you can calculate the account’s overall health score as a weighted average of each health score.

When weighing customer health scores, two things to note are that the weights must add up to 100%, and a customer’s current health score is only a small part of the story. The real insight lies in the trend over time. Moreover, tracking product champions separately is crucial since they’re the most influential users of your product.

When tracking change over time, it’s vital to look at trends rather than just the current state.

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For instance, if a customer’s current health score is 7.8, and you’ve agreed that any score above 7.5 is healthy, you may think no action is necessary. But comparing the current score to the previous score can reveal whether the customer is a churn risk or not.

Normalising usage rates for the population is also essential when calculating customer health scores. This involves dividing the number of times all users on an account use your product by the total number of people using it at that company. Failure to normalise for population can lead to incorrect interpretations of a user’s health and missing potential churn signals.

Final Words

While customer health scores can be a useful tool for tracking the overall health of your customer base and identifying potential churn risks, it’s important to remember that they are just one piece of the puzzle.

Relying solely on customer health scores can lead to overlooking important contextual factors and individual customer needs. Additionally, the process of creating and maintaining an accurate and effective health score model can be time-consuming and resource intensive.

Instead of relying solely on customer health scores, companies should focus on building strong relationships with their customers through personalised interactions, proactive communication, and continuous feedback. By prioritising the customer experience and addressing individual customer needs and concerns, companies can improve retention and foster long-term loyalty. While health scores can be a helpful tool in this process, they should be used in conjunction with other customer data and insights, rather than as the sole determinant of customer health and success.

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