An Ultimate guide on Customer Health Score

What is the customer health score?

The customer health score is a metric used by customer success teams to evaluate the health of their customer relationships to determine churn, growth, and renewal. It is calculated using a combination of factors, including product usage, account upgrades, support tickets opened, customer engagement level, etc.

A high health score indicates that users are satisfied with your product and are more likely to remain loyal to your brand, whereas a low score says otherwise.

Why should you monitor customer health scores?

Customer success managers use customer health scores to track changes in customer satisfaction over time and predict future success. Other reasons why you should monitor customer health scores are:

• Improve customer retention, satisfaction, and loyalty.
• Identify potential churners and proactively address their concerns before it’s too late.
• Find areas of improvement opportunities.
• Implement data-driven strategies to improve customer retention efforts.
• To inform product development and marketing strategies, give better insight into your customer’s behavior.

Why is the customer health score important for SaaS companies?

Knowing how customers interact with your products and services is essential for customer success, which is a core aspect of this customer health score guide. This way, customer success teams can quickly know if they are targeting the correct demographic or need to improve their efforts in certain areas. Here are a few reasons the customer health score is vital for SaaS companies.

Detect churn early

Knowing your customer health score can help you quickly identify when there’s a churn risk that customers will stop using your product. A low customer health score could mean a high churn risk; those with this low score can be identified promptly. CSMs can reach out to them and be proactive about solving their issues, thereby increasing retention.

Identify upselling or cross-selling opportunities.

Thanks to customer health scores, you can fuel your customer expansion strategies and use tactics more likely to succeed. In business, happy customers are the best kind of marketers. They don’t need so much nudging to spread the word about your products and services, earning you more customers through referrals. Apart from this, you can easily use the customer health scores to determine the right time to reach out to your customers with cross-selling or upselling opportunities. For example, you can tell when they are ready to upgrade to a slightly more expensive package or purchase product add-ons.

How to calculate customer health score?

There are multiple steps to calculating your customer’s health score. Here’s a step-by-step guide to calculating your customer health score:

1. Define the end goal of the customer health score

The first step to calculating your customer health score is to define your goals and objectives for measuring it. What do you hope to achieve by measuring customer satisfaction? Are you trying to improve customer retention or increase sales?

Your business goal will determine what you wish to achieve. For example, if you want to know why you’re losing customers, then you need to look into the likelihood of churn

2. Choose the user segment to observe

The next step is to segment users to ensure the accuracy of your scoring system. We’ve identified our goal as testing for the likelihood of churn. The next step is to identify the customer segment that’s most susceptible to churn.

In this case, we’re segmenting users whose accounts were created in the past 1 month. You could extend your segment to 2 or 3 months; that depends on what you’re searching for.

Segment these customers based on product usage data and assign a name to each segment.

3. Determine the actions impacting customer health score

Determining the in-app actions that impact customer health scores depends solely on the goal of your score. You need to identify the actions that indicate that users are gaining value with your product. These actions are typically expected from customers who just created a new account, for example, how soon did they complete their onboarding process?

Other actions to consider in this case are:

• The number of sessions in the past 30 days
• number of support tickets created
• 3 party apps integrations
• in-app engagement periods
• how many key features have been activated, including the total time spent on each feature
• number of users invited

Tracking these scores with time allows you to determine their overall engagement and estimate product adoption.

4. Assign an impact scoring system for each action

Create a table and list all the necessary actions to measure individual customer health. For example, if a customer has 30 sessions in 30 days, that should impact their score positively. Similarly, if a customer refuses to complete their onboarding process, it reflects negatively on their overall score.

If a customer gains much value from your product, it should reflect positively. They’d have a positive score, but otherwise, they’ll have a negative score.

5. Create a scaling system

The last step is to create a scaling system to rate each customer’s health score. For example, you could say:

• Customers who have between 0-40% are likely to churn. Pay close attention to these customers. Create personalized messaging for this segment, and book calls with each user to walk them through your product personally.
• Customers with scores between 41-60% should be closely paid attention to. Help them understand your product, and create a personalized knowledge base to help them resolve issues faster.
• Customers between 61-80% enjoy your product and will likely become power users. Introduce them to more advanced features, teach them during the webinar, and encourage them to use and refer to your product.

Three types of customer health scores

There are three types of customer health scores. As mentioned earlier, customer health scores don’t have a specific measurement method, but this can be tailored to fit your company’s unique objectives.

Percentage

The percentage scale involves rating specific metrics individually for each customer and adding this up to have a final score in percent. The advantage of this type of customer health score calculator is that significant actions have a greater impact on the overall score. So, if you were to measure customer health on metrics such as daily usage, number of visits, response to new features, and request for support, the overall score would be divided by 100 to get the value in percentage.

Color code

Colors are attention-grabbing, and customer success managers can easily use this type of customer health score calculator. By using colors, CSMs can determine the customer’s satisfaction with your products or services. You can adopt standard color codes, like those on a traffic light. For example, green indicates positive customer health, yellow indicates a few issues to look out for, and red shows that you need to take immediate action to eliminate the risk of customer churn.

Grade

Grades are another universal concept that can be integrated into the customer health score. This involves using the letters A, B, C, D, E, and F to depict different categories of health scores. The advantage of grades in customer health scoring is that they are less restrictive. For example, grade A can indicate excellent customer health, while grade F warns of terrible customer health.

Best Practices for Creating a Perfect Customer Health Score

A perfect customer health score should reflect the overall health of the customer relationship and be based on a combination of leading and lagging indicators. Here are some best practices and strategies for creating a perfect customer health score:

1. Monitoring the right metrics

There are no set structures for measuring customer health scores; therefore, defining and monitoring the right metrics is important. Mixing support signals with product adoption signals can lead to misleading scores that do not reflect the true health of the customer.

If you try to measure every variable, it will slow down the process. Taking a maximalist approach to measurement will consume more time, leaving less time to act on valuable insights.

However, a straightforward approach with a few variables will provide an accurate enough understanding of your customer’s health. You can use this information to concentrate on modifying your customer success strategy.

2. Take Action

The top-performing SaaS companies don’t allow critical customer data to accumulate and become irrelevant. Instead, they take action and utilize new insights to enhance their techniques. If your customer engagement levels are unsatisfactory, explore techniques to increase your products’ appeal, such as responding faster to customer support tickets or exceeding customers’ expectations. Investing the time to act on your data will yield immediate benefits, enabling you to achieve your goals and enhance the customer experience.

3. Create a better internal communication strategy.

Communication is key in any business. Everyone in the company must have the same perception to create a perfect customer health score. Customer success depends on the collaborative efforts of various teams. This can be achieved through regular meetings, training sessions, and updates on the health score and any changes to the risk strategy.

Effective internal communication involves:

• Sharing customer feedback and insights across teams.
• Providing regular updates on the health score.
• Establishing clear escalation paths for customer issues.
• With a culture of open communication and collaboration, you can quickly identify and address issues that may impact customer satisfaction.

4. Correct the Course

Keeping track of customer satisfaction should be an ongoing activity. Throughout every phase of their relationship with your company, from initial onboarding and product adoption to subsequent renewals, pay close attention to their experience. Observe any changes in satisfaction levels resulting from modifications to your approach. Analyze the impact of introducing automation in your customer service department on customer behavior. Evaluate how minor product changes influence customer engagement so you can make informed decisions that boost your customer base and increase their satisfaction.

The Factors That Affect the Health Score

Company size

Enterprise customers should be analyzed differently compared to startup customers, for example. Their specific goals and needs for the product are likely to vary depending on the size of the company which then affects overall health score.

Industry

Customers based in different industries will also have varying needs for your product, which will in turn influence health score. Customers based in the oil and gas industry will use your product very differently compared to this in education, for example.

Product plans

Depending on which pricing tier your customers are signed up to, there may be great variation in how they use your product. Reaching usage limits on one tier may indicate they are ripe for an upsell, and will affect health score accordingly.

Workload

There are some times during the work period that customers will use your product more or less depending on their workload. If a project is paused, for example, they may stop using your product which could result in a negative health score, when in reality that customer is not actually at risk of churn.

Mistakes that can affect the health score

They suffer from a poor onboarding process

Health score is always going to be damaged if you don’t have an effective onboarding process. Laying the foundations of customer health happens during the onboarding phase, where customers find out how your company will treat them after the sale. For SaaS companies, you must start trying to build the relationship right away.

Companies fail to act until churn is critical

Tracking health scores is no good if you fail to take appropriate action when you identify customers who are at risk. This can happen if you don’t measure health score regularly and too much time elapses between each scoring.

They don’t use the proper tools

A big mistake that CSMs can make is trying to calculate health score manually. Sensible teams adopt specialized customer success tools like Churn360 to help them keep track of every customer using a customizable algorithm.

They don’t factor in customer segments

Not every customer is best represented by the same health score. If you use the proper customer success software like Churn360, you will be able to define different health scores across different customer segments so you can treat every customer with the personalization they need.

They fail to identify key metrics for success

If you don’t know what health score means to your business, you won’t be able to gain proper insight into when customers are at risk. Key metrics such as renewal date and number of logins are just two examples of metrics that may indicate possible churn.

Tips to avoid mistakes that can affect the health score

Leave a sensible amount of time between measurements

You don’t want to measure your health score too regularly or the results will fail to be meaningful. Allowing enough time to elapse between each health score measurement means you will enable customers to have a chance to use your product and gain more accuracy in your predictions for churn.

Adopt a tool like Churn360 to calculate health score for you

Imagine how much time your CSMs will be wasting if they are manually calculating health score for each customer. Churn360’s Customer health score software has been explicitly designed to bring together many sources of data to build a true picture of the risk of customer churn. In Churn360, you can decide for yourself at what point a health score indicates an at-risk customer, and apply multiple health scores to your customer base.

Apply different health scores to different customer segments for higher accuracy

Not every customer is alike, and a low health score for one type of customer will actually indicate good health for another. That’s why it’s so important to create customer segments with their own tailored health score, which you can accomplish easily with Churn360. You can weight the data points for your health score depending on how critical each one is for overall calculation.

How to improve the customer health score?

Calculating your customer health score only gives you information about where your customers stand. The goal, however, is to implement strategies to help improve your customer health score and retain more customers. Here are some ways to do that:

Use interactive walk-throughs to create a better onboarding experience

Your customer’s first impression will determine how they experience your product. In most cases, this happens during the onboarding stage. At the onboarding stage, you need to provide much initial value and sell the benefits of your product to drive product adoption.

Create onboarding tutorials like product tours or interactive walkthroughs to guide users to their “aha” moment faster. Use modals to collect user information and segment users by their job-to-be-done to create personalized onboarding. With this, new users will only see information relevant to them and get the right help to achieve their desired goal with your product.

Segment customers for a more personalized experience

The key to delivering a personalized experience is through segmentation. By segmenting customers, you group them based on their similar characteristics and create a tailored experience based on their preferences.

For instance, you can segment customers based on their customer health score to identify where they stand on the retention scale and the appropriate strategies for winning them back.

Implement strategies to reduce customer churn.

Since the customer health score helps you identify potential customers about to churn, it’s easier to prevent them from leaving. Using tools like Churn360, you can easily identify customers’ churn by monitoring their in-app behavior, product usage data, or purchasing behavior.

Segment these users into a group and re-engage with them with retention emails. It helps if your email is personalized and reminds the user about the unique value of your product. Ask if there’s anything you can do to help, and you can sell a new feature you think might impress them. Most importantly, be genuine. Building a personal relationship with customers will help them stay loyal to your brand.

Continuously improve your product with customer feedback.

Collecting customer feedback can help you understand your customers’ opinions about your product, both positive and negative. It gives you a better understanding of your customers and how you can better design your product to meet their needs.

By collecting customer feedback, it’s easier to identify areas where improvement is needed or new innovations can be made. This way, you improve customer satisfaction and, in turn, your customer health score.

Use customer health scores to make data-driven product decisions

Your customer health score can be valuable for informing data-driven product decisions rather than making assumptions about your customers’ needs. Analyze it to identify gaps in features and reveal areas where your product might be falling short. For example, if customers are avoiding a feature, then it may be time to sunset it.

In addition, your customer health score is also useful for testing and validating product ideas before they go live on your product.

What are Customer Health score metrics?

Customer health score metrics are unique to your organization and valuable enough to influence the success of your relationship with customers. These are numerous, but here are a few key ones to look out for:

Overall product usage : For SaaS products, the more the product is used, the higher the chance your customers will like it. Customers often focus on products that provide immense value and deliver stress-free results. These products are also easy to use and don’t usually require an email to the support center. This reflects the overall product usage and can be used by customer success teams to stay alert on products or services that don’t appeal to your customers. Through educational resources, FAQ centers, and training videos. You can encourage customers to engage with features that have less attention when you measure overall product usage. However, if this issue affects many users, you must conduct specific surveys to discover the problems and make fundamental product changes.

Net Promoter Score : The net promoter score is a metric used to determine the level of satisfaction and loyalty of your customers. Is your customer happy with your product or service? This can seem like a broad concept, but one way to measure it effectively is by asking. “How likely are you to refer this product to a family or friend on a scale of 1 to 10?”. A customer willing to share their positive experience with your product or service is an excellent sign of a fantastic customer health score. These advocates are a sign that your customer success strategies are working. Therefore, you can use this metric to monitor customer health. Find out how willing they are to talk to others, whether in casual conversation or actively advocating using your product.

Rate of subscription renewals : Another critical metric used in measuring customer health scores is the rate at which your customers renew their subscriptions. How willing are they to renew their product or service subscriptions when due? Do they find this process seamless? How long does it take to renew? Again, the rate of renewals is vital for measuring customer success. Other customer health score metrics are:

1. Account growth
2. Customer engagement
3. Product feedback
4. Customer ROI
5. Request for customer support
6. Overall customer relationship
7. Level of account growth

How to develop a predictable customer health score model?

When it comes to developing and implementing predictable customer health score models, there are several strategies that businesses can employ. A customer health score is an important metric that helps businesses assess the overall health of their customer relationships. A well-designed health score model can provide insights into customer satisfaction, retention rates, and revenue growth potential.

Unlocking the Power of Data

One of the first strategies for developing a customer health score model is to identify the key metrics that matter most to your business. This will vary depending on your industry and business goals. For example, a software company might consider factors like usage frequency, feature adoption, and support ticket volume when assigning scores to different customer behaviours and attributes. A healthcare provider, on the other hand, might consider metrics like appointment attendance, medication adherence, and patient feedback.

Scoring Techniques for Different Customer Behaviours and Attributes

Once you have identified the key metrics, it’s important to assign scores to each behaviour or attribute. There are different ways to approach this, but one common method is to use a point-based system. For example, you might assign a certain number of points to customers who log in to your software platform on a regular basis, or who use specific features that are critical to their success. Alternatively, you might subtract points for behaviours that indicate a customer is at risk of churning, such as not opening emails or not logging in for an extended period of time.

Setting Benchmarks and Thresholds for Customer Health Score Ranges

Another important strategy for developing a predictable customer health score model is to establish benchmarks or thresholds for different score ranges. This can help businesses identify which customers are at risk of churning or which are the most engaged and satisfied with their experience. Benchmarks can also help businesses track progress over time and adjust their strategies accordingly. For example, if the average score for a particular segment of customers is consistently low, a business might decide to invest in additional support or resources to improve their experience.

Don’t be a caveman – automate your customer health score model

In terms of implementing the model, businesses should consider using automation tools to help collect and analyse data, and to trigger specific actions based on customer behaviour. For example, if a customer’s score drops below a certain threshold, an automated email campaign might be triggered to re-engage the customer and address any issues they are experiencing. Automation can help ensure that businesses are consistently tracking and responding to customer behaviour in real-time.

Benchmarks and Automation: Your Secret Weapons for Winning Customer Love (and Money)

Ultimately, the goal of developing and implementing a predictable customer health score model is to improve customer retention and revenue growth. By identifying key metrics, assigning scores, establishing benchmarks, and using automation tools, businesses can gain a more complete understanding of their customer base and take targeted actions to improve their experience.

Metrics and KPIs for Evaluating the Accuracy of Predictable Customer Health Score.

Measuring predictability is a crucial step in evaluating the effectiveness of a predictable customer health score model. Metrics and KPIs are essential tools for measuring predictability and can help businesses identify areas for improvement.

One important metric for measuring predictability is the correlation coefficient, which measures the strength of the relationship between the predicted and actual customer behaviours. A correlation coefficient of 1 indicates a perfect correlation, while a coefficient of 0 indicates no correlation.

Simply put, a higher correlation coefficient means that the predicted scores are more accurate in predicting actual customer behaviour.

Example 1:

Let’s take the case of a software company that uses a customer health score model to predict churn risk.

The company measures the correlation coefficient between the predicted scores and the actual churn rate for a group of customers. They find that the correlation coefficient is 0.8, indicating a strong correlation between the predicted scores and the actual churn rate. This suggests that the model is effective in predicting which customers are at risk of churning.

Another useful metric for measuring predictability is the accuracy rate, which measures the percentage of predicted scores that match the actual behaviour. For example, if a company predicts that a customer is at risk of churning, and the customer does indeed churn, then the accuracy rate for that prediction would be 100%.

Example 2:

Let’s look at a different case study, this time for a healthcare provider. The provider uses a customer health score model to predict patient satisfaction based on factors like appointment attendance, medication adherence, and patient feedback.

The provider measures the accuracy rate of the predicted scores by comparing them to actual patient satisfaction scores collected through surveys. They find that the accuracy rate is 75%, indicating that the model is effective in predicting patient satisfaction.

In addition to these metrics, businesses can also use KPIs to evaluate the effectiveness of their customer health score models. For example, a KPI like customer retention rate can be used to measure the impact of the model on customer loyalty and revenue growth.

Example 3:

Let’s take an example of case study for a subscription-based service.

The service uses a customer health score model to predict which customers are at risk of churning, and implements targeted retention strategies to reduce churn. The company measures the KPI of customer retention rate over time and finds that it has improved by 10% since implementing the model and associated retention strategies. This suggests that the model is effective in improving customer loyalty and revenue growth.

Conclusion

Measuring SaaS customer health score can be a long and overwhelming process, but that’s where an automation tool comes in. With a handy tool like Churn360’s that helps you keep track of key metrics for measuring customer health scores, You can improve your product based on customer feedback, improve referrals from loyal customers.

Increase your revenue by correctly identifying upselling and cross-selling opportunities, and reduce churn. Churn360 incorporates the uniqueness of every customer, so you’ll stay updated on every stage of their product lifecycle. This is the ultimate customer health score formla.