(Last Updated On: October 27, 2017)

Reduce Churn with Customer Health Scores

by | Oct 26, 2017

Keeping a pulse on customer health is critical

We can all agree that maintaining a strong, healthy relationship with your customers is essential for every company that relies on repeat business. But how to maintain that relationship is less clear, especially when you’re an online business with thousands of accounts and no in-person interactions to build upon. Enter the Customer Health Score (CHS), a customer-centered solution that has been gaining buzz and momentum in recent years. Here we look at what CHS is, what metrics drive it, why tracking it is important, and how you can get started.

What exactly is a Customer Health Score?

A Customer Health Score (CHS) is a company’s measure of the health of their relationship with an individual customer. The higher a customer’s score, the healthier the relationship, and the more business the customer brings in, whether directly or indirectly. A low score, on the other hand, translates to a weak relationship and more churn—a continuous loss of customers over time.

The manual approach to CHS

Some companies choose to manually assign each of their customers’ health scores based on the team’s experience with each individual customer. This may make sense for very small companies with only a handful of customers that the employees all know well. However, the manual approach won’t easily scale as you grow.

The systematic approach

Many larger companies create health score systems to at least partially automate the process of assigning health scores to customers. You may even devote a client success team to the task.

The key metrics that feed CHS

The metrics that your company uses to measure CHS depend largely on the type of business you run. As a point of reference, the list of CHS metrics at CustomerThink includes renewals, upsells, survey results, customer engagement, total money spent, time spent as a customer, and overall usage of your product or service, among several other metrics. Some of these may not apply to your company, and there may be other important measures of your customers’ health not listed here at all.

Mapping metrics to business drivers

When in doubt, a good rule of thumb is to map your CHS metrics to the key customer-related drivers of your business. For example, suppose you’re a Software as a Service (SaaS) startup that is more concerned with building a highly engaged initial subscriber base than with upselling customers to the highest-yield plans. In that case, customer-engagement indicators that reflect signs that your customers will (or will not) continue to renew their current subscriptions may serve as the key metrics in your overall customer health score.

However, as your company evolves, so will your customer health metrics. Therefore, it’s important to revisit your CHS periodically, especially if it’s automatically generated.

Number of metrics

According to the team at Wootric, a reasonable number of metrics to use is four to six (although having more or fewer is by no means a red flag). You will probably find that the more complex your revenue streams are, the more metrics you will need.

Objective vs. subjective metrics

Another important factor that Wootric points out is the inclusion of subjective metrics. Customer success experts recommend that you should generally try to restrict the number of subjective metrics to one or two.

Weightings

You will need to add a weighting to each CHS metric according to its importance in the overall customer health score. For example, suppose that after a year of running your SaaS business, you find that service subscription/membership upgrades are twice as important as referrals in generating business. Accordingly, you might give the upgrade metric a weighting of 10 and the referral metric a weighting of 5.

Net Promoter Score

Another popular approach is the Net Promoter Score (NPS). Companies using NPS periodically give their customers a single-question survey, asking them to rate how inclined they are (on a scale of one to ten) to recommend the company’s service to others. Customers that choose 9 or 10 are promoters, 7 or 8 are passives, and 1 through 6 are detractors. The NPS equals the percentage of promoters minus the percentage of detractors, and could serve as a key metric in your overall CHS strategy.

Why CHS is important to track

Customer health has a direct impact on customer churn rates, and therefore the long-term success or failure of your business. Tracking CHS is perhaps one of the best ways to prevent churn by helping client success teams sense when individual clients are beginning to drift away before it’s too late. Dan Steinman of GainSight compares the situation to two rowboats in a lake. Without anyone in the rowboats to keep them together, the rowboats will naturally drift apart. “There’s a natural tendency for a customer and vendor to drift apart if there’s not any intervention.”

Tracking tools

Although you may choose to start from scratch with your own system, you don’t have to. There are many tools available (such as SatisMeter, Gainsight, Totango, and Wootric) that are specifically built to track customer health and NPS for you. Gainsight’s schema follows the widely used green-yellow-red approach. Green indicates good customer health, and is an opportunity for upselling. Yellow indicates a customer that may require attention. Red indicates a customer “in poor health,” “at risk of churning,” and in need of an immediate intervention.

Jumpstarting your CHS solution

As a first step toward a CHS solution, review your business model to determine the key customer-related drivers of your company’s success. Then turn each of those drivers into a metric in your customer health system (new subscriptions, upgrades, referrals, etc), giving the most important CHS metrics the strongest weightings.

Consider adding one or two subjective metrics to add some manual inputs into the system. Next, decide whether you want to code-up your own tracking system, or use pre-existing tools and customer health software as part of your process.

Finally, go live with your health score system and start tracking customer health. Naturally, you will want to make adjustments (adding or subtracting metrics, tweaking various weightings, and so on) as your company evolves and your experience with CHS deepens. Over time, you should find that your churn drops and business increases as your CHS system triggers timely interventions that repeatedly restore healthy customer relationships for the long haul.