Customer Health Score

What is a Customer Health Score?

A customer health score measures a customer’s likelihood of renewing or expanding. It looks at indicators like customer engagement and satisfaction, as well as other metrics associated with customer retention and growth. The score is designed to be a quick and easy way for companies to assess the health of their customer base at any given point in time.

Customer success teams use the customer health score to identify at-risk customers and prioritize outreach that engages them. Execs, board members, and investors use it to understand where customer growth is coming from (and where it isn’t).

Since customers are a business’s main revenue driver, the customer health score is both an assessment of current customer health and future financial stability.

Synonyms

• Customer success health score
• Customer health index
• Customer engagement score
• Customer satisfaction score

Importance of a Customer Health Score in SaaS

For SaaS customer success managers, the customer health score is among the most crucial metrics to track. It gives valuable insight into customer loyalty and helps them devise and execute a plan to retain customers who are at risk of churn.

Identify Healthy Customers

Since SaaS companies monetize from subscription services, customer retention is a business-critical factor. Without consistent revenue from happy subscribers, growing a SaaS business is less than feasible.

McKinsey research shows that 71% of B2B customers expect personalization throughout the customer experience. And they’re more likely to churn when that expectation isn’t met.

Knowing who the healthy customers are is the first step to giving them personalized experiences. Those who score high on the customer health scoring system could be excellent candidates for upsells, add-ons, and personalized offers/content/services.

Pinpoint At-Risk Customers

Customer churn is practically a given. Sometimes, it’s completely out of customer success’s hands. But a lot of it is preventable with the right approach.

A consistently dropping customer health score could reflect changes in needs, poor user adoption, a gradually worsening customer experience, or any number of other issues. Customer success team members can look at customers whose customer health score has dropped in recent months, then reach out to them with a questionnaire or personal message to get more context. Then, the organization can take corrective action to prevent the situation from worsening.

Find Account Expansion Opportunities

As SaaS customers grow their own businesses, they’ll need to tack on subscription features, add new seats or licenses, or upgrade their plans to meet growing needs. The customer health score tells customer success teams which customer segments seem to grow the fastest. Those that show high levels of satisfaction along with growth generally represent the greatest opportunities for future targeted sales efforts.

They’re also perfect opportunities for expansion within the same account. Loyal B2B customers see upsells, cross-sells, and additional services as a valuable way to make their existing investments in the product work even better. For the company, they mean more revenue without additional costs of customer acquisition.

Recognize Patterns in Customer Data

When SaaS companies pay attention to their customer health score over time, they uncover new information about their customer base.

For example:

• A buyer with a suddenly declining customer health score who has historically scored highly could signify their experience with the product or team is deteriorating.
• Customer success managers can look at their low-scoring customers (the focal point of their outreach efforts) to spot trends. Are their scores improving after they get more attention? Is the company’s personalization strategy working at all?
• On a macro level, SaaS businesses can use the customer health score to see if there is a common thread between the accounts that are churning.

Since this kind of customer data is difficult to find, centralize, and quantify, the customer health score serves a critical purpose: to paint a unified picture of customer loyalty and the current health of the customer base.

How to Calculate Customer Health Score

There are two common strategies busiensses often use to calculate their customer health score.

Frequency, Breadth, and Depth

The first strategy involves considering three main factors:

• Frequency — how often users are engaging with the product and how frequently they return
• Breadth — the number of users within an account who are actively using the product
• Depth — the extent to which users are utilizing the key features of the product

It’s a simple framework that gives companies an easy way to understand and track customer engagement. Those gradually engaging with the product less over time are considered unhealthy. A ramp in usage would lead to a better customer health score.

Actions and Assigned Values

The second strategy involves assigning values to specific actions. Similar to lead scoring, each action is given a value (positive or negative, depending on the type of action), and the customer health score is calculated by summing up the total value of all completed actions. Company leaders can choose these actions based on what’s most important to the organization.

For example:

• Reduction in product usage levels would get a negative value.
• Positive customer feedback on a survey would receive a positive value.
• Completed product onboarding tasks could also have a positive value assigned to them.

For more accurate results, it’s important to deduct points if a user doesn’t complete a particular action within a specified period. This strategy allows for a more granular evaluation of customer engagement and can help in identifying areas where customers may need additional support or guidance.

Customer Health Score Related Metrics 

To add context to the customer health score (or, in some cases, calculate it), companies need to track other metrics as well. The most important ones to remember are the churn rate, net promoter score (NPS), and the product usage rate.

Churn Rate

A company’s churn rate is the percentage of customers who unsubscribe or stop using its product over a given period. The lower the churn rate, the healthier your customer base is.

Churn comes from numerous different sources (not just dissatisfaction). Some companies choose to add sources of involuntary churn (e.g., defaulting on payment) into their calculations to get a more accurate view of customer health. A customer who frequently misses their payments, for example, might not be dissatisfied, but they are definitely disengaged.

Net Promoter Score (NPS)

The net promoter score (NPS) is a way to measure customer loyalty and satisfaction. Companies can ask customers to rate their experience on a scale of 0-10, with 0 being extremely unsatisfied and 10 being extremely satisfied.

A business can calculate its NPS by subtracting the percentage of detractors (those with scores between 0 and 6) from the percentage of promoters (7+).

NPS is a subjective metric — that is, there’s no ‘right’ or ‘wrong’ way to determine it. It’s all about the questions you ask, the context for providing answers, and how you interpret the results.

Product Usage Rate

The product usage rate is the percentage of customers who are actively using your product over a given period. It gives companies an idea of which features their customers use, and how frequently they are being used. Companies can track this metric either through direct customer surveys or by analyzing usage data in real time.

It’s important to remember that customers don’t need to use all features in order to be considered active users, just some key ones.

For instance, an ecommerce store might measure the number of visitors who add items to their cart as a sign of product engagement. But plenty of online shoppers fill carts out of boredom. The brand would also have to look at conversion rates (the percentage of those visitors who actually complete a purchase) to gain an even better understanding of their customers.

10 Ways to Improve Customer Health

1. Customer feedback and surveys

The first step to understanding your customers is talking to them. Gathering customer feedback and insights, such as through surveys or focus groups, can help you identify potential issues early on.

When gathering customer feedback companies should frame their questions in such a way that the data can easily be compiled into numbers and displayed visually as trends.

Instead of asking a question like

“What would you like to see more from our product?”

try something more specific, like

“On a scale from 1-5, how satisfied are you with the speed of our customer service?”

or

“I think Product Feature X needs improvement. (Agree/Disagree)”

That way, they can look at their survey results and identify areas that need to be addressed right away.

2. Monitor customer engagement

Customer engagement could mean a lot of different things — some of which are easier than others to track. It could mean how often users log in to your product, or if they go through complete onboarding processes, or even if they read emails you send them.

Monitoring customer engagement (and customer responsiveness) helps companies understand which features need more attention and what customers are looking for in the product. The best way to do this is by tracking user sessions over time, analyzing areas where users get stuck, and looking for patterns in user behavior.

3. Offer proactive customer support

Customers that don’t receive the attention they need will leave before they ever realize value from a product. Even if they do get the attention, 96% will leave if the service is bad.

Taking a proactive approach is where the customer health score really comes into the picture. A customer success team member could reach out to a customer personally when they notice their score dropping. And they can set up automated notifications when a customer’s health score is low.

4. Improve onboarding and training processes

After a customer signs on the dotted line, pays their first invoice, or downloads the product, the sales process isn’t over. Customer onboarding is where the real work begins.

Onboarding should be designed to help customers understand how to use the product and get comfortable with it as quickly as possible. Companies can do this by providing training sessions, detailed documentation, free trials of premium features, and branded digital onboarding materials (e.g., videos and clickable tutorials).

For complex products like enterprise software, companies sometimes offer one-on-one support, vendor-sponsored implementation and deployment, and dedicated customer success managers.

5. Personalization

Practically every company knows the “personalization is key” truism. And the value of personalization well-documented. But companies often get it wrong — they struggle to personalize where it matters to their customers.

For a truly personalized experience, there are a few places comapnies need to improve their customer interactions:

• Sales — offering a frictionless sales process from start to finish by using software to automatically show customers tailored offers and deals.
• Marketing — using marketing automation tools to personalize emails, dynamic ads, and website content based on customer behavior.
• Support — delivering personalized service with each interaction by understanding the full context of a customer’s issue or question.
• Success — using the customer success scoring system to proactively reach out and offer help when customers need it most.
• Product — tracking customer feedback and developing/adding new features and product lines based on actual input.

Generally, businesses take a “personalization at scale” approach, where they improve the above while automating certain elements that don’t require as much of a human touch. For example, it’s easy to automate customer support ticketing and query segmentation with an AI chatbot.

6. Continuous improvement

The customer health score is a great tool for tracking customer engagement over time. It’s an ideal benchmark for customer retention and personalization efforts (which are iterative).

Continuous improvement means taking customer health score data and applying it to the product and experience to build stronger customer relationships.

7. Communicate value

Just because a buyer saw the need for your product and bought it doesn’t mean they’ll actually realize that value. Maybe the product is difficult to use at first. Maybe their team doesn’t know how to adjust their workflow to make it work. Or maybe they had other needs they didn’t communicate during the sales process.

Communicating value goes far beyond “our product does X, so you you should get Y results using it.” It’s about continuously showing customers new ways to use the product, look for potential problems and solutions, and make progress in their business.

The best way to do this is via an email newsletter. Use email to share microblogs, short product tutorials, and how-tos for business process optimization. In the content, show the customer how they can solve an entire problem while positioning the product as a key part of it.

8. Renewal and upsell strategies

It’s easy to overlook contract renewals because it’s the kind of thing that happens in the background. But personally getting a customer to renew their contract is critical to making sure they keep using the product and seeing its value.

It’s generally easy to manage renewals. Most companies set up an automated reminder for renewals before the contract expires. Subscription management software typically has this as a standard feature. And with the customer health score, it’s easy to spot customers who may need extra attention and improve the renewal rate for at-risk customers.

Upselling is another great way to increase customer lifetime value. When a customer is doing well with the product and has expressed satisfaction with the service, it’s always worth exploring the possibility of expansion and growth.

9. Metrics alignment

Sales, marketing, and customer success metrics all come together to tell a story about customer outcomes. Each team should be aware of each other’s success metrics in order to understand the customer journey as a whole.

For example, customer success may need to know the average time it takes for a customer to get to the first “aha” moment with the product. Or, they might look into how customers are engaging with a particular product feature.

Sales teams rely on customer segmentation insights to target customers that are most likely to convert and stay long-term.

All of these metrics should be tracked and shared to help each team collaborate better. This way, all teams can understand how their efforts are contributing to the overall customer experience.

10. Measure and analyze

At the end of the day, the customer health score is just a data point. It’s best used as an input for further analysis and improvement.

Make sure to take advantage of analytics tools that allow deeper exploration of the customer base. It’s important to look at all aspects of the customer journey—from signup and onboarding to usage, engagement, upgrades, renewals, churn rate, and customer lifetime value.

By analyzing this data from multiple angles, it’s possible to identify areas of improvement. In turn, the end result is an increase the overall customer health score.

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