Learn about the customer health score and how to measure it for business growth correctly.
Customers are the lifeline of any business. Regardless of their status as old or new, they are essential for the business to survive and thrive. For any company, retaining old customers is not enough. They should always need to expand their customer base and attract new customers to their brand.
Similarly, they should focus on customer loyalty and ensure that they can retain their old customer. In both scenarios, the customer health score helps you understand and strategize your business directions.
Continue reading to know the importance of customer health score, its common metrics, how to calculate it, and how companies can improve it.
What Is Customer Health Score?
The customer health score is an index that shows whether the relationship between your customers and your brand is healthy or at risk.
This score is the way to measure and monitor consumer engagement and satisfaction with the organization. To calculate the score, it uses certain key performance indicators (KPIs) for customer satisfaction.
This score combines data from multiple data points and presents them in a simplified and single metric as a numeric score.
Depending on the company, the data points and scoring system for this metric will vary. However, the general objective is to come up with a qualitative measure like “good,” “at risk,” and “poor.”
A good customer health score means the customer relationship is going well. Customers with this score are more likely to purchase again, renew their subscriptions, and recommend your brand or products to others.
An average score indicates that the customer relationship is unstable and at risk of churn. A poor result means the customer is moderately happy with your service but not highly enthusiastic. As a result, competitors can lure them away if your company does not take the necessary steps to nurture the relationship.
By analyzing the score, companies can study customer behavior and anticipate action. Constant and thorough monitoring helps you prevent possible cancellations and even provides better business opportunities through cross-selling and up-selling.
Importance of Customer Health Score
The score helps managers to understand if the team is investing their efforts in the right places. Companies, including the ones that provide SaaS products and services, get the following benefits from customer health scores:
#1. Identifying Valuable Customers
Customers with good health scores are your power customers. You can find them from this score and then might ask them to offer your company their valuable feedback and reviews.
#2. About Account Expansion Opportunities
This score will help you create customer expansion strategies. As you know who is more likely to purchase your products, you can offer them add-ons and ask them for a subscription upgrade.
#3. Locating Potential Churning Customers in Advance
The churn risk is another factor one can determine from this score. Thus, you can proactively reach out to risky customers to resolve their issues.
#4. Understanding Patterns for Success and Failure
Customer health score helps you determine customer success and failure patterns. As you know about the healthy and unhealthy customers, you can repeat your success stories and remove the frictions that caused the failure.
Metrics for Customer Health Score
The metrics a company uses for customer health scores vary according to their industry and business. Here are some common metrics organizations use to find out the score:
Product Use
This is a common metric that most companies need to find out about the health score of a customer. The more frequently someone uses your product, the less likely they are to churn out.
Customer Engagement and Satisfaction
It means the frequency of customers getting in touch with your company via email, chat, or phone calls. You also need to consider how satisfied the customers are after each engagement.
Customer ROI
It refers to the ROI achieved by a customer using your products or services. Customers with high ROI are more likely to have a better health score.
Customer Advocacy
Customers willing to share their experiences with their peers and friends about your company silently help you in marketing and PR. They are happy with your products and more likely to continue their relationship with your brand.
Nature of Support Ticket
Analyzing the subject of support tickets a customer generates each month will help you understand their experience.
Customer Pulse or Sentiment
Quantifying something intangible and ambiguous, like sentiment, is not easy. But it is a significant metric that you can understand by asking questions like the following:
- Is the customer happy with the product?
- Can they easily onboard without any issues?
- Did the customer renew the subscription in the last year?
Late Invoice Payments
This is a crucial metric as it can determine the customer health score to a great extent. Customers paying their dues well ahead of your time are satisfied with your service, while those paying renewal fees after receiving alerts from the company are at risk of churning out.
Additionally, customers with delayed invoice payments might negatively perceive your product.
How to Calculate Customer Health Score
#1. Choose What to Measure
Find out valuable actions for your business goals to determine the customer health score. There will be unique key indicators for each product.
You may want to track customers’ login frequency, use of new features, or support ticket count. Whatever you choose, find out what can make customers stay or churn out.
#2. Distribute Scores Properly
A customer may interact with your products in a good or bad way. While creating a formula, consider positive and negative actions. The positive actions should add to their score, while the negative actions should be subtracted.
#3. Allocate Different Scores for Each Action
For each action, you need to attach a separate weight that can quantify its impact on the score. You can learn about the impact of a particular action by examining the actions of churned customers and loyal customers. According to its impact, you can designate a score for that action.
#4. Create a Template to Calculate Health Score
After you have a scoring system, it is time to collect data. Initially, trying out different metrics combinations helps you determine which accurately represents customer perception.
Once you have found the formula, you can create a template on a spreadsheet. It will make the calculation quick and effortless.
#5. Categorize Your Customers
With a sizeable dataset, you can start categorizing your customers according to their scores. Customers with the top 25% of scores may have a “healthy” score, and the bottom 25% should fall under the “unhealthy” category. By calculating the average score, you can determine the at-risk customers.
#6. Visualize Customer Health Score
Finally, it is time to visualize the customer health score so that any team member can easily understand the health of an individual customer. The visualization should be intelligible by all and might include color codes like red, yellow, and green.
How to Improve Customer Health Score
As this score enables you to track and manage client relations, you can also take necessary steps to improve it in certain areas. The following tips will help you have a better customer health score for all customers:
#1. Create a Customer Journey Map
Companies must create a journey map for their customers and use it to manage customer health scores. The map will show the position of the customers with different scores and help you understand the reason behind the poor or at-risk scores.
#2. Plan Best Practices
Regardless of a customer’s position in the journey map, you must provide them with best practices. Thus, you can promote healthy relationships on behalf of the company.
#3. Locating Crucial KPIs
Establishing KPIs that link customer health to business outcomes at each stage of the customer journey.
#4. Develop a Personalized Model
Developing a customized multidimensional health score model to focus on the KPIs most relevant to your customers’ health.
#5. Automate Best Practices and Track Performance
You can take help from a customer success platform by integrating it into your workflow. It will not only automate the best practices but also let you track performance KPIs. These tools can even show forecasts and alert you of adverse scenarios.
How to Use the Score for Customer Success
This score is not only beneficial to the customer success department. Organizations can use it differently, and various teams can leverage it.
#1. Find Advocates for Reviews
The customer health score lets you identify the advocates. There is a group of customers who like your products and are loyal to your brand.
Companies can personally ask them to give reviews and ratings on different software review platforms and social media. This will improve your credibility and establish your brand as a reliable one.
#2. Contribute to Case Studies
For B2B and B2C companies, case studies play a key role in attracting new customers. Those with good customer health scores can share their experience and feedback. You can use these as the material to write real case studies.
#3. Get Forecast on Renewals
People with at-risk scores may not opt for the product renewal. If you know which customer segment will not continue with your brand, you can be prepared beforehand. Thus, companies can avoid false forecasts and know what to expect.
#4. Use Upsell Opportunities
Business does not always have to increase their ROI by increasing their customer base. Up-selling is also fruitful for higher ROI if you can do it at the right time with the right customers. The health score is a great way to find out about the customers who will access any up-selling offers.
#5. Drive Payment Collection
This score also tells you who is lagging behind their scheduled payments. You can focus on those customers and remind them to make payments.
#6. Learn About Customer Pain Points
Companies can personally ask the “at risk” customers about their dissatisfaction and improve on those. As they discuss the features they did not link or wish to be present in your product, you can work on those in your next version release.
Final Words
Customer health score highlights what customers feel about your products and services. All departments of an organization can make use of the score to improve their workflow.
Now that you know the importance and method to calculate the score, you should start working on it immediately. Using suitable metrics for your business, you can utilize this score to increase the customer base and revenue.
You can also read about customer loyalty and retention.
