How to Create a Customer Success Health Score from Scratch

When creating a customer health score for your company there are many variables you need to consider. Most often, you will see that a health scoring system includes smaller metrics that might not tell the whole story of each single consumer account. However, if you manage to properly weight and aggregate each metric, a customer health score can present powerful insights into the overall health of a client.

It is vital that the customer health score used for your firm combine metrics that are important to your clients, product, and company. Once you have determined the right metrics you can start the step-by-step process of creating the actual scoring system.

Are you not quite sure how to do this or how to get started?

Fear not! In this article, we will help you with creating a customer health score from scratch, including key metrics to include and a few mistakes you need to avoid.

Therefore, we also have created a comprehensive guide: Customer health score in 2020: The definitive guide.

1) What is a customer health score?

All businesses can receive great benefits for incorporating a customer health score, as it is a value that can inform you about the health of each of your consumer accounts. More specifically, the score indicates the probability for a user to become a profitable, high-value consumer for your company or the risk for consumers to drop off on a long-term basis.

There are several key performance indicators (KPIs) involved in a customer health score, which include the anticipated churn rate that identifies customers who will not make repeated purchases. Furthermore, another KPI is the renewal rate for customers who continue to make purchases, which also look at factors like cross-selling and up-selling opportunities.

For more information about what a customer health score actually is and key factors to consider when creating one, please refer to our article “Customer Health Score in 2020: The Definitive Guide”.

2) Metrics your customer health score should incorporate

  1. Product Usage

It can be extremely helpful to measure product usage among your clients, and it does not have to be difficult. It is clear, that for any SaaS products and services on the market people will use the products and/or services that they find helpful and relevant. Whereas people will simply ignore the products and services that they do not like.

By measuring product usage, your team will be notified if there are issues with any consumer accounts that they need to deal with. This can include everything from product improvements, informative and instructional resources to relevant training.

Should your team start to see a decrease in customer product usage across all users, you probably want to re-evaluate your consumer engagement strategy. You would also have to ask relevant questions about where users are facing problems so you can learn from it and make changes.

If you need more information about how to decide which metrics matter most for your specific product or service, you can read Intercom’s post about “finding the metrics that matter for your product”.

  1. Customer Satisfaction

It is of interest to understand and determine your customer satisfaction when analyzing the overall health score of your clients. And while we do appreciate it might not be the easiest thing to measure customer sentiment, we still think it is possible.

Due to the fact that customer satisfaction and happiness can be quite hard to quantify, the measure of customer sentiment might be more of a ‘gut feeling’ metric among your customer success teams. Furthermore, it may also be a metric that is continually updated and changed based on the given feedback.

Customer satisfaction metrics can be changed from day to day after each customer touchpoint. Some of the most relevant factors you need to look at includes:

  • Do your prospects have any issues with onboarding a new service?
  • Have your users complained about defects or site downtime?
  • Are there some key features your clients would like to see built into your offerings?
  • How content is your clients with your product/service?

So because we are dealing with real human emotions you can probably see why this metric can change at any given moment. One of the most used customer sentiment metrics is the Net Promoter Score (NPS®). If you and your team are still unsure about the usage of an NPS, you can read this article about “The Real Pros & Cons of Net Promoter Score”.

  1. Customer Advocacy

A strong sign of a healthy customer account involves whether or not your customers are talking about and recommending your products and/or services to others. No matter if they are talking to peers or mentioning your company in casual conversation, the value is the same.

If your users are talking with others about your software, it is a clear indication of their satisfaction and happiness with your offering.

You should make it a goal for your team to work towards turning customers into advocates, as advocates are highly important for both your overall marketing and customer success.

  1. Customer Engagement

By quantifying how often, you communicate with a customer account you can add the customer engagement metric to your overall health score. The personal interaction with your users can be everything from phone calls, face-to-face meetings to email correspondences.

Usually, you would determine the level of engagement based on the number of days since the last communication with a consumer.

  1. Customer Relationship

The customer relationship metric looks at how strong your relationship is with your various customer accounts.

A popular customer success management strategy is one called going high and wide. This strategy describes the importance of building the right relationships with the right people. Because having the right connections with the right clients can help you grow your products and services.

3) How to Create a Customer Health Score in 4 steps?

Step 1: Scrub and segment your customer data

Before you start with this exercise, you need to make sure that you can trust and are confident with the data you use for your customer health metrics.

When you are certain about your data, you should start segmenting your consumer data into clusters such as size, stage, and location. After the segmentation, you can define each value within these segments as a drop-down list in your CRM. This will help provide high-quality outcomes.

Examples of some values for each segment can be found below:

  • Size:
    • Small (< 500 employees)
    • Medium size (< 3,500 employees)
    • Enterprise (3,500+ employees)
    • High Growth (biggest potential for revenue growth no matter the size).
  • Stage:
    • Prospect
    • Trial
    • Deployment (grow rate)
    • Implemented (use and increase)
    • Mulligan (re-implementation)
    • Churned (lost users)
  • Location:
    • EMEA
    • APAC
    • AMER-North (Canada and Mexico)
    • AMER-South
    • AMER-US-East
    • AMER-US-Midwest
    • AMER-US-West

Step 2: Map Customer Journey to Return on Investment

You should measure how often your application is being used if your software requires a user login. Furthermore, if your service requires an administrator to send out an invitation to new users, you should also measure the percentage of users who have accepted their invitation.

Then you can start to work out what kind of action a user needs to gain to obtain value. This could be the number of projects, inventory items, or requisitions.

Following, you need to consider how often your key offerings are used. In order to normalize your results, you want to utilize ratios or percentages.

Finally, make sure that your scorecard includes at least one metric used by your sales team to illustrate ROI.

Step 3: Gather product usage data

In order to include factors such as feature adoption, patterns of usage, and overall user behavior, your product team needs the right tools to measure customer usage data.

Then your team can present the outcome to you in a spreadsheet with each user in a row and each feature/function in its own column. Ideally, this data will match the conditions you have defined in Step 2 above.

Step 4: Crunch the numbers to determine Green-Yellow-Red

This final step requires some analytical skills.

Now that you have your usage data in a spreadsheet, you then have to add the customer segmentation values from Step 1 above.

You should apply the average function for each feature/function column. This presents a starting point for a new column of data that finally receives a 0, 1 or 2 performance rating for that feature/function. The value 0 is unacceptable (red), 1 is average (yellow), and 2 represents your target adoption goal (green).

In your health score spreadsheet, each feature/function will have a column for the nominal usage value as well as the performance rating. You can apply the nested IF functions in each performance column to do the calculations for you.

Make sure to consider the level of Stage from each customer’s journey as you define your performance ratings. For example, a consumer in the “Deployment” stage should not be ranked the same as one in the “Implemented” stage.

When all your performance columns are completed, you can create two more columns; an Overall Performance column and a Health Score column. The Overall Performance column includes the average of all the individual feature/functions performance columns. Whereas, the Health Score column represents your final score by using the IF function once again.

Your equation might be as simple as:

  • < 1 = red
  • > 1 = green
  • Everything else is yellow

4) Mistake to avoid

You need to make sure that you monitor your customer health scores on an ongoing basis. Because these scores can change very quickly and you want to maintain an up-to-date look at all active client accounts. This will give you a better understanding of your team’s performance.

The sales and marketing department in your company most likely uses a lead scoring system. This can also be implemented for your customer health scores.

You can do this by giving each of your customers points based on various qualifying actions. The overall score presents the health of that customer. Depending on how your department operates and what is considered important, will determine the data points used by your customer success team.

Just like a lead scoring system, you can then create the different parameters and establish what a healthy customer looks like. This process can be automated, however, we recommend that at least part of the process is done by the representative who manages the consumer.

When you have determined the metrics for this lead scoring system, you need to create benchmarks. These benchmarks should be similar to a grading scale (A-F).

5) Conclusion

By creating and implementing a customer health score you can solve two major issues that your business might be facing; customer retention and your customer success team’s effectiveness.

Once you start to understand the health of each customer account, you do not only gain a greater insight into how the customer success team manages their accounts, but you will also start to understand the potential problems for each client account.

We are not saying that a customer health score is a crystal ball, however, it will help you understand your customers’ health. This is key in order to recognize which accounts are at risk of churning and renewing existing clients.

Overall, you will learn what is growing customer loyalty and what might be holding your firm back from customer success.

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