Customer health scores are a great way to get an indicator of potential customer churn. While every company calculates theirs differently, the important thing is to have a health score methodology that helps your company align your customer success processes with the outcomes you're trying to drive with your customer base. However, if you're not using a health score calculation method that uses predictive analytics, you're falling behind many customer success pacesetters. In this post, I'm going to walk you through a 3-step approach to calculating a customer health score that aligns with your customer success organization's charter using predictive analytics.
What is Your Customer Success Charter?
Before you can plan ways to better serve your customers, you need to have a clear picture of the primary goal of your customer success organization. At Technology Services Industry Association (TSIA), we do a lot of different studies with our members, and recently asked them what the primary charter was for their customer success teams based on our LAER (Land, Adopt, Expand, Renew) customer engagement framework:
Land: Activities leading to a prospect becoming a customer.
Adopt: Helping the customer effectively use your offer to achieve their business outcomes.
Expand: Encouraging customers to buy more of your products and services.
Renew: Convincing your customer to renew their relationship with your company.
77% of respondents said that they've primarily aligned their customer success charter to the Adopt and Renew lifecycle objectives. This means that these customer success organizations are focused on ensuring their customers are effectively using their technology to its full potential so that they can achieve their desired outcomes (Adopt), and that the value they've received will make them likely to repurchase the technology when their contract is up (Renew).
Based on this, we've created a Customer Success Capability Heatmap that aligns the critical capabilities of any customer success function.
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The Customer Success Capability Heatmap
As you can see, there are multiple capabilities focused on analytics, including adoption monitoring, aggregating customer analytics, as well as contract analytics. We asked our members, “Do you use analytics to predict churn?” Interestingly, 43% said that they do not. It's key to use a data-driven analytics approach to gathering customer health score information and report on it, which includes categorization, weighing, and measuring.
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The customer health score process.
Step 1: Categorize
Since we've already established that 77% of technology companies that responded to our study align their customer success charters around adoption and renewal, a good place to start is to take a close look at the steps your company takes to retain customers. While these steps will look different for every company, many will have a lot of quantitative (objective) and qualitative (subjective) measurements in common. When identifying these steps and putting them into categories, we recommend you bring together a small cross-functional group of people to help identify the top 5-10 that you think will be the most effective in helping you predict churn.
These categories can range from detailed product adoption analytics, such as knowing how many times a customer is logging into your application, or even the process it takes to complete a task. You could also have extremely high-level categories, such as a report of how many times a customer has attended an education session or has consumed some kind of formal training. After reviewing many health score models across the industry, I've seen some that include as many as 25 categories, so it all depends on what you feel would benefit your company the most in getting a clear picture of how engaged your customers are.
Step 2: Weigh
The next step that you and your small, cross-functional team will need to work together on is weighing the importance of each category based on your charter and list out the specific metrics and measurements needed to help build that score. As an example, say for instance that customer adoption is your charter and one of your chosen categories for measuring good customer health is a specific number of times you feel customers should be logging into your system. If a customer isn't logging in, that should present red flag to investigate further.
Another example adoption metric is to evaluate the intended business process flow of your technology in comparison to how your customers are actually using it. If you have a 5-step process, but your customers are jumping from 2 to 5 and bypassing steps 3 and 4 altogether, that would indicate that they're not realizing the full return on their technology investment and aren't optimized. These assessment steps can be repeated for each category you've created in Step 1 until you have an idea of what “good” should look like versus what is actually occurring.
Step 3: Measure
Commonly, customer health scores are numerically measured on a scale of of 0-100, and some can even be color coded to provide an easy-to-read, early visual warning that a customer is at risk of churning. It's important that you don't just measure customer health once, but make sure you're consistently calculating customer health and trending it over time. You will also want to have a workflow cadence in place that addresses any kind of remediation activities needed to improve that customer's status. Having this workflow is as important as the health score itself, because while you may have an early indicator of predicting churn, it's what you then do to prevent that churn that makes the real difference.
When the number one performance measurement of your customer success managers is to see an increase in customer retention and reduction in churn, using a health score with predictive analytics capabilities is good for aligning the top priorities of their daily activities.
Learn More About Customer Health Scores and Preventing Churn in My On-Demand Webinar
I go into into more detail on how to calculate your customer health score, as well as how the focus of today's customer success organizations have dramatically changed over the past few years in my On-Demand webinar, “Customer Health Tracking: Past, Present and Future.” Please be sure to check it out for a deeper look at the concepts I've outlined in this article. How does your company currently track customer health? Please let me know in the comments!