Looking for a single metric that'll tell you whether your customers plan to stick around or leave you?
The customer health score is your triumph card.
Using qualitative and quantitative data, it analyzes your user's behavior, finds patterns, and helps your customer success team zero in on the at-risk accounts and nurture the right product qualified leads (PQLs) toward cross and upsells.
In short, it creates a chain reaction of customer retention and can help your B2B SaaS start-up hit those major revenue milestones.
What is a customer health score?
Your customer health score is a metric that helps you predict if an account will churn, grow or stay consistent. It's vital information your customer success teams need to identify accounts for upselling opportunities and those showing at-risk behaviors.
So, it's just "overall customer happiness," right?
Your customer health score goes deeper than sentiment. You're looking for data to validate your gut feeling that an account finds measurable value in your product.
Without it, your renewal rate will drop, and your churn will increase.
How do you find the data you need? A real-time scoring system that looks at qualitative data (e.g., a NPS survey) and quantitative data (e.g., usage and product adoption data).
But before we dive into how you can create your customer health model, let's unpack the benefits and why Net Promoter Score (NPS) is not the holy grail CS metric.
Why you can't rely on Net Promoter Score (NPS)
On paper, NPS looks great.
Send out a survey, analyze the results, and bam! You have a list showing how happy or unhappy customers are with your product.
So, what's the problem? Isn't it the "single customer metric you need"?
Relying solely on NPS is akin to wearing blinkers.
You're blinding yourself to vital churn signals and limiting your CS team to only one piece of data as your source of truth.
Research shows the effectiveness of NPS doesn't hold up on further examination.
- There are no real-time signals: Your CS team can't take proactive action as surveys are only sent out every quarter, six months, or year.
- It's a flawed metric for B2B SaaS start-ups: One customer equals many users in a B2B setting, and purchasing decisions are complicated and nuanced.
While you shouldn't stop using NPS, you need to use it with your other customer health score metrics to see the full picture, not a brushstroke
Why is the customer health score important for PLG companies?
Imagine you're playing a game of cricket.
Your opponents have brand-new bats, leg guards, gloves, and the latest Adidas full-spike cricket shoes.
Your team, on the other hand? You have wonky hand-me-downs and have to play the game with one hand behind your back.
That doesn't seem like a fair match. It's almost like you're being set up to fail.
Well, that's what happens when your SDRs hand over a new account to CS and important customer health scorecard data is lost. It handicaps your customer success representative, creates a lack of focus, increases workloads, and frustrates everyone (including the customer).
When you implement a scoring system and combine it with data enrichment, it helps sales, customer success, and your bottom line in the following ways:
Benefit #1: Identify power users for land and expand opportunities
An annual run rate of $10,000 is your first challenge as a SaaS start-up. It doesn't seem like much, but once you hit that first milestone, it makes reaching subsequent $10,000 milestones much faster.
How do you get there? A solid land and expand strategy.
Without one, your CS team might focus on nurturing the wrong accounts, and you'll miss out on expanding your first Enterprise account.
Your customer health score helps you quickly surface the best opportunities and identify power users, your product champions.
These users are vital to singing your praises to the CEO and helping you gain more seats in their business.
That's not all.
These users create powerful social proof, brand awareness, trust, and credibility.
I have created another @asana convert and I have 0 regrets.— Taylor the Tailor of Tales 🌻 (@tElizaRose) October 18, 2022
Welcome to my world, @jasontheadams.
Benefit #2: Nurture freemium users at the right time
What's the #1 product-led growth challenge? Converting free users into paying customers.
It can often feel like you're a salmon swimming upstream. You have an incredible freemium product that's driving tons of sign-ups. Your product usage rate is going strong.
Yet, you’re still fighting with the current and your ARR isn't growing.
So, what's the problem? Well, there are two things you need to ask yourself:
- Is your freemium product too much of a good thing? Are you giving away everything and leaving users with no reason to convert to a paid plan?
- Are you neglecting your freemium users and not nurturing the accounts at the right time?
If it's the latter, you can use your customer health score to turn those lurkers into paying customers. The metric helps your CS team step in at the right time to nurture an account without coming across as overbearing (starting the process too soon) or stepping in too late (ignoring churn red flags and upselling white flags).
How does that work in practice?
Using a customer health score tool like Breyta, you can set up event decay and assign value to more recent events.
For example, a user invites x amount of people from their company or configures something in the product that signals to your CS team it’s time to step in.
Benefit #3: Stop churn with preventive actions
User engagement dropping? Fewer logins than normal? Sound the alarm!
Your customer success team has a potential churn case on its hands.
…But how do you surface these accounts with poor health symptoms before someone hits the "cancel subscription" button?
Your customer health score. It helps you solve issues faster and successfully manage customer expectations reducing your churn by 67%.
Using your data like product usage or subscription status, you can set up behavior alerts for accounts and nip cancellations in the bud before you become one of the businesses losing $136 million to avoidable churn every year.
The most important customer health score metrics
What should you track if NPS doesn't give you an accurate health calculation?
Here are some of the most important metrics to create a proactive customer success culture and fuel your customer health score model with real-time data.
No matter what type of SaaS business you’re running, product setup is crucial to your success.
If users never start, fall off halfway or abandon their account, churn is right around the corner.
And the worst part?
There’s not much you can do to stop it because you haven’t established your value in the user’s mind.
Tracking your customer’s progress through the product setup process is the best way to make sure you’re laying down the foundations for a sticky customer experience. If someone is not progressing, that’s a signal for your CS team to step in and help smooth out any bumps on their road map.
At Breyta, a key step in our product setup process is asking users to turn on our CRM integration. Without the flow of data between the two tools, we can’t deliver on the value of our product - unifying customer data and putting an end to data silos.
Product usage rate
As a PLG company, your product usage rate is an essential metric.
If no one is using your product, you're not getting paid.
To prevent the worst-case scenario from playing out, your customer success team must keep a close eye on meaningful product engagement.
Beyond an increase or decrease in usage, you should consider the following:
- How often are users logging in?
- Who are the most active users?
- What percentage of an account is inactive?
- What are your most popular features?
- Which features are being ignored and why?
These questions help you create a comprehensive product usage rate. One that'll clearly indicate how valuable your tool is to an account and if they're likely to continue paying for it or hit "unsubscribe."
At Breyta, we take care of the heavy lifting by aggregating user behavior to a company level.
What does that mean?
You’ll get an average score of engagement for all users from a company. It includes product usage, NPS score, activity levels for each user etc.
Number of support tickets
No one likes reaching out to customer support.
It's time-consuming, frustrating, and, more often than not, a painful experience.
You're either waiting for an email reply (which can take up to a day with time zones), or you're sitting on hold listening to the worst panpipes version of Celine Dion's "My Heart Will Go On" for what seems like an agonizing eternity.
So if a customer keeps raising tickets, that's a giant red ol’ churn flag.
To turn the tides back in your favor, encourage your CS team to drill down to the core problem. Is the same issue coming up again?
If so, why?
How can you remove the friction they're experiencing and ensure it doesn't happen again?
By keeping your finger on the CSM pulse.
The CSM pulse is a subjective grade your Customer Success Managers (CSMs) give each account they manage. Think of it as a human "gut check" on the happiness of your customers.
While it's not as quantitative as other customer health score metrics, it's still important. Your CS team deals with your customers daily and have an understanding of the overall sentiment better than anyone else.
If a customer success representative thinks an account is at renewal risk, heed their warning. Combine that gut feeling with cold hard data, and you're in a strong position to eliminate any blind spots holding back your growth.
More customer health metrics to measure
- Account growth
- Number of renewals
- Number of upsells
- Length of customer engagement
- Community involvement
- Invoice history
How to manually calculate your customer health score
Creating a customer health scoring system is similar to lead scoring.
- An outcome: reduce churn and find upsell opportunities.
- A list of predictive measures: customer behavior metrics related to your outcome.
- A point system: Assign a number to each signal to get a total score of 100.
Here comes the tricky part.
You can't treat all your predictive signals with equal importance. If you do, your health score calculations won't be accurate. You need to assign different values based on importance to make the metric meaningful.
For example, your customer health score might end up looking like this:
- Product usage: 50%
- Product setup: 20%
- CSAT score: 10%
- CSM pulse: 10%
- NPS: 10%
Once you have your outcome, predictive measures, and weighted signals, you can use a sliding scale of 0-100 to segment accounts into good, can improve, or unhealthy.
Then, your CS team can step in and implement a strategy to move your unhealthy customers into the healthy range.
That covers the quantitative, but what about the qualitative measure?
The final step in your manual customer health score formula is to speak to your customers. Markus Rentsch, CEO at Remark-able, recommends asking your users how they measure the ROI of your product.
Your leading indicator if an account will renew is based on the customer’s outcome.
How to improve your customer health score
More customers in the orange or red zones than you'd like? All hope is not lost.
Here are three steps to improve your score and create a loyal customer base who love your product.
Step 1: Encourage CS to speak to customers
Beyond scheduling regular check-ins and following up on survey responses, the best way to figure out what's bothering your customers is to show up and ask.
These conversations are never easy, but they allow you to turn around a relationship and gain valuable product feedback.
Remember, only 1 in 26 customers will make a complaint when unhappy. The rest will churn without saying a word.
Step 2: Replicate what you do well
Once you implement a customer health score, you'll start to see patterns in your data.
That's where things start to get exciting.
Using these data points, you can stop the guesswork. You'll have data to back up your decisions to reduce time-to-value (TTV) and the exact ingredients that make up your happiest, long-term customer relationships.
- Do your healthy accounts follow a similar set of actions? Make a list of actions and figure out how your CS team can amplify those behaviors in your onboarding process and support documentation.
- Do your unhealthy accounts have the same bad habits? Develop a plan to fix those customer behaviors, remove friction points and encourage the habits that lead to healthier accounts.
Step 3: Review your ICP
Are you attracting the right customers? If not, your frictionless experience and incredible customer support won't matter.
It's still the wrong tool for the wrong people.
As leads filter into your CRM, your sales and customer success leaders need a way to see the customer fit score.
The metric ranks each account against your ICP criteria, helping your team nurture the right PQLs.
If you notice a median of low-fit customers, that's a sign something is wrong with the "attract" section of your customer flywheel.
Your customer health score in action
You have your data. Now what?
Signal lists, aka intent data, are how you can use your customer health score to surface accounts that require your attention immediately.
Not sure what to look out for? Here are some signs you can use to build your lists:
- High CLV accounts decrease product usage.
- The company's overall license utilization is less than 20% after 15 days of converting to a paid plan.
- The company's contract renewal is less than 90 days away and uses more than 80% of purchased seats.
- The user logged in for three consecutive days and invited more than three users.
- The customer is active and invites new team members to join.
- The company's market segment is Enterprise, and they have used more than 90% of available seats during their free trial.
That said, don't get lost in your data.
While we rely on customer health scores, NPS, and user activity to measure success, these metrics aren’t a clear reflection of your customer’s reality. Your product needs to solve a pain point and lead to a transformation like increasing revenue or decreasing costs.
If you're meeting these expectations, you automatically set yourself up for healthy customers who will stick by your side.