Alright, so I know first hand that a lot of the folks reading this don’t have a customer health score set up. And look, that’s fine. That is exactly the purpose behind content like this, its to a) help you level up and b) spread awareness.

Before we get in to why the customer health score is important. Let’s talk about about what exactly is a customer health score.

What is a Customer Health Score?

A customer health score is a key performance indicator used primarily by customer success teams to gauge the overall health and engagement of their customers. It serves as a predictive measure to identify whether customers are healthy or a churn concern.

Now the specific criteria and methodology for calculating this score can vary significantly across different companies, as it is tailored to reflect the unique dynamics of each business. However, the goal remains consistent: to provide actionable insights that enable product and customer success teams to effectively forecast customer behavior and take proactive measures to foster growth or prevent churn.

The best way you can empower your customer success team is to give them a crystal ball that can show in advance if a customer will churn or they are headed in that direction. Cool right?

Alright, so let’s back to earth. Ain’t no such thing as a crystal ball. Is there?

Well, either way we can get pretty close to that, and that is through the customer health score. Like think of it like a fuel gauge in your car, it’s important and handy to find out when you are about to run out of fuel, right?

Why are Customer Health Scores Crucial?

Customer success teams often find themselves in a reactive mode, addressing the most vocal complaints rather than focusing on strategic priorities. This reactive approach can lead to misallocation of resources, where too much effort is spent on accounts with low potential for retention or growth, while potentially valuable accounts are overlooked.

Ask any rep out there, they will tell you the same exact thing and that’s most of the time they spend is spent on customers that are not the highest paying. They just are very hands on and require a lot of attention.

By implementing and continually tracking customer health scores, CSMs (Customer Success Managers) can more precisely identify which accounts are at risk and which are poised for growth. This proactive stance allows the reps to intervene before issues escalate and to replicate successful strategies across other accounts.

Also, these scores provide valuable insights into common pain points and dissatisfaction triggers, enabling teams to make preemptive improvements to the product or service offerings.

On the flip side, for customer success leaders, customer health scores also serve as a powerful communication tool. They can succinctly convey the status and needs of the customer base to other departments, including executive management, product development, and revenue operations, fostering a more cohesive and informed approach to customer engagement and retention.

How to perfect the customer health score?

Down to brass tacks. This is where things get really exciting, because you get a chance to get an eagle eye view of everything and setup what you think is the right way to calculate the customer health score.

Please keep in mind that there is no right or wrong way here. You know your customers best, how they use your product, how they interact with it, what is right and wrong and the best measure of how healthy they are is all within your means.

So please don’t worry too much about it, the most important thing is to get started and iterate on this as you move along. I started out with a very simple health score for our customer base and tweaked it to a point where now it’s a very sophisticated way of determining which of the customers are healthy or a churn concern.

So first things first.

Write down what to measure

To assess the health of your customer base, you need to identify key metrics that reflect their engagement with your product. These metrics vary based on the product you sell and its feature set. For instance, you might track how often a customer uses a vital feature, their login frequency, or the number of support tickets they submit. The essential task is to pinpoint what drives customers to either upgrade their services or discontinue using them.

These insights will form the foundation of your customer health score model.

To give you an example. I for instance recommend you track at least the following:

• CSM Pulse (Score that the success rep gives the account)
• Percentage of features used aka product adoption
• Last login
• Active user percent
• Last time they used the app
• Last meeting with the CSM
• Delinquent

If you are using a CSM platform that can allow you to set all this up in the app, that’s perfect. It will make it very easy for you to dial it up or down, based on your requirements. The goal of course here is to give each aspect of what you’re tracking a % (weightage), so they can make up the whole score.

Which brings us to the next point.

Assign a score to each aspect

What this means is that, you need to account for both positive and negative behaviors. Start by categorizing actions into those that positively indicate customer engagement and those that signal potential issues. Create two lists: one for beneficial actions and another for detrimental actions. In your scoring formula, positive actions will contribute to increasing the score, while negative actions will decrease it. This balanced approach ensures a comprehensive view of customer health.

I really like the way Vitally does it. As you can see in the above image, you can categorize actions and then give them a relevant score. The weightage of the whole score is 100%, so naturally you give each category the % that you believe they should be awarded as that will make up for your full score at the end of the day/month.

Here is an example that takes shows you how you can structure the health score. Let’s say you run a SaaS platform, and you have identified the following metrics:

• Feature Usage: Average number of times key features are used per month.
• Login Frequency: Number of times a customer logs in per week.
• Support Tickets: Number of support tickets submitted in the past month.

You might assign the following weights based on their impact on customer health:

• Feature Usage: Weight = 0.4
• Login Frequency: Weight = 0.3
• Support Tickets: Weight = -0.2 (negative because more tickets can indicate issues)

While this is a simplistic example, this gives you an idea of which customers are having issues or struggling to maximize the value of the platform vs not.

Segment your customers

This is where I see most of the companies make mistakes when they first take on this challenge of setting up a customer health score. They don’t break their customers down into segments.

Look, you can’t measure or treat all the customers the same. It just doesn’t work when it comes to customer success. Some customers need more help than the others, some are more price sensitive than the others, some require regular meetings vs some are just leave me alone. So its imperative you segment your customers and make sure that each segment has it’s own health score measuring system in place.

There is no hard and fast number that you need to have for how many segments you should have. This is entirely up to you and what you feel comfortable with. One example that I would like to share here is of customers that have a CSM assigned to them vs ones that don’t have a CSM assigned.

It makes sense for the last meeting data to be in the health score for CSM assigned ones, but the ones that don’t have the CSM assigned, it doesn’t really make sense to include the last meeting as a contributor to the overall score.

Same goes for the CSM pulse. Include for orgs that are managed and exclude for orgs that aren’t. So like I mentioned in the beginning, this will require a little bit of work and you will have to segment your customers and then define criteria for scoring for each and everyone. This is the only way you will have a score that you can trust as it better fits the scenario for each customer.

Think about how each of your customer segments may be impacted by different actions and create a set of weights for customer segments with substantially different outcomes.

Let’s move on to the last thing to do to complete your customer health score.

Regularly review and adjust

I cannot stress this enough, this is not one of things that is a one and done. You need to continuously monitor and make sure that you are improving the score overtime. When I started out, I almost tweaked this every single week, yes that means your customer score will change but that’s fine. You are in experimenting stage and you want to get this right and better than where you were before.

Continuously monitor and refine the health score based on changing customer behaviors and business goals and also collect feedback from various teams (e.g., sales, support, product) to ensure the score remains relevant and accurate.

Don’t be scared to try and shake things up, this is how you get to perfection over time.

A well designed health score can do wonders for your team and business. I can tell you first hand it’s not easy, but getting it right is crucial as it helps you get a better understanding of your customer base and get a handle on the retention metrics. Not only that, you will be able to easily identify growth opportunities and increase customer satisfaction.

Happy hunting!