What Is A Customer Health Score & How To Calculate It?

Retaining customers is just as important as acquiring new ones, maybe even more.

Acquiring a new customer is five to six times costlier than retaining an existing one. Bain & Company states that increasing customer retention by 5% can boost revenue by 25-95%.

The key to strong customer relationships is knowing their "health," assessed by a customer health score. This metric, more comprehensive than customer satisfaction scores and Net Promoter Score (NPS), offers insights into customer retention, growth, or churn likelihood, giving a holistic view of customer relationships.

This article will focus solely on understanding and calculating customer health scores, without covering customer success programs, other Customer Experience (CX) metrics, or strategies to improve customer health.

What is a customer health score?

A customer health score merges data from usage patterns, support interactions, sentiment analysis, and financial metrics into a single score, indicating customer engagement, satisfaction, and growth potential.

• What it is:
• A quantitative measure of a customer's health and longevity with your company
• A snapshot of their engagement, satisfaction, and potential for growth
• A tool to identify at-risk customers and proactively address their needs
• A means to prioritize resources and focus efforts on the most valuable customers
• What industries use it:
• SaaS (Software as a Service): Widely adopted due to its subscription-based model and focus on recurring revenue.
• B2B (Business-to-Business): Useful for managing complex relationships with long sales cycles.
• E-commerce: Helps identify loyal customers and personalize their experiences.
• Subscription-based businesses: Provides insights into customer churn and renewal rates.
• Why it’s used:
• Reduce churn: Proactively identify at-risk customers and take action to prevent them from leaving.
• Increase customer lifetime value: Identify and nurture high-value customers to maximize their potential.
• Optimize resource allocation: Prioritize resources and effort towards the customers who matter most.
• Who uses it:
• Customer success teams: Primarily responsible for monitoring customer health scores and taking action to improve customer health.
• Product teams: Use health score data to identify product gaps and develop features that better serve customer needs.
• Sales teams: Can leverage it to prioritize leads and target their efforts towards high-potential customers.

Types of customer health scores

While the concept of a customer health score is universal, how it's calculated and presented can vary depending on the company and its specific needs.

Here are the three main types of customer health scores:

• Point scores (e.g., 1 to 100):

The most common customer health score is a numerical range, typically 1 to 100, where higher scores indicate healthier relationships. Point scores are easy to interpret and clearly show overall health, but they may be less intuitive than visual scores. However, they save time as there's no need for conversion to other grades.

• Letter grades (e.g., A, B, C, or F):

Letter grades for customer health scores are quick and easy to understand, offering more nuance than just healthy or unhealthy. However, they lack detailed insights into underlying factors. They may be more familiar and accessible for non-technical stakeholders in some companies.

• Color-coding (e.g., green for healthy, red for churn risk):

Color-coded health scores visually represent customer health levels. Green signifies health, yellow potential risk, and red high churn risk. This method allows quick understanding and identification of at-risk customers. However, it lacks the detail of point scores or letter grades, especially in differentiating between high and low levels within the same color category.

Why is a customer health score important?

A customer health score is like a personal health tracker for businesses, revealing how customers feel about your product or service. Tracking this "health" allows early detection of potential issues, enabling actions to prevent churn. This approach saves money, maintains customer satisfaction, and boosts long-term revenue. Plus, it identifies ideal customers, helping the marketing team attract similar clients, much like hitting the jackpot.

Here's why you should consider measuring and tracking customer health scores:

• Predict and prevent customer churn: Identifying customers with a declining health score enables proactive outreach to address their concerns before they churn. This involves offering support, resolving issues, providing incentives, or customizing their experience. Early action can turn potential churners into retained, valuable customers.
• Drive revenue growth: Preventing even a small percentage of churn can greatly affect your bottom line. Focusing efforts on retaining healthy and high-value customers increases their lifetime value and drives sustainable revenue growth.
• Gain deeper insights into your user base and product: Your customer health score offers insights into your user base and product health. It helps determine if you're attracting the right customers and if they find value in your product. Analyzing health score trends helps make informed decisions about product development, feature updates, and marketing strategies.
• Optimize your customer journey: Segmenting customer health score by user journey stages (like onboarding, activation, renewal) can pinpoint where customers face difficulties. A drop in scores during onboarding suggests a need for improvement there. Similarly, declining scores at subscription renewals indicate the necessity to address pain points and incentivize customers to stay.
• Identify your Ideal Customer Profile (ICP):
•  Segmenting customer health score by demographics, usage patterns, and industry offers insights into your Ideal Customer Profile (ICP). This data aids in optimizing marketing campaigns and focusing resources on the most profitable customer segments. It saves money by ensuring efforts are concentrated on acquiring and retaining customers best suited for your business.

How should you use customer health scores?

Now that we understand the power of customer health score, let's explore how you can leverage it in your business:

• Rapidly evaluate account status: A quick look at the customer health score immediately reveals each account's overall health and potential risk. This enables more efficient resource allocation and prioritization of efforts.
• Categorize customers: By segmenting your customers based on their score, you can create targeted strategies and campaigns tailored to their specific needs. This allows for more personalized marketing, support, and renewal efforts.
• Prioritize upcoming renewals: Identify customers with upcoming renewals and declining health scores for proactive outreach. Address their concerns to ensure successful renewals, minimize churn, and maximize revenue.
• Initiate automated engagement campaigns: Automate personalized email campaigns or in-app messages based on customer health score triggers. This timely engagement with at-risk customers addresses their issues before they escalate.
• Establish proactive alerts: Configure alerts to notify when a customer's score falls below a certain threshold, offering immediate intervention and resolution of potential issues before they harm the relationship.
• Spot potential expansion opportunities: Identify healthy, highly engaged customers likely to increase usage or upgrade plans. Proactively offer upsells, cross-sells, or personalized recommendations to maximize customer lifetime value.

Pros and cons of customer health scores

Like any tool, customer health scores have their advantages and disadvantages.

Pros

• Enhanced customer insights: Gain a data-driven understanding of your customers, their needs, and their potential for churn or expansion.
• Improved resource allocation: Prioritize your efforts towards high-value customers and accounts with the greatest potential.
• Reduced churn: Proactively identify and address customer concerns before they lead to churn, improving customer retention.
• Increased revenue: Focus on upselling, cross-selling, and expanding with healthy customers to maximize revenue potential.
• Improved customer experience: Personalize your interactions and provide tailored support based on each customer's health score.

Cons

• Reliability: Customer health scores often rely on incomplete or inaccurate data, leading to an unreliable picture of customer health.
• Complacency: Focusing solely on scores can lead to complacency, overlooking other important customer data and feedback.
• False security: High customer health scores can create a false sense of security, neglecting the continuous improvement of the customer experience.
• Oversimplification: These scores tend to oversimplify complex customer relationships, missing critical nuances and individual needs.
• Cost: Implementing and maintaining a customer health scores system requires resources and financial investment.
• Misinterpretation: Misinterpreting scores can lead to misdirected efforts and ineffective customer success strategies.

Data you’ll need to calculate your customer health scores

Now that you know the potential of customer health scores, let's see the crucial ingredient for its success: data.

Consider this data as the building blocks of your health score, the raw materials that will be transformed into actionable intelligence.

Quantitative data

Here's a breakdown of the key quantitative data types that will drive your CHS:

• Product usage: How your users are using your product can tell you a lot about their health score.
• Login history: Frequency of logins reveals engagement levels and potential churn risk.
• Time-in-app: Duration of app usage indicates user satisfaction and feature utilization.
• Engagement with sticky or new features: Adoption of new features or high usage of sticky features suggests product value and positive user experience.
• Support ticket volume and duration: High ticket volume or lengthy resolution times can indicate product issues or customer dissatisfaction.
• Service Level Agreements (SLA) issues: Violations of service level agreements point to potential service quality problems.
• Severity of cases: High-severity cases reflect critical issues needing immediate attention.
• Consumption of purchased licenses: Low license usage might indicate underutilization or potential churn.
• Online resources: Active use of resources suggests product exploration and potential for growth.
• Training program participation: Engagement in training programs signifies an interest in improving product knowledge and maximizing value.
• Tenure: Longer customer tenure indicates a strong relationship and higher lifetime value.
• Customer satisfaction surveys (NPS, CSAT, CES): Surveys like these provide direct feedback on customer sentiment and satisfaction levels.

Qualitative data

Qualitative data goes beyond the numbers, giving you a glimpse into the "why" behind the "what," uncovering the emotions, motivations, and deeper meaning behind your customers' interactions.

• Session replay recordings: User session recordings provide detailed insights into how users interact with your product, highlighting roadblocks, frustrations, and positive experiences. Analyzing these sessions adds valuable context to your health score. Fullview's advanced capabilities further enhance this by detecting signs of user frustration, such as rage clicks, dead clicks, and unusual cursor or scroll movements. This helps in identifying at-risk customers and understanding their specific issues, allowing for targeted solutions.
• Relationship quality: Customer responsiveness is telling: eager feedback and active participation indicate high satisfaction and a strong bond. Conversely, unresponsiveness may suggest dissatisfaction and a risk of churn.
• Team feedback: Team members interacting with customers offer crucial insights. Customer success managers can spot roadblocks or growth opportunities, product teams assess alignment with customer needs, and customer support interactions reveal customer sentiment and satisfaction levels.
• User satisfaction: Customer perception of product value extends beyond usage. Assess if customers feel they're achieving desired outcomes and getting good ROI. Are they enthusiastic about premium features and advocating for your brand? These insights clarify satisfaction levels and growth potential.
• Risk rating: Analyzing churn risk involves more than tracking activity. Assessing a customer's tenure helps identify threats and opportunities. A long-standing, positively engaged customer generally poses less risk than a new, hesitant, or dissatisfied one. Also, comparing their feature requests with competitors' offerings aids in predicting their future trajectory and devising retention strategies.
• User interviews and meetings: Talking to users on a cobrowsing call, over the phone or over chat can give you deeper qualitative insights about how they actually feel about your product.

How to calculate customer health scores

Now it’s time to learn how to make a customer health score formula and use it.

1. Pick your metrics

Identify the data points that accurately reflect customer health. This will be unique to your product and may include factors like:

• Product usage: Frequency of using key features, logins, time spent in-app.
• Support interaction: Number of support tickets, issue severity, resolution time.
• Satisfaction data: NPS scores, CSAT scores, user feedback.

Consider actions that indicate a high propensity to upgrade or churn and prioritize them in your formula.

2. Differentiate between metrics

As you’ll be using both positive and negative actions, remember to put them on a good or bad list. The good ones will be added to the score, while the bad ones will be subtracted.

3. Assign weight to the scores

Not all actions carry the same weight. Assign a score to each action based on its impact on customer health. Analyze actions taken by churned and high-value customers to identify impactful behaviors.

4. Categorize your customers

Just as you divide your marketing efforts into groups based on different types of customers, apply that same logic to your formula. Different groups might react differently to the same actions, so adjusting the weights is important.

5. Calculate the health score + template

Develop a template to track and calculate the customer health score.

For each action:

• Count the number of occurrences
• Multiply the count by the assigned impact score (positive or negative)
• Sum all action values to obtain the final CHS

Here's the template:

Customer Health Score = (Positive Action 1 Count x Weight + Positive Action 2 Count x Weight) - (Negative Action 1 Count x Weight + Negative Action 2 Count x Weight)

Example:

Positive action 1: Login = 5 occurrences, Weight = 5

Positive action 2: Feature Use = 3 occurrences, Weight = 10

Negative action 1: Support Ticket = 1 occurrence, Weight = 3

Negative action 2: Inactivity = 1 occurrence, Weight = 7

Customer Health Score = (5 x 5 + 3 x 10) - (1 x 3 + 1 x 7) = 5

How to improve your customer health score

Now that you know how to calculate and interpret your customer health scores, let's explore how to improve it and actively cultivate a healthier customer base.

Talk to customers

Engage in surveys, interviews, and focus groups to gather customer feedback and understand their needs, concerns, and expectations. This enhances your health score by providing insights into the reasons behind the numbers.

Use technology

Use technology to gain deeper customer behavior insights and proactively address their needs.

Use session replay tools like Fullview to capture user interactions (clicks, scrolls, mouse movements), revealing hidden frustrations and usability issues. Identify specific areas where users encounter problems that impact their health score.

Fullview's co browsing enables real-time guidance through your app, eliminating guesswork and technical barriers. It lets you see and navigate a user's screen for precise issue resolution.

Identify patterns

Analyze trends across segments like customer feedback, product analytics, and session replays to identify recurring patterns. This helps pinpoint areas needing improvement, such as confusing features or additional onboarding resources.

Link business outcome and customer health

Align your product features with customer needs to create a symbiotic relationship where their success fuels your business growth.

Customer health score FAQ

As we conclude, let's address some FAQs to clarify any remaining doubts.

What is a customer health score?

The customer health score gauges customer satisfaction and engagement, signaling the likelihood of churn or potential advocacy.

How to calculate customer health score?

Calculate the customer health score by analyzing quantitative data (product usage, support interactions) and qualitative data (customer feedback), assigning impact scores based on their influence on customer health.

What is a customer health check?

A customer health check is direct communication with a high-value customer to see whether they’re happy.

Why is a customer health score important?

It allows you to predict churn, optimize the product, allocate resources, and improve CX.

What does a low customer health score mean?

A low customer health score means increased churn risk, dissatisfaction, and potential for CX improvement.

What does a high customer health score mean?

A high customer health score means strong, loyal, satisfied customers and high lifetime value.

What are some of the pros and cons of using customer health scores?

Pros: data-driven decisions, improved retention, increased profitability, and personalized CX.

Cons: requires data investment, complex implementation, potential for data overreliance.

What is the difference between customer health scores and customer health checks?

Customer health score is a continuous measure, while health checks are periodic evaluations.

Wrapping things up

Your customer health score isn't just a number. It's a key to understanding customer relationships. Optimize it to identify at-risk customers, tailor interventions, and foster long-term engagement.

In improving health scores, prioritize core principles: customer-centricity, data-driven decisions, proactive interventions, and continuous improvements.

Implement these principles and leverage technology like Fullview to maximize customer health, paving the way for sustainable growth and prosperity

Sources:

• American Express
• Bain & Company

Last checked: 14-Dec-2023