Track Your Customer Health Score to Improve Retention

November 22, 2022
Contributor: Amita Jain

Having a healthy relationship with customers is critical for software renewals. Understanding a customer health scorecard can help you achieve that.

Retaining customers is becoming difficult for software providers. In a recent Gartner Digital Markets' survey on software buying trends,[*] 75% of businesses said they evaluate alternatives before renewing a technology contract, while only 4% do not. 

While there is no guarantee when it comes to software renewals, SaaS marketers need better strategies to retarget customers with the right communication and campaigns well ahead of time. Keeping track of customer health scores can help businesses determine whether a customer is likely to continue doing business with them or if they’re at risk and may need more attention. 

In this article, we discuss why measuring customer health score (CHS) is a good practice for marketers who are seeking more insights into SaaS customer behavior during product renewals and identify the opportunities to intervene. We also examine the factors that contribute to your customer health score and some tips for improving it. 

What is a customer health score?
 

Customer health score (CHS) is a measure that represents the overall health of a customer’s relationship with a business and predicts how that relationship may change. It does so by considering factors such as content engagement, community participation and feedback. It uses those data points to give you a single score that classifies an individual account or customer segment by a number (1 through 100) or a color, e.g., green (for accounts progressing as planned), yellow (for accounts at moderate risk of churn) or red (for accounts showing signs of trouble).

Simply put, a customer's health score tells you how likely customers are to stick around.

Why do software marketers need to measure CHS? 

Businesses, such as software providers, that rely on customer subscriptions and other recurring revenue streams are increasingly using CHS.

With expansive software features, diverse customer segments and buyers’ tendency to stay anonymous for as long as possible during their search for software, providers can't just leave renewals to the customer success teams. The typical process of assessing target accounts or customer segments 30 to 90 days before renewal can be too unreliable and lead to last-minute surprises.

Customer retention plays an important role in marketing as well. According to Gartner research, 36% of technology marketers use customer retention rates to gauge the performance of their team[1].

CHS can be used by marketers to:

  • Design content and programs that increase product adoption
  • Determine the best time to pitch cross-selling or upselling offers
  • Identify customers most likely to advocate your products and provide referrals
  • Refine account plans by detecting early signs of customer churn and taking corrective actions for retention
  • Increase the revenue obtained from existing customers to expand the use of current solution
  • Validate the success of marketing efforts and make smarter decisions about where to allocate resources

Why is CHS better than traditional CX metrics?

To truly understand your customers and their satisfaction levels with your product or service, you need to go beyond standalone traditional customer experience (CX) metrics. For example, relying solely on feedback forms or one-on-one interaction with a customer success manager may not be enough to identify all the problems faced by a particular client or account. Plus, the timing of the feedback also matters; the survey responses may not come back in time for you to intervene for at-risk accounts. 

Customer health score (CHS) combines multiple success parameters, including traditional metrics, to give a holistic view of customer relationships, all well within time for marketers to take appropriate action. 

Traditional service metrics vs. customer health score:
 
  • Indication (what happened in the past): What the behavior of a customer would be like in the future (their likelihood to churn, renew, expand or advocate)
  • Scope (limited and based on what customers say, which may not necessarily indicate their preferences): Comprehensive and based on a combination of several leading indicators and traditional metrics
  • Recency (represents customer sentiment at one point in time): Provides real-time insights into the state of your customer relationship

How to measure customer health 

There is no mathematical formula to calculate customer health score. The optimal customer health scorecard for an organization depends on its business needs and the products or services offered. While the information used to develop the scorecard may vary, the approach to creating it remains the same. 

Customer Health Score Enables Proactive Service

The first step to calculating CHS is to identify the important metrics that would affect your health scores, such as customer support data, last login, customer feedback and net promoter score (NPS). Now, put those data points under a group of key attributes of customer health. Finally, give weightage to each attribute according to your business needs. For instance, if you want to steer product adoption, give higher weightage to metrics indicating product usage rate.

Use score ranges from 1 to 10 or 100, or use color codes (red, yellow and green), with a lower score or red color signifying the need for corrective action, to define good and poor customer health. 

To learn more, check Gartner’s research [2] on “Build a Customer Health Score to Drive Proactive Service.”

Identifying the key attributes to develop health scores

A customer health score should be composed of relevant, accurate and up-to-date data signals and attributes in order to reflect the true state of health of a customer and provide meaningful insights. 

Ask yourself these three questions to identify the most important attributes for your business and customer health scorecard:

1. What are the kinds of data sources to which you have access?

Every business collects a host of data around customer interaction, product usage and feedback, among other data metrics. Identify the sources of data you have and collaborate with the relevant functional partners to collect the data. Check out the image below for examples of data signals you can capture under different attributes. 

Common attributes used in health scores

2. Do these sources provide actionable and meaningful insights that are applicable to all individual accounts or customer segments?

Evaluate if the data you have access to is relevant, accurate and up-to-date. Assess what insights your data signals can provide and what desired outcomes they would cover. For instance, if you want to evaluate customers in the onboarding stage, ask if you have sufficient and accurate data for it. 

3. If not, what additional data do you need, and how to get it? 

Improve the relevance of your data by integrating new sources. Capture more information with tactics such as web tracking, surveys and feedback forms. Remember, if you have limited data in the beginning, start with a simple scorecard and build from there. 

Some best practices for building a customer health scorecard:
 
  • Keep your score up to date: Update your score regularly to reflect the current state of your customers. This means incorporating new customer analytics data and evaluating its effectiveness in driving the desired outcomes.
  • Collaborate with cross-functional partners: Work together with different departments, including marketing, sales and customer service, to get access to a variety of data sources and share customer health status with everyone who needs it.
  • Act on it: Trigger action by defining scenarios that would notify relevant teams of the need for corrective actions and recommend the actions to take.
  • Bucket signals into different groups: Classify your accounts into different groups and bucket your signals accordingly. Segment accounts by life cycle stage (trial, onboarding or acquisition), desired outcome (upselling, cross-selling or brand advocacy) or purchase plan (starter, professional or enterprise).
  • Use consistent methodology: Use similar methodology so results can be compared and analyzed over time. It will also help you track trends and identify improvement areas.

Start small with a simple scorecard

Trying to incorporate many data signals at the start makes it difficult to determine the effectiveness of a scorecard, not to mention the increased efforts that go into data integration. 

Start with a simple model with a handful of the most important data metrics and attributes. As your business and collaboration across departments grow, gain access to more customer data and update your scorecard. 

Amita Jain

Amita Jain covers B2B content creation and strategy to help businesses reach their marketing goals. She received her master’s degree from King’s College London, U.K. Exploring the world of art and reading fiction are some of her usual happy distractions outside of work. Connect with Amita on LinkedIn.

___________________________________________________________________________________________________________________

Methodology

*Gartner Digital Markets’ 2022 Global Software Buyer Trends Survey was conducted to understand business challenges and approaches to technology and software investments. The primary research was conducted in October 2021 among a total of 2,501 respondents in the following countries: United States, Canada, Mexico, United Kingdom, India, Japan, Australia, New Zealand, Italy, Portugal, Brazil, Colombia, Belgium, Poland, Netherlands, Sweden, Denmark, Finland, Norway, Ireland, Singapore, South Africa, Spain, Germany and France. Respondents were screened for having recently purchased technology and having decision-making authority. Respondents were required to be responsible for making decisions on technology purchases for their organizations.

Sources

  1. Measure the Influence of Marketing on Customer Success Goals for Subscription-Based Products, Gartner
  2. Build A Customer Health Score to Drive Proactive Service, Gartner
Get the Gartner Digital Markets Newsletter

We value your privacy. By submitting this form, you agree we may use your information in accordance with the terms of the Gartner Digital Markets Privacy Policy.

Connect. Convert. Thrive.

Connect to millions of in-market software buyers around the globe with our all-encompassing suite of marketing services.