What Is The Customer Health Score And How To Calculate It For SaaS Products
If you’re looking for a single metric to tell you whether your customers are staying or planning to leave, the customer health score is your answer, as it bridges the gap between your customer success team and customers. Your customer health score can offer valuable product growth insights to boost customer retention in the long run.
In this article, you’ll learn about:
- What a customer health score is
- Why it is important
- How to calculate health scores
- How to utilize and improve health scores
Let’s get started!
- The customer health score is a metric used to understand the likelihood of a customer to grow, stay consistent, or churn.
- Monitoring customer health scores and responding to them helps you identify risks associated with individual users or accounts.
- Customer health score helps identify power users, account expansion opportunities, and potential churning customers in advance and uncover customer success and failure patterns.
- Having multiple scoring systems helps customer success managers prioritize their efforts, get optimum results, and be more specific while identifying customer success or failure patterns.
- To calculate customer health score, define how you are going to use the score and the customer segment the health score applies to. Next, determine the customer actions impacting the health score and assign an impact score to each action.
- Final Customer Health Score = total action value #1 + total action value #2 + total action value #3 + …
- To utilize your customer health score, decide on your scale and determine your actions for each category on the health scale.
- You can use color code, percentage, or grade scale to categorize your customer score.
What is a customer health score?
The customer health score is a metric used to understand the likelihood of a customer to grow, stay consistent, or churn. Customer success leaders use it to predict how the business’ relationship with a customer can change over time.
Why is the customer health score important for SaaS companies?
Customer success managers need to know if their teams are putting their effort into the right places. This is where the customer health score comes in.
Customer health scoring doesn’t do much by itself. You need to monitor it and respond to it, which will help you identify risks associated with individual users or accounts. For example, you can identify current customers heading towards churn and take action to prevent it.
Here are four reasons why SaaS companies should pay more attention to Customer Health Scoring.
#1 — Customer health scoring helps to identify power users
Your power users are made up of “healthy” customers who are constantly engaging with your product. If you can ask them to review your company on websites like G2 or Capterra, power customers are more likely to do so.
In this way, you can collect additional feedback from them to improve your product.
#2 — Customer health scoring helps to identify account expansion opportunities
Using customer health scoring to fuel your customer expansion strategies is a no-brainer. Happy customers will be more open to purchasing add-ons.
You can also create a score to track the account health for your freemium accounts. This will help you determine the right moment for customer success teams to reach out to them and offer an upgrade.
#3 — Customer health scoring helps to identify potential churning customers in advance
A low Customer Health Score can indicate a higher risk of churn. Tracking a customer’s health score can help you proactively reach out to customers with low scores and help them solve the issues they are facing with your product. This can help you reduce your churn rates to a great extent.
#4 — Customer health scoring helps to uncover success and failure patterns
You can determine customer success and failure patterns by checking the customer data of healthy and unhealthy customers. This will help you replicate the success for new customers with in-app guidance. You can also improve your product by removing frictions that lead to failure.
Why do you need more than one customer health scoring system?
All SaaS businesses can unanimously agree on one thing — not all customers are the same. So, it makes sense to have more than one scoring system.
For example, you might want to have a different scoring system for new and old customers. You might also want to use a different model for enterprise and individual customers.
You need to figure out what works best based on factors such as the size of your business or the number of revenue streams. You can get accurate renewal forecasts with timely health scoring. It will also help your customer success teams prioritize their efforts and get optimum results.
Segmentation can help you get a more accurate overall health score. In fact, it is a better overall approach than a universal customer health scoring system, as it allows you to be more specific while identifying success or failure patterns.
How to calculate customer health scores
If you’re looking for a straightforward formula to calculate customer health scores, sorry to disappoint you, but covering all the bases before you get to the actual calculation helps you get a more accurate measure of customer health or account health.
So, whatever effort you put in here is worth it.
Here’s a step-by-step guide for calculating customer health scores.
1. Define how you are going to use the customer health score
A customer health score indicates the likelihood of a specific outcome, be it churn, renewal, or upsells. For example, you should be able to tell if a customer is about to leave you by simply looking at their overall score.
But first, you need to determine the outcome you want to measure. This depends on your business needs. If you’re looking for opportunities to expand your revenue, you might look into the likelihood of upselling. On the other hand, if you want to know why you’re losing customers, you need to look into their likelihood of churn.
2. Define the customer segment the health score applies to
As we mentioned earlier, segmentation can be a great way of ensuring the accuracy of your customer scoring system. This is because SaaS businesses usually have multiple pricing tiers where only the enterprise or the most expensive plan comes with full access to its features.
Segmenting customers based on tiers and assigning health scores to each of them makes sense in such cases. Otherwise, you might end up assigning health scores to features that a significant portion of your customers don’t even have access to.
That said, always apply customer health scoring on specific segments. It allows you to be more focused while addressing customer needs.
3. Determine the customer actions that are impacting the health score
Determining customer actions that influence customer health scores depends on the segment and the goal of your score. There is no single set of actions of equal value for everyone.
However, you can consider a few factors, including:
- Depth of product usage: how many key features customers are using
- Breadth of product usage: how many users on subscription are using the product
- Frequency of product usage: how often are users coming back to your product
- Support tickets open
- Engagement with in-app surveys
- The number of add-ons purchased
- In-app chat usage
- In-app resource center usage
4. Assign an impact score to each action and calculate the final score
Once you have determined the actions, you need to assign a score to each of these actions based on its importance to your product and user persona.
Consider two actions in the case of an Instagram scheduling tool — A/B testing hashtags (Key action #2) and scheduling posts (Key action #3). Here, scheduling posts is more important than testing hashtags. So, that should be assigned a higher impact score.
Let’s assign 10 points to key action #3 and 1 point for key action #2.
Once you’ve assigned an impact score for each action, track the number of times a user takes action over a specific period.
The image below shows that a user took key action #3 11 times and key action #2 42 times during the same period.
The weighted score for each action is based on its importance and the number of times a user completed it.
Now, we need to calculate the total action value for each action. This is calculated by multiplying the number of times the action was completed in the last x days by the impact score.
In the image below, every time a user takes key action #3, they get 10 points. Here, the user completed the action 11 times in the last x days, making the total action value 110.
To get a better picture, you can add rules to deduct points when an important action hasn’t been completed while calculating the score. This can then act as a warning signal for you.
Once you’ve calculated the total action value for each action, you can now add all action values together to get the total customer health score for a user.
The final formula is:
Customer Health Score = total action value #1 + total action value #2 + total action value #3 + …
5. Decide on your customer health scale
The next step is to create a customer health scale based on the scores. Here’s how you can accomplish this:
- a negative score = very sick (in high risk of churn)
- a score between 1–40 = sick
- a score between 41–70 = somewhat healthy
- a score between 71–100 = very healthy
- a score above 100 = thriving (power users who are likely to upgrade)
6. Determine your actions for each category on the health scale
Identifying the category each user falls under won’t help you unless you are clear on which actions you are going to take.
Remember that you built the score for a specific outcome. You determined this outcome even before you started calculating the score. You can determine specific actions once you identify how likely someone is to achieve that outcome.
For example, if you are trying to reduce customer churn and using the score as a trigger for actions, you can:
- Have your customer success team reach out to customers with a negative score.
- Use in-app messaging to drive engagement.
Customer health score scale examples
A numeric scale isn’t the only way you can categorize your customer score. You can also use a color code scale, grade scale, or percentage scale.
Color Code Scale
A color code scale can catch your team’s attention quickly. You can categorize it using a universally recognized scale consisting of three colors — green, yellow, and red.
Green indicates good customer health or account health. Yellow indicates that you need to be prepared to take action, and red indicates poor health that requires your immediate attention.
If color-coding is too restrictive, you can use a grade scale instead. It uses the numeric letters A, B, C, D, and F to categorize health scores. The grade A is assigned to the customers with the best health scores, and F is assigned to those at risk of churn.
A percentage scale focuses on multiple scores for each customer that are added up to a global score. You need to rate each behavior metric individually to get these scores. It helps major actions have more weight in the final score.
How can you improve your customer health score?
Customer health scores are useless if you don’t act on them. Your goal should be to maximize health scores for each segment and grow your business in the process.
Use your customer success team to speak to customers
You need to hear what your customers have to say about your product and the issues they are facing while using it.
You’d be surprised to see how simple it becomes once your customers identify what’s bugging them. You can get right to the bottom of any problem that’s causing your customers to churn and take action to solve it once and for all.
Replicate success patterns and drive engagement with in-app guidance
If you can fully understand the usage patterns of your customers, you can identify the patterns that indicate success. If customer usage patterns signal a low engagement, you can use in-app guidance to literally guide them to success.
You might also identify the need for a new onboarding sequence to introduce users to your most valuable features. Having the right customer success tools at your disposal makes it a lot easier to replicate success patterns and reduce your churn rates by focusing on all the right areas.
Now that you’ve learned how to calculate customer health scores, you can start monitoring it constantly and take actions to improve it. A good health score can fuel the growth of your SaaS business.
Remember to listen to your customers, replicate success patterns, and get out of failure patterns — and you’re set to have a healthy customer base.
Want to get started with improving customer health? Get a Userpilot Demo and see how you can boost your retention with better insights into user behavior.