When scaling up, most businesses jump to the idea of casting a wider, more effective net. How can we acquire more customers for our existing products and services?
That's not, however, the only mindset businesses should have.
Studies show that about twice as many businesses have their sights set on acquiring new customers rather than retaining existing customers. However, that same research has also shown that it costs five times as much to sell to a new customer as it does to an existing one.
In other words, twice as many businesses are fighting for a fifth of the results. Selling to an existing customer typically has between 60% and 70% success, versus the 5% to 20%, you'll see when selling to a new customer.
So how do you change your mindset? How do you start maximizing your existing customer relationships?
One of the most effective ways is by measuring and improving your customer health scores. In this guide, we're going to explore what a customer health score is, how to measure it and how you can use modern technology to make it a staple strategy for your business.
What is a customer health score?
A customer health score is a numeric score given to customers that helps account managers and support teams monitor their customer base. It lets them know if a customer is at risk of churn, is losing interest in your brand, etc. When a customer's health score falls below a pre-defined threshold, customer-facing teams in your business can reach out to them before it's too late.
Of course, you need hard data – not qualitative observations – to create an accurate customer health score. With a modern data stack, you can create a customer health score model that's more accurate than ever before.
What are customer health scores used for?
The primary use for a customer health score is monitoring your customer base and preventing churn. A robust customer acquisition strategy alone won't be enough to fuel sustainable growth. As they say, retention is the key pillar of all growth.
Existing customers provide higher ROI than newly-acquired customers. They're easier and less expensive to sell to. But if you don't have any method of separating your most loyal customers from your most at-risk ones, then your options for extracting that extra ROI are limited.
Customer health scores are the missing link. They provide you with a quick and accurate way to assess the likelihood of a customer churning. This allows you to reduce your churn rate and capitalize on customers that are bought into your brand.
What metrics can you use to measure a customer's health score?
To create a comprehensive health score model for your customers, you first need to choose the metrics that are going to make up that score. These metrics vary by industry and generally include a mix of product usage, customer feedback, marketing engagement, customer support cases and product upgrades and renewals. Below is a list of the 5 most common metrics you can choose from when building your customer health score model.
1. How often is the customer using your product?
This metric is straightforward. If someone is actively using your product on a routine basis, then that should move their score upward (and vice versa). This gives you an insight into how relevant your product is to the customer.
2. Is the customer upgrading/renewing?
Again, this is a straightforward point. Customers that aren't upgrading to the latest version of your product or renewing their subscriptions are customers that either have a limited interest in your brand or are actively losing their interest. On the other hand, customers that are renewing their subscriptions, buying add-ons to your product and inviting team members to join should get a higher health score.
3. Are you getting feedback from this customer?
In B2B, the most common metric to get feedback and measure customer satisfaction for your product is the Net Promoter Score (NPS). There are many tools that can help you calculate customer NPS. The great thing about NPS is that it's a number, making it easy to incorporate in your customer health score model.
4. Is the customer asking support for help?
Another metric you can use is customer support inquiries. Generally speaking, the more a customer asks support for help, the more unsatisfied they become. There could be a million reasons for this, but one of them is probably that your product is either not working properly, or not intuitive enough for the customer to be successful without needing a customer support agent's help. That's why the more a customer asks for help, the more their health score generally gets affected. Again, incorporating this metric in your health score model is easy, as this will be a numerical value.
5. Is the customer active in your community?
Lastly, community participation can be an important metric to include in your customer health score. While not every company will have one, some decide to invest in and foster communities – in Slack, Facebook groups, forums, etc. Customers that are actively participating in these communities and helping their peers should be given a higher health score.
How to calculate a customer health score
Step 1: Define customer health
The first step to creating a customer health score is deciding what that score means to your business. What goals will implementing a customer health score into strategy accomplish?
Reducing customer churn is one of the most popular and effective ways to use customer health. However, it can also be used to assess the efficacy of loyalty programs, to spot new opportunities with existing customers, or to target new products and services more effectively.
Another way to leverage the customer health score is by operationalizing it by syncing it to the tools your teams use every day. This way you can actually put your data to work. For example, you can sync your customer health score to your helpdesk (e.g. Intercom and Zendesk), and create a simple automation that sorts new support tickets by customer health score. That way, customers that are more at risk of churning (i.e. that have the lowest health score) are attended to first.
Decide on your goals and use this to navigate your customer health ideation.
Step 2: Choose your metrics
Next, you'll want to choose your metrics. These metrics should feed into the goals you established in Step 1. For instance, if you're aiming to reduce churn, then customer upgrades/renewals could be a core metric.
The metrics you choose to determine your customer health scores will also be decided by the data you have available. If you can't collect high-quality data on customer retention, engagement, etc., then you might not be able to use these as metrics. Implementing business intelligence and data analytics tools can resolve this challenge.
Step 3: Create a scoring system
Step 3 is going to be the most specific to your business. This is where you'll decide how each metric is weighted in your customer health score. What makes a 100%, a 0%, or a 50% health score?
Data analysts and engineers can develop these weighting systems for your team. A useful approach is to look at each metric individually and how strongly it correlates to your customer health goal. You can (and should) also research to confirm these correlations so that you aren't working off of assumptions.
Critically (and simply), remember that the goal is for engaged and happy customers to have a positive score and for unhappy, churn-prone customers to have a low score. If your scoring system isn't consistently providing these results, then it isn't working.
Step 4: Segment your customer health scores
The last step is to segment your customer health scores. This is similar to breaking up your customers by demographics. Decide where the lines that separate your customers are so that you can target them more effectively.
Is any score above 50% considered healthy, or only above 75%? Do you start trying to recover customers after they fall below 40% or 25%?
How to use customer health scores
1. Visualize your customer health score
Once you have a system in place for creating health scores for each of your customers, it's time to put that score to work.
Visualizations are one of the most effective ways to do this. They're easy to share across your team, with stakeholders, and to act upon. The data experts at Weld can help you turn your customer health scores into actionable, visual insights.
2. Activate it
Then, you need to activate this data. Activating your customer health data means funnelling it back to the tools your teams use every day. By doing so, you turn insights into action. For example, you can automatically rank support tickets by customer health score in your Helpdesk, or get a custom notification in your CRM when a customer's health score drops below a certain threshold.
By allowing your teams to be proactive, activating your health score is one of the best ways to truly achieve the goal you set out to achieve in the first place when you decided to create a customer health score model: reduce churn and increase customer happiness.
Implement a customer health score system as a key strategy
The data experts at Weld can help you meet your goals with an effective, sustainable solution. For the tools and expertise to achieve your customer health score vision, reach out to the team at Weld today.