How to calculate customer health score?

From childhood we are aware of scoring. We see sports matches and get inspired by scores. It keeps the audience hooked. 

In the similar way we can score our customers assuming we have data and inputs for each customer which can be used to score the customers. In my decades of experience working with customers, I have seen that if done well, customer scoring proves to be very valuable to the customers as well as for us companies who wish to increase revenue and grow our products/ platforms. 

Why a customer health score?

• Customer health scores help us understand who the customers are who are using our product well. The industry they belong to is the industry where our use cases are working. 

• Scores show us which are the customers who are not using our product and we need to focus on them to make sure they continue to use our product. 

• And the most important point is that with the customer scoring we know which are the customers who are ready for our next product. This means we can upsell them, they will have a high chance of renewal and with these both levers we can grow our revenue … 💥  

There are various synonyms of this - health score, health index, activity score and others. However, the purpose, reason and why behind all of these scores is exactly the same as mentioned above. 

Customer health score is applicable to b2c as well as b2b products. I have seen health scores work well in e-commerce and insurance industries where consumers are scored based on many parameters to gauge an understanding of their purchasing power. 

Customer Health Score works really well in b2b Saas products as well. It is suggested that customer health score is measured across the customer journey starting from icp (ideal customer profile), sales, onboarding, adoption, support and renewal. The more data points across each of the steps in the customer journey, the better will be the customer health score … 🙋  

How to calculate the customer health score? 

Now let’s look at the process for creating a customer health score. 

Please note that 

• to create the customer health score, you will need to have a customer base which is sizable in number. Think about 100k in b2c and 100 plus customers in b2b saas or similar. 

• Data across the customer journey has to be collected and kind of streamed to calculate the customer health score. I am not suggesting high sophistication in data orchestration, but accurate weekly excels with all data points for all customers is a must … 👏 

• Agreement what are the key pointers/ metrics which show the health of your customer. Think about our health - weight of a person, blood parameters, fitness parameters, diet, lifestyle all these matter in the health of a person. What metrics that  matters the most for our business/ customers so they win and we grow our revenue.   

The customer's health score can be very good, good, not so good. 

Another way to put customer health scores is Green, orange and red with green being very healthy. 

One more way can be a healthy, critical or at risk customer health score. 

Here is a relevant quote for today -

"Strive not to be a success, but rather to be of value."

– Albert Einstein

Here is the process for calculating the customer health score. 

Step 1- Gather the data

I assume before this stage you are aware of what parameters depict the health of your customer. So start with gathering data from various teams, data sources to gather as much data as possible. Assume you have 100 customers. In this case you may have an excel with 100 customers as rows and all the data metrics which you are tracking as columns. This becomes your weekly excel. 

Next week, you will need a similar excel with all customer data points. Hope you get the point … 🏆 

Step 2 - Define Scoring

Once you have the data points sorted, think about how the scoring will work. The methods to score can be 9.0/10, a percent value (example - 90%) or A, B, C (A being best score). 

I have seen that a score out of 100 usually works well. In this case higher the score, the better is the health of the customer. As the weeks/ months pass the customer health score is recorded every month at least. So weekly you are gathering and updating the scores, but freeze a score for each customer every month and keep a record of that monthly score. Next month I will do something similar. So at a point of time, the customer health score is known and we can go back and see how the score has evolved over months for each customer. 

If it is suitable for your business, you can also follow the weights approach where specific weights are given to each customer activity while calculating the scores. And then the final customer health scores are calculated. 

Example - sales experience 15%, consistent product usage 25%, support 20%, upsells, 10% and so on. 

Step 3 - Benchmark Scores 

This step may get tricky if your customer base is not high or statistically significant. To put in simple words think about this way - an approach is needed to compare customers using the health score. However, the customers being compared should be of similar nature otherwise the benchmarking may not make sense. 

Customers are benchmarked against each other if they are in the same industry, similar company size, same geography, operating in a similar domain and so on. I understand that this needs a bigger customer base … 👍 

If the customer base is not large enough then take the average of all customers you have and mention the customer demographics to other customers with whom you are benchmarking them against. 

Benchmarking gives customers confidence that they are doing well, using the product well with best practices compared to their peers. 

Step 4 - Take action 

After gathering the data, score definition and benchmarking this is the most important step where we can analyse the score of each customer and see what action we can recommend the customer to take and what action we can take. 

Examples of actions are - push teams in all geographies to use the product, explain new features well so they adopt those features, mention the use cases which are highly beneficial so they continue to use them, distribute the best practices, find opportunities for newer products. train the user/ customers as and when needed, and more. 

All these actions help the customers get better ROI from our product and allow us to grow revenue through renewals and upsells. This is the best conversation starter for the customer success and account management teams. 

One of our objectives is to educate the customer users on our product so they get certified on our product and build a career around it. I have seen many users do certifications and take pride in the platform they work on.   

Happy Scoring … 💥