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What is a "Customer Health Score" and How Do You Measure It?

If your sales staff is like most, they spend the majority of their time trying to acquire new customers. But what about all of the customers you already have?

If your sales staff is like most, they spend the majority of their time trying to acquire new customers. But what about all of the customers you already have?

That's where a customer health score comes in.

Understanding the customer experience is key to building strong brand equity in today's competitive market. A customer health score offers a window to the overall health of your customer relationships, helping you focus on areas that need improvement to prevent churn.

In this article, we look into what a customer health score is, how it can work for you, and how to measure it.

What is a Customer Health Score?

The customer health score is a measure of several crucial key performance indicators (KPIs) that can be used to assess the health of your client connections. Different industries and businesses will have different KPIs that they deem essential, but a simple starter set of metrics for your customer health score could be:

  • Product setup- Answers the question "how many steps/percentage of total steps do most users complete in our product?"

  • Product usage rate- Answers the questions "how many users are meaningfully engaging with our product? And "how frequently do they do so?"

  • Net promoter score (NPS)- Answers the question "how much more 'promoters' do we have compared to 'detractors'?"

  • Customer success managers (CSM) pulse- Answers the question "how do our CSMs feel about our customer accounts?

While this is not an exhaustive list, it's a good starting point to get you thinking about the important aspects of your customer relationships. We'll dive deeper into how these KPIs can be used to measure CHRs below.

How to Measure Customer Health Scores

A customer health score is an index derived from several KPIs, designed to measure the quality or health of your customer base.

We break the process down into three distinct stages:

Setting up

Measure each KPI individually using a common scale. Decide on what the "healthy" range is for each metric—for example, a product usage rate might be considered healthy if it's above 80% or poor below 40%. The exact "healthy" ranges will depend on your unique business, so make sure to calibrate these with your team before moving forward.

Individual measurements

Now you'll start measuring your chosen KPIs:

  • Product setup- There are two ways of going about measuring this: count the number of steps or the percentage of steps users have taken so far with your product.

  • Product usage rate- Measure the number of times users engaged with your product, making sure to normalize the resulting sum for the population.

  • NPS- Using a survey, ask customers how likely they are to recommend your product to others from 1 to 10. Designate specific ranges as "promoters" or "detractors" of your product, with a range in between for passive customers. Subtract the number of "detractors" from the number of "promoters" to get the NPS.

  • CSM pulse- Ask your CSMs how they feel about their accounts on a scale from 1 to 10, with 1 being the least healthy and 10 being the most healthy. You could also ask specific questions related to each account to get more granular feedback.

Categorizing your results

Use the common scale you set up in stage one to categorize your results. You might want to create a graph or table to make things easier to visualize.

Categorize specific scores in each KPI based on how accurate you think they are. Here's an example:

  • Product setup- If users complete 80% or more of the steps, it's a "healthy" account. If users only complete 40% or less, it's a "poor" account.

  • Product usage rate- If more than 80% of users are engaged, it's a "healthy" account. If less than 20% of users are engaged, it's a "poor" account.

  • NPS- If the score is 35 and up, it's a "healthy" account. If the score is lower than 25, it's a "poor" account.

  • CSM pulse- If the score is between 9-10, it's a "healthy" account. If the score is between 0-6, it's a "poor" account.

Next, set the number of Health Points (HPs) for specific outcomes. To make things easy, let's use just three HPs: 0 for poor, 5 for concerning, and 10 points for healthy customers.

Let's say a company garners the following results:

  • Product setup: 80% (10 points)

  • Product usage rate: 90% (10 points)

  • NPS: 30 (5 points)

  • CSM pulse: 8 (5 points)

Bringing it all together

Once you categorize the individual KPI scores, it's time to turn them into an actual customer health score. Calculate this by summing the individual scores and dividing by the number of KPIs measured.

In our example, the customer health score would be: (10+10+5+5)/4 or 7.5.

If you want to maximize the predictive power of your customer health scores, we recommend weighing each metric you used based on how important it is to your business. So in our example, let's say:

  • Product setup: 10%

  • Product usage rate: 50%

  • NPS: 20%

  • CSM pulse: 20%

Multiply the raw scores by the weighting to get a weighted score. Then add up all the weighted scores to get your customer health score. The result for our example is (10*0.1+10*0.5+5*0.2+5*0.3) or 8.7—1.2 points higher than the raw score.

Take Away

Knowing how to measure customer health scores is only half the battle. The real challenge is refining the metrics you use to ensure that your generated scores are accurate and reflective of your customers' current state. With the right data, you can keep your finger on the pulse of your customer base and be sure that you are always providing them with the best possible experience.



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