Customer churn. Even the whisper of those words will send a shiver down the spine of any business owner. While unavoidable, churn – the loss of a paying customer or client – is something every business strives to minimize. One way you can do this is by using an effective customer health scoring system.
Isn’t that something for big data companies?
Not necessarily. Every business can benefit from understanding customer health and using a scoring system to get ahead of potential attrition.
Below, we’ll examine the definition of a customer health score, the benefits of developing one, and the different ways you can measure customer health. After that, we’ll provide you with a handy template you can modify to suit your business.
Ready? Let’s dive in!
- What is a customer health score?
- Why is customer health score important?
- Benefits of using a customer health score
- How to use customer health score in your business
A customer health score is a metric that measures the likelihood of a customer continuing to do business with you. It is used mainly as a retention metric to allow companies to predict and prevent customer churn.
Because customer success is defined differently for each brand, there isn’t a single formula for calculating a customer health score. Instead, the metric is customized for each business based on its unique criteria and goals.
These criteria often include:
- Usage: How often are they using your product or service?
- Engagement: How engaged are they on social media and other channels?
- Revenue: Are they spending more or less than expected?
- Support requests: How many requests have they submitted?
But they can also include anything from customer feedback to the time spent on your website before purchasing. The idea is to combine multiple data points into one unified metric that measures customer health and loyalty – which is easy to understand and track.
There was a time when companies could regularly do face-to-face check-ins with their customers. Before the internet arrived, customer loyalty was primarily based on service, price, and proximity. You’d usually head to the closest supermarket for toothpaste, regardless of the better selection a town over.
Today, the internet has changed all that. Customers have more options than ever before and are often just a few clicks away from switching to another supplier.
Convenience is now the most important factor to consumers that don’t want any roadblocks between them and their purchase. It’s now more challenging than ever for businesses to retain customers in an increasingly competitive landscape.
Enter customer health score.
This metric is designed to understand how likely a customer is to stick with your business in the long run – before they decide to jump ship and take their money elsewhere. All without ever needing a face-to-face check-in.
Using a customer health score can offer you a range of benefits.
Early identification of potential churn risk
Turning a blind eye to the warning signs of customer churn can be costly. By regularly tracking your customer health score, you’ll be able to identify any potential issues quickly and take action before it’s too late.
For example, if a customer has suddenly stopped logging into your app, product or service, you can explore and offering additional support.
Increased retention rate
Saving customers from the brink of a departure is one thing, but a customer health score can also help you improve your retention rate. By understanding which customers are more likely to stick around and find success with your product or service, you can tailor your messaging and services to those customers.
For example, sending out tailored emails with exclusive offers or discounts to customers can encourage more frequent usage and engagement – two key indicators of customer loyalty.
Improved customer experience
Happy customers are loyal customers. With a customer health score, you can quickly identify which customers users need more attention and focus on improving their experience with your product or service by implementing a customer success strategy.
By offering personalized support to each user based on their individual needs, you’ll be able to build stronger relationships with them, increasing the likelihood that they’ll stick around for longer.
Increased retention rates and improved customer experience can lead to higher customer lifetime value (CLV). The more customers you can keep, the more they will spend over time.
Plus, if you focus on increasing engagement with loyal customers, they may be willing to spread the word about your product or service, becoming evangelists and organic marketing agents.
Accurate demand forecasting
By understanding the health of your customers, you can accurately predict customer demand. This will help you plan for future growth and make more informed resource allocation decisions.
Poor forecasting can quickly derail a growing business by causing unnecessary inventory investments or resulting in stockouts that can alienate customers.
By tracking customer health scores, you can quickly identify which customers are most likely to succeed with your product or service and which ones need additional support, and focus on providing them with resources to offer them the highest return on their investment (ROI).
The more you know about your customers, the better. With a customer health score, you can segment customers based on their behaviors and target them with tailored messaging and offers.
Rather than sending generic messages to everyone in your database, you can focus on those most likely to stick around, ensuring each message is as effective as possible.
Still not sure how to apply a customer health score in your business? Here’s a step-by-step guide to creating your own system.
Define Customer Success
Customer success is the measure of how well you are delivering value to your customers. To understand customer health, you must first define an ideal customer journey for your business.
- Making regular purchases of your product or service?
- Logging into your app or website frequently?
- Engaging with customer service or support teams?
Once you have a benchmark, you can measure every customer’s journey against it. This will help you to identify which customers are on track and who needs more attention.
Choose your metrics
Qualitative metrics like reviews are valuable in certain contexts, but you should focus on quantitative metrics for an effective customer health score system so that it can be scaled up.
This can include:
- Number of logins
- Average time between purchases
- Time spent on website or app
- Social media engagement
- Product usage
- Online participation
- Support tickets
- Upgrades or add-ons
Customer behavior metrics can help you understand how customers interact with your product or service in real-time. This can be more valuable than traditional metrics like customer satisfaction surveys, which often take time to get results and be affected by several biases.
Develop a scoring system
Often, at this point, companies can get ahead of themselves and immediately start to assign a status to each of their customers.
But the visualization of customer health comes next. First, you should develop a numerical system that assigns points to each chosen metric.
For example, a customer who logs in more than twice a week could be given 5 points, while one who only logs in once would get nothing. By assigning values to each action or behavior, you can easily calculate a score for each customer.
Interpret the data
Now comes the time to transition the data from a pile of numbers to something more meaningful.
You can assign colors or labels to each of the scores you have developed, like green for healthy customers, yellow for at-risk customers, and red for those in danger of churning.
Some companies use the school grading system, with A+ being a customer that will stay for a lifetime, and F being one already halfway out the door. A simple 0-100 scale also works well, especially for companies with a long list of clients.
Customer health score examples
Here is a visualization that you might end up with:
|Score||Change||Client Name||Usage||Average Cart|
|65||-11||Tom’s Tire Town||Large decrease||$38.00|
|64||–||Lizzie’s Lizard Emporium||New||$274.00|
|53||+3||Rebecca’s Rooftop Patio||Increase||$32.00|
From a glance, you can see how each customer ranks among your current customer base, who needs some attention, and which is the most important to your revenue streams.
Because Mollie is such a large buyer, her emergency decline is extremely worrying and will need immediate action. On the other hand, Tom doesn’t spend much money anyway, so his recent decline might not require a rush.
Customer health score template
Before you go, here’s a simple customer health score template to help.
First, you’ll have to assign points to each range of outcomes. For instance, in our template below, a customer that uses a product for fewer than five hours will receive no points for usage, while one that spends more than ten hours will receive 100 points.
|Product usage (hr)||0-4||5-10||10+|
|Website activity (min)||0-60||61-180||180+|
Then, an individual’s scorecard might look like this. By applying weight distribution, you can rank which metric is most important for your customer health score.
In this case, the customer comes out with a 60, but by adding more categories (or more specific outcome ranges), you can get a more detailed look and tailor it to your business.
|Product usage (hr)||7||50||0.4||20|
|Website activity (min)||93||50||0.2||10|
Customer health scores are a valuable tool for identifying customers at risk of churning. By regularly tracking customer behavior metrics, you’ll be able to identify any potential issues quickly and take action before it’s too late.
With the right system in place, you can ensure that your customers stay happy – and loyal – far into the future.