Tips and Trends for Customer Health Scores from Philipp Wolf

Retaining customers is key for subscription-based SaaS businesses. But how can you quantitatively measure the success of each particular account?

Customer health scores are there to help.

We talked to Philipp Wolf of Custify, the customer success software. Philipp shared why SaaS companies should be tracking customer health scores from day one, how you can use them to grow your business, and more.

Watch the recording below for the full recap, or read on for the bite-sized learnings.

What are customer health scores?

Customer health scores are the metrics that help you judge your company's relationship with a particular customer. Philipp shares that churn is the main reason why companies are tracking these metrics:

"Churn is one of the main reasons why people start tracking these health scores because they want to understand: which of my customers have a problem? Which of the customers are likely to churn so that I can do something about it? So it's about getting proactive."

Aside from reducing churn, customer health scores are necessary because they inform new customer acquisition, and help you identify new upsell opportunities.

And if the term "customer health score" is unfamiliar to you, you can also call them your key performance indicators (KPIs).

Tip 1. Choose your health scores based on the value your product provides

When it comes to determining your health scores, Philipp shares that there is no one size fits all formula for choosing them.

He shared that many times he has heard clients wanting to track app logins as health scores. But Philipp believes that logins shouldn't be treated as the main health score:

"Why? Because nobody buys your product to log in to your platform. That's just like not the reason why they pay you money. That's not the pain that your product solves."

So how can you choose meaningful health scores? Philipp advises looking for health scores that are tied around your sales promise and that you can use to influence your customers:

"Emails sent if you are a platform that sends emails. Tasks that are completed if you are a task management platform. Or if you manage files, how many files are uploaded? The idea here is that you want to think about the main pain that my product solves and these health scores are typically tied around these examples."

Tip 2. Weigh your health scores

Philipp says that while you have one main value proposition, your product has probably several features to help the user get that value.

If you measure multiple health scores (and you should), then some will have priority over others.

"That's why we have these multiple individual scores to understand which of the values that you promised this customer actually gets. And which of the things he might not have yet discovered because it's maybe a different feature or these things. Then not each one of those scores is equally important."

Tip 3. Leverage global health scores to see the bigger picture

Global health scores are a weighted average of individual health scores. Philipp says it is especially useful for getting an idea of your healthiest and unhealthiest customers.

"When you look at your entire portfolio, you get an idea of which are your unhealthiest and healthiest customers. And then you can still do a drill-down and understand the individual health scores and understand why."

Aside from giving you an overview of your customer relationships, global health scores also signal the risk of churn in real-time.

Tip 4. Different personas, segments, and products have different customer health scores

The first tip Philipp gives out on measuring health scores is that you have to take into consideration the different user personas and segments:

"A practical example is that not each of your plans might have all the features. So certain segments of customers might actually have a different definition of health because if you have a starter plan and an advanced plan. And in the advanced plan, there is a certain feature that is really important for those guys that have the advanced plan to use it. It doesn't make sense to track this health score for someone on the standard plan because they don't have access to this feature."

Aside from the segmentation based on plans, he also shares that you can look at segmentation based on the lifecycle.

In the case of companies that have multiple products in their portfolio, Philipp says that the health scores will depend on the specific product:

"What we typically recommend doing in such a case is that you have scores tied on this specific product. So each product has different scores or a score depending on how complex are those products, and how granular you want to get with your tracking. But most likely it would be multiple scores per product and then it depends. Can a customer have one product and it's either this one or another one? Or can they have multiple products at a time? Can they have products A, B, and C?

And with the segmentation that we talked about, where you slice and dice your customers, and depending on which segment they belong to, they get certain health scores that would exactly tie into that situation as well."

Tip 5. Establish the distribution of each individual health score

How do you determine what unhealthy and healthy look like? Philipp says that this will depend on your business and use case:

"Let's say you have a product that sends out emails. So is it okay in this case they sent 50 emails? That's the best value they can possibly think of. Where do you draw that line? That's something that you can also fine-tune."

You can measure the score for each account, and then adjust the formula. E.g. you don't want all accounts to be in the 95-100% success range, it's just not indicative. You'd want some accounts in the low and mid-range.

Tip 6. Use health scores to help in your product strategy

Because health scores tell you a lot about how your users interact with your product, it makes sense that it has a big impact on your product strategy.

And to help you with that, Philipp advises integrating all the tools you use with your CS platform so you can automate more processes and track more data. In essence, this helps you make sense of the bigger picture.

"Because for example, support engagements, number of open tickets. Was there any escalation in the support? Has this customer constantly had overdue invoices? All those are also indicators of customer health, and they should be individual health scores in your metrics there."

Philipp also shared that having many support tickets doesn't necessarily indicate a poor health score. In fact, it might be the opposite:

"If a customer is completely silent, that is most likely not the best signal. If they have some support tickets, that's typically good because at least if you can solve them and you don't have escalations there."

He also shared that net promoter score (NPS) surveys can also have an influence on customer health and it's important to know what the customer is actually telling you with these surveys.

Tip 7. Use health scores to drive customer success

Philipp shares that in customer success departments, these health scores are typically used by teams, so they can proactively reach out to their customers — especially if they drop in health.

"When a customer drops in health, that is an early warning for the CS team. You should get in touch to understand. Maybe the champion left the company and nobody knows how to use your platform anymore? Or they just changed the use case, or they changed their product and they should get a new onboarding session with you or training session."

Regular monitoring of health scores can help you identify early signs of increased friction or declining customer engagement. Aside from proactively reaching out to customers, this also helps you with other well-timed interactions like:

• Checking in after a problem was solved
• Following up on previous interactions
• Identifying upselling and cross-selling opportunities
• Providing information on new features or events

And by addressing issues before they lead to churn, you can capitalize on opportunities to increase adoption rates.

Ultimately, customer health scores can drive customer success in the form of:

• Reduced customer churn and increase retention (LTV)
• Help identify promoters
• Give guidance to provide remarkable service

Tip 8. Track your health scores from the beginning

Even without fancy tools like Custify, Philipp says you can start building these health scores even with spreadsheets or a data warehouse. The important thing is to track them from the beginning:

"It's important that you track this data early on, that your product starts tracking the data even if you don't put it to a platform right now. Put it in a data warehouse, talk to your technical team, and start tracking these KPIs in your product. Because once you have the data, it's also really important when you decide later to build health scores.

If you have a history of these events that you can use to learn from, that's really helpful versus someone that starts from scratch and is forced to learn like 'okay, how many times do I actually expect my users to use this functionality?'"

He also shares that even when you're doing this manually, you can eventually automate this later on when you've reached a certain scale.

Tip 9. Use these health scores to be more proactive with your customers

Jane shares that from a messaging perspective, once a customer drops in health score, you can trigger behavior-based messaging. But how about other measures?

Philipp says that this will depend on your business model, meaning how high or low touch you are with your customers.

"So if your product is charging $1,000 per month, you probably are much more high touch than someone who charges $29 per month. So it depends a little bit. Do you have more automations in place for sending messages and so forth or do you create a task for the CSM to immediately call this customer because you're more high touch? Or do a hybrid approach where you have some people that are getting these automated messages versus someone who might get a call.

All of these are potential things. The important thing is that you get proactive for them. The channel depends on the business model and it's not even that important. The importance is that the customer understands that someone is monitoring and understanding that they have a problem."

Tip 10. Do exit interviews

Philipp says that churn is a very complicated metric and a lot of factors come into play.

"Typically there's not 'the answer' that you can give. The churn can have many reasons. One of the reasons that go into what you just said is I'm attracting the wrong customers. What they want to do is not what I can offer. There's a mismatch between what they think they can do and what they can actually do. That's very early in the funnel.

So your marketing positioning is not precise enough or your sales team is selling to the wrong customers because they make them wrong promises."

He shares that another reason could be your onboarding experience isn't good so they're not getting to the value.

"That's kind of a bit later in the funnel. So people buy a product, but they don't get the value and they don't get the value of soon enough before they actually say: 'Sorry, I don't understand.'"

In cases like these, Philipp advises doing exit interviews to help with establishing health scores if you haven't done it in the beginning.

"It doesn't matter if you are in a low touch or high touch business, you can always do it. If it's a more low-touch business, you just sample your customers and you don't have to do it with everyone. Try to get them talking to you when they want to leave or when they left already and try to get on the phone. I'm not talking about the survey that you send them, get them on the phone, speak to a human, talk to them and understand why they churn."

The data from these interviews can help you understand what health scores you should actually definite for your product but will ultimately depend on the core value it provides and your positioning.

Tip 11. If you’re using playbooks, tie them to individual health scores instead

When using playbooks to get alerts for customer health scores, Philipp says that this would first depend on your audience:

"Sometimes it can make sense to send them a message first and see what happens. And then if the situation is not improving, schedule a task for the CSM to get in touch. That makes sense a lot of times, first trying to solve certain things automatically before you involve a human that calls because obviously, that last part is significantly more expensive than an email. You might find out that 50% of these cases can be solved with an email.

For example, 'hey, here's the link to our knowledge base' or 'have you considered this article that could help you to understand this better' or 'here's a video that explains how this works' if the reason is they don't use a feature."

And when it comes to attaching playbooks to global health scores, Philipp advises to do these on individual health scores instead so you can get specific with your messaging and action steps:

"Sending messages to a customer based on a global health score is most likely not a good idea. Why? Because what do you say in this message? Like this global health score is typically compiled out of multiple things and the message that you've sent to your customer would be like 'I see you are not happy. What can we do?' So it's not very specific.

While a playbook that is tied to an individual health score, for example, a certain feature that they are not using, or a bad NPS score that they gave you, that can be directly tied to a very concrete message and a concrete action, like 'okay, I see you don't use this feature. I have here a knowledge base article for you. And if you have questions I have here a Calendly link for my product team that you can schedule a 15-minute walkthrough with you' or these kinds of things."

Tip 12. When dealing with products that involve multiple parties, look into how each one gets value

Philipp and his team at Custify have already encountered customers who are providing marketplaces where two or more parties come together, and these parties only get value when the marketplace is successful. He shares that the first question to ask is who pays:

"So that's the kind of thing that you want to think about. Is that something that both tie into? Or both pay the bills? Or is there a B2B side where they pay you the platform fee and there's a B2C side where they only get the value?

Obviously, you want to focus first on the B2B side to make sure that these guys actually get the value. Nevertheless, also not neglecting the other part."

In defining your health scores, you also have to ask what it means to be successful for each party.

"Like there's a provider that provides a product and then there's a buyer that buys the product. And for the buyer, the experience of the purchasing is very important by far. The other one, the most important thing is that they generate revenue, that they are positioned right, and that they are found when people search for it and so forth. So those would be the criteria for each individual party."

Tip 13. Customer health scores evolve with your product

Philipp shares that in the earlier stages, companies often have certain assumptions about their health scores. But once you look at the data, learn new things, improve the product, and so forth, you can redefine your health scores as you go along:

"Simple example: you add a new feature and this feature is quite important for upsells things that you identify for successful customers. And you haven't tracked it so far as a health score, but once you add this feature to your product, you might want to also start tracking it with a health score.

So I would say in the beginning, you have a little bit more work to fine-tune them, to define them, and to have some learnings. Later on, they still evolve because you evolve as a company and as a service that you provide."

Health scores trends and changes in 2022

Trend 1. Using health scores to determine the net revenue retention (NRR)

Philipp says NRR directly relates to the valuation of the company and is the ultimate figure of how well you are able to grow your business with your existing customer.

"Churn is obviously not good because if customers leave, they stop paying you. So this revenue is lost. Ideally, however, you also not just keep them, but you can also grow them from within your platform.

Meaning you can upsell them to another plan. They purchase more seats. They purchase and add on these kinds of things. So basically they start with you and then they naturally grow with you."

Trend 2. Using multiple tools and data sources

A typical tool stack of a SaaS company is expanding, so customer success software needs to pull data from multiple sources.

Trend 3. Using AI to sift through huge amounts of data

Similar to other fields, AI is another trend we're seeing for customer health scores. While these can certainly help with big data, Philipp says that the key challenge is that it doesn't work for all customers because of the required training data set:

"For those who are deeper in AI that knows how this works, there has to be a certain set of data that the AI can train from. Let's assume you have only 10 customers and you have also not too many data points for those 10 customers. Then it's obviously very hard for an AI to learn on this data. And there's just one churn customer in a year.

Then this is not a great data set to be trained on versus some other customers. They have maybe dozens of customers and they have naturally a churn of a hundred a month or something where it's super easy for an AI to actually figure out those patterns."

Trend 4. Using health scores to map out the customer journey more accurately

Customer health scores, particularly segmented by lifecycle stage, can give great insight into the customer journey. In return, this can fuel your product, marketing & customer success efforts.

Trend 5. Using health scores to offer better onboarding experiences

Customer health scores can also help you spot which customers are having a hard time with onboarding:

"You can spot early on if a customer doesn't adopt the product as they should. So if you define your health score tied towards all the things that the customer should do in the onboarding: they should add the new user, they should explore a certain feature, they should expand a certain feature, and so forth.

So typically there are few steps in order for the customer to get to the full value of your product. These health scores can really drive it and you can be proactive for those customers that are not getting the to the value as they should."

Why are these health scores more important now?

Reason 1. Your competitors are using them

With so many SaaS companies using tools to track their customer health scores, this means that your competitors are probably on it. Philipp says that this might be something you should consider too:

"If they are proactive with their customers and if they reduce their churn, that is something that you might want to think of.

Reason 2. Exponentially better customer experience

Philipp shares that when someone proactively calls you to get your problem with an app solved, that is just a great user experience.

Reason 3. Enabling CS-focused organizations to have a much more process-based approach to their work

This enables these organizations to be a little bit more based on data and processes instead of a gut feeling.

Reason 4. Enabling CSMs to be proactive based on data

Philipp says most customer success managers typically spend more time with customers that are vocal with their problems. But how about those who are not so vocal?

“However, the one that really needs your help, they might not reach out so often. And they might just like fall through the cracks. And that can also be avoided.”

Learn more from Custify

Custify is a customer success platform built specifically for SaaS businesses to help reduce churn, retain customers, and grow revenue. If you'd like to learn more on how to choose meaningful customer health scores for your business, you can explore their Full Guide to Customer Health Scores.