What is Customer Health Score and How to Calculate It

Most businesses, especially the ones on the “small-sized company going bigger” part of the spectrum don’t realize one thing about growth. 

It is not always about customer acquisition.

Customer retention is just as important, if not more. And this is an overlooked aspect most of the time. Even when we have lots of customers, our priority is always to get more. Take it from me, your existing customers will leave if you don’t care about them more.

We are family and all but do you expect your party guests to stay after the drinks are over? Nope. You need to interact with your guests, check if they need more drinks, clean up if someone had a little accident and make sure they have fun. 

Remember, you are not irreplaceable and there might be a cooler party down the block. Man, it’s almost like high school all over again.

But hey, let’s quit the traumatic metaphor and actually look into customer health score a little more.

What is Customer Health Score?

Customer health score is the missing link between customer support and the customer. A more indirect one, but surely a prominent one. At its very core, customer health scoring is a way of putting together meaningful data regarding your customers and predicting how they will behave in a given period of time.

Yes, I really said ‘predict’. If you know how to use your metrics right, you will be able to predict whether your customers will churn or upgrade, even better, if you bring in the right data.

The best thing about customer health score is that there is no one way of doing it. As companies and businesses come in all shapes and sizes, it is only natural that deciding the specific metrics for a company’s customer health scoring is up to the company. 

Now you are thinking, “But hey how do you do it? And before all that, why should I care?”. Let’s take a look.

Why is Customer Health Score Important?

I’m assuming that we are on the same page about customer health score being a strong tool that will help you avoid churn and give you the opportunity to upsell. But beyond what is obvious, there is one more benefit of being able to keep your customers happy.

They will do the marketing for you.

Imagine the number of products you suggested to your friends and family just this week. That product could be yours. If only there was a way of keeping your customers happy to the point that they want to recommend your product to others, right?

One more question though...

Why now?

This might surprise you if you haven’t heard about customer health score before but the term has been around for at least six years now. 

However, you can tell that it didn’t receive the spotlight it deserves, mainly because it wasn’t ready as a tool to serve businesses as much as it is now. Oh, and some other reasons like…

Tech, obviously

Can you imagine being able to do automations, setting triggers and alarms and all the other awesome stuff technology help us do today? 

As for me, I don’t even remember what Instagram looked like last year. But I know one thing and that is technology has never been more business-friendly. And customer health scoring can only benefit from that.

Real time’s the charm

Okay yes this is about technology too, you got me. Still, the demand for real-time information deserves its own spot. 

Now that we have (virtually) everything under our thumbs on a screen, we might as well demand information in real-time. And oh boy do we demand it. 

But obviously, even if you were able to receive the information that one of your customers might churn soon, it wouldn’t mean a thing if you find out about it too late. So being able to receive more real-time data from customers has definitely contributed to the effectiveness of customer health score.

Good ol’ feedback is dead

Well, no. But yes.

Leading a business without feedback is like driving a car blindfolded. Please do not try this at home. 

However, we know that nobody likes to take a long survey, let alone talk to a representative unless there is a big problem. 

So, all successful businesses are trying to minimize the surveys, questions, and feedback. But what is better than a short survey? One that does not exist.

Instead of trying to let your customer tell you that they might churn (and risking them getting aware of it themselves, duh), what you might want to do is have them let you know through their actions. 

Oh, but how might one do that, I wonder?

With customer health scoring, of course. Let’s find out how.

How Do I Measure Customer Health Score?

As I said above, customer health scoring is highly specific to each field, each company, even each customer. So there is no one way of doing it as well as no standard metrics.

But there is a starting point, and I think Philipp Wolf, the CEO of Custify, explained it pretty well on our free event “Winning Customer Success Strategies”.

So, Philipp proposes three steps to successful customer health scoring:

1. Define user personas, segments, and what to measure

To predict your customer’s behavior and measure their health score, the first thing you need to know is who your customers are. This way you can figure out not only which of your product’s features and benefits draw in the customers, but also see your next move in overall user success. Two birds with one stone.

One other thing to be careful about is segmentation. One of Philipp’s very valid points is that you shouldn’t be measuring the use of a premium plan feature of a starter plan customer. This is why you might want to apply different metrics for each segment, and it once again proves how individual customer health scoring might get.

So, now that you know your customer personas and you are looking into different metrics for each segment of your users, it is time to decide which metrics to use.

One important thing to consider here is that employing too many metrics is a thing.

Although it is possible to measure quite a lot, that might be overwhelming at first. And even later on, sometimes.

The thing is, you actually don’t need that many metrics. If you choose the right five metrics from the start, they will outperform a scoring with 20 unnecessary metrics.

What metrics to choose though?

You might want to consider:

• How much a customer interacts with your product,
• How many users are there and how well (!) is their experience,
• How many of the offered features are in use

And a lot more options depending on your specific field, company size, customer, and how far they are into the customer journey.

The point is to find an answer to 

1. What are the customers experiencing,
2. And, can I improve it before they churn

Once you eliminate the unnecessary metrics with a mindset fueled by the two questions above, you are good to go.

2. Establish the distribution of each individual health score

Now that you have a better understanding of what metrics might benefit you, let’s talk about outcomes.

Remember that by measuring and tracking health scores, the ultimate goal we are trying to accomplish is to avoid or achieve an outcome. Meaning, you need to find out what action triggers a bad outcome or a good outcome. 

Let’s look at it through an example. You probably want to measure things like “how long do my customers spend time on the product?” or “how many users are using the product?”, but let me tell you, most of the time these metrics may be deceiving.

Measuring the time spent on the product is problematic because the time they spend there doesn’t mean they are having an effective experience. And as Philipp says, it could show that they are struggling with the product. It might be an even better sign if they spend less time on the product sometimes. 

The same issue is true for the second question, there might be two very satisfied users on the product or a hundred very confused ones. Totally the wrong direction if you count the latter into a good health score.

As you can see, this step might require a bit of testing and experiment for your individual use. This is because my assumptions above might be completely the opposite depending on your product. This is where data science comes in. 

To start you off with collecting valuable data, I recommend taking a look at Obviously AI with which you can access data predictions without the need to code.

Determine the impact of each individual health score on the global one

One thing Philipp points out several times is that you cannot NOT have what he calls a global health score. 

A global health score is basically a weighted total of all the metrics and individual health scores for each customer and it is a must.

Question: should you look up each metric to assess a customer’s health each time?

Another question: wouldn’t that make it too complex for real-time decision-making?

The most important question: are all metrics equally important?

No, yes, and no. 

We want health scores because we need to decide and move fast. But most importantly, not all the data and individual score for each metric matter the same. An overall, weighted score is necessary.

In the third and last step of Philipp Wolf’s formula, the objective is to decide which actions affect churn or create an opportunity for upselling and which ones play a role in not so drastic outcomes. 

By doing so we get a clear view of what to consider a red light or a green light, and we get to create an overall health score for each customer that will act as an indicator for action.

Customer Health Score Examples

Although we know now that there isn't one way of doing customer health scoring, there are some formats we might prefer to use. These formats may depend on the data tool you are using for health score calculation, nevertheless, let's get you familiarized with how it looks.

Color Code

Color-coded health scoring is an easy and fun way to track your customers' health. It is extra effective if you have simple and relatively few metrics. Such a straightforward format means that you will have more space to take action and also keep you in real-time when dealing with any issue.

Grade Scale

Similar to color code format, the grade scale format is based on grading customers on a basis of used metrics. One difference from color code would be the number of grades, which help initiate more specific and intricate actions. For the ones who prefer this format of health scoring, hope none of your customers got an F from health.

Percentage Scale

If you think Philipp Wolf's 3-step formula was spot on, you will like this format the best. This screenshot of Custify's interface from Philipp's presentation is a great example of a percentage scale, which focuses on several scores for each customer that will be added up to a global score. Once you figure out each metric's distribution and its impact on the overall score, this format becomes one of the most helpful examples.

Quick tips for better health scoring

Now that we know what customer health score is and how we can measure it, let’s wrap this up with some quick tips.

Remember your goal

Dodging churn left and right while trying to upsell can disturb your focus. But you have to remember at all times that the goal is not just customer retention but making sure they are happy and healthy. You can get them to stay, but what you really want is for them to want to stay.

Mind the outcomes

The outcome you expect from a specific customer trigger might be the complete opposite of what will actually happen. To make sure you don’t misread the signs, always test the outcomes. Reaching out to the customer might help.

Get an overall score

I said this once and I’ll say it again. Not all metrics are equally important. To get an objective and accurate prediction, a weighted overall score is a must. Moreover, it can help you with real-time decision-making as well.

Conclusion

For all SaaS businesses, one thing is for sure: customer success is your success. That’s exactly why to grow your business, you need to let your customers grow with you.

Customer health scoring is completely doable when you know the needs and pain points of your customers. What really counts is to put their happiness and satisfaction first, the rest is applying the formula.