The Customer Health Score SaaS Metric: Everything You Need To Know
In the past several years, the SaaS business model has proven to be one of the most lucrative ways to sell software or digital products. After all, SaaS companies earn recurring revenue for each deal they close, not just a one-time payout.
However, this also poses a need for SaaS businesses to focus not just on maintaining relationships, but also on actively nurturing them so that they would become loyal customers and even more.
The thing is that there are a lot of factors that can affect customer relationships. Aside from your SaaS product itself, you also have other customer interactions (like customer support, customer success, and others) to think about.
So how do you accurately measure your relationship with each customer?
This is where the customer health score SaaS metric comes in.
What Is The Customer Health Score?
In a nutshell, the customer health score is a SaaS customer success metric that gives you an overall view of “customer health” or the strength of the relationship you have with a particular customer.
The great thing about this metric is that you can use it to measure different aspects of the customer experience and consider many different touchpoints.
However, because it is a versatile metric, it can be very complex and difficult to interpret. What’s more, human bias and perception may also affect the customer health scores you come up with and what they mean for your business.
So how do you compute a customer’s health score? Let’s go through the steps one by one.
Step 1: Define What You Want To Measure
Again, the customer health score can measure many different aspects of a SaaS company that contribute to the overall customer relationship.
Here are some things you may want to measure using the customer health score:
Customer retention is one of the most crucial things for a SaaS business. In fact, it is even more important than customer acquisition. After all, it costs less to retain an existing customer than to acquire a new one.
What’s more, having a high customer churn rate can also negatively impact your brand reputation.
But hey, don’t we already have customer retention rate and customer churn rate to measure this aspect of your SaaS company?
Well, yes. But those SaaS metrics only measure customer retention and churn after the fact. Customer health score can help you assess the likelihood of retaining your customers and anticipate customer churn in the future.
Another key customer interaction that adds to their overall experience is the adoption and usage of your SaaS product’s various features and capabilities.
Customer health scoring can measure customer engagement with your product and the extent to which they are utilizing it.
This is an important factor in customer retention, as users that can maximize the value of your SaaS product are more likely to stay with you.
Readiness For Upselling & Cross-selling
Upselling and cross-selling are essential strategies that can increase your average revenue per user (ARPU) and customer lifetime value (CLV).
But of course, this requires your target customers to be ready and willing to avail of additional products or upgrades.
Your customer health score can help you determine the customer’s readiness by assessing different indicators that may tell you when a user already needs an upgrade from their current plan.
Customer loyalty is one of the ultimate goals of a SaaS business. This goes even deeper than customer retention.
You see, loyal customers don’t simply stick with your SaaS product. They trust and love your brand. And they’re not even considering switching to any of your competitors.
Measuring customer loyalty can be tricky, but with a customer health score, you can get an indication of brand loyalty by taking note of certain customer behavior patterns.
Brand advocacy is the cherry on top of customer loyalty. Not only are your customers loyal to you, but they also voluntarily recommend your SaaS products and services to their peers.
This kind of customer behavior can help you acquire more new customers without spending extra cash on customer acquisition activities. It can even help boost customer retention as new customers may feel more secure when they see that your existing customers love your product.
Customer health score can help you measure customer advocacy by keeping an eye on customer behavior or responses that may signal customer satisfaction.
Step 2: Determine Which Customer Segment To Score
The customer health score is a metric you can track for each customer you have. Realistically though, it is not very practical to track customer health scores for all of your customers, especially if you have hundreds or thousands of users onboard.
Instead, you can track the health scores for a specific customer segment you’re currently focusing on.
Is it small businesses? The medium-sized businesses? Or are keeping an eye on the large enterprises among your customer base?
You may also segment your customer base according to which plan they are currently subscribing to. Or which part of the SaaS customer journey they are in right now.
Having these segmentations in place can help you track customer health scores more accurately.
It can also help you identify customer opportunities and address customer issues more quickly.
Step 3: Identify Customer Actions That Impact Their Health Score
Once you have established what you’re measuring and who you are assessing with the customer health score, then you can start identifying relevant customer interactions that may affect it.
For example, if you’re after an overview of brand advocacy in your customer base, you may want to consider their referrals or user reviews.
Let’s talk about the possible customer actions that may be relevant to your customer health score:
When it comes to measuring customer experience for your SaaS product, your users’ product usage tells you a lot about almost any aspect of it.
Here are some usage-related customer actions that may be relevant to the customer health score you’re measuring:
- Product usage rate
- The number of features they are using
- Their number of sessions per day
- Average session duration
- The number of users they have
Customer Support Conversations
The customer support conversations you have with your customers can also provide valuable insights into the customer experience.
After all, your customer service team is who they talk to whenever they encounter any issues or have any questions about your product. So naturally, customer health would be affected by how well and how fast your support team can respond to them and address their issues.
If customer service is relevant to what you are measuring with the customer health score, consider tracking customer actions and customer support metrics, such as:
- Average response time
- Number of resolved and unresolved customer support tickets
- First contact resolution (FCR) rate
- Average time to resolution
- The severity of their issues
Customer Success Interactions
Another make-or-break factor in your relationship with your customers is your customer success management.
Ideally, the goal of your customer success team is to help your customers reach their goals with the help of your SaaS product. If they can do that, it would go a really long way toward customer loyalty.
Here are some customer actions and customer success KPIs that may impact customer health:
- Whether or not they completed the onboarding process
- The number of training sessions done
- Engagement with online resources (views, clicks, and time on page)
- The number of short-term goals they achieved
- Activation rate
Customer Feedback Or Survey Responses
Since you’re already trying to assess your relationship with your customer, why not take a look at what they are saying themselves?
Listening to customer feedback can help you understand customer sentiment and satisfaction.
Below are some survey-based metrics and customer actions that may factor into customer health:
- Survey response rate
- Their customer satisfaction score (CSAT) survey responses
- Their Net Promoter Score (NPS) survey responses
- Their Customer Effort Score (CES) survey responses
- Customer feedback on third-party SaaS review sites
SaaS community marketing has proven itself to be an effective way to foster customer loyalty and advocacy for your customer base.
And if you’re using this strategy, you may want to look out for their community involvement, which includes the following:
- Engagement with posts (likes, comments, and shares)
- Number of user-generated posts and content
- The number of new members they added into the community
Last but not least, customer loyalty should always be taken into consideration when measuring customer health.
Here are some measurable characteristics that may indicate a customer’s loyalty to your brand:
- Their number of years as a customer
- The number of upgrades or add-ons they purchased
Step 4: Assign An Impact Score To Each Customer Action
Once you’ve identified the customer actions that are relevant to customer health, the next step is to assign an impact score to each of them.
This would enable you to measure customer health in an objective and consistent manner. So different customer actions may also have different weightings and values assigned to them.
For example, achieving a short-term goal will have a greater impact than other customer success actions, such as going through a training session.
What’s more, there can be different approaches to measuring customer actions. Some will be measured in terms of quantity or volume. While others can vary in terms of scales.
Let’s talk about these approaches in more detail.
Some metrics are measured by counting customer actions.
For example, community involvement is mainly measured by engagement metrics, such as the number of likes, comments, and shares. These customer actions already have numbers associated with them.
This makes it easier to measure customer health using these metrics.
Still, what these metrics measure aren’t equal in terms of impact on customer health. So you would still need to assign a corresponding impact score for each of them.
For example, sharing a post might have a higher impact score than commenting on one. And leaving a comment on a post would have a higher impact score than just hitting the “like” button.
What’s more, you also need to consider customer actions that may have a negative effect on your customer health, such as unresolved support issues or negative feedback. These customer actions should also have their corresponding negative impact scores.
Some customer success metrics and actions may be measured on a scale, such as CSAT score and NPS.
Here, you would need to assign scores based on their distance from the “neutral” level.
Let’s take the customer satisfaction score, for example. A score of 3 (neither satisfied nor disappointed) on the customer satisfaction survey could be worth 0 points since it’s a neutral answer.
But if the customer gives a score of 4 (somewhat satisfied), then you might assign it an impact score of +5. A score of 5 (very satisfied) may have an even higher impact score of +10.
Moreover, scores below the neutral level may also incur negative points. In our above example, scores of 2 and 1 may give -5 and -10 to your overall customer health score, respectively.
Step 5: Calculate Your Customer Score Per Customer Action
Once you’ve assigned impact scores to customer actions, the next step is to calculate the customer health score per customer action.
To do this, simply take the customer actions score and multiply it by its corresponding impact score or values. That would be your customer health score per customer action.
Let’s say you have a customer who has been using your SaaS product for two years now and they just recently upgraded to a more advanced plan. Their customer loyalty (in terms of years) might be worth +10 points per year, while each instance of an upgrade may add +5 points to their customer health scoring.
Their tenure (the two years of subscription to your SaaS product) would have 20 points, while their upgrade would lead to 5 points.
Step 6: Calculate Your Overall Customer Health Score
To arrive at your overall customer health score, you can simply add all of these individual health scores for each customer action.
For example, let’s say you’re measuring customer loyalty and your customer has made the following actions with the corresponding impact scores:
2 years of subscription to your SaaS product (10 points per year)
Answered with a “4” on the CSAT survey (worth +5 points)
3 resolved customer support tickets (5 points per ticket)
2 unresolved customer support tickets (-5 points per ticket)
1 positive customer feedback on a review site (10 points)
The calculation for your overall customer health scoring might look something like this:
Step 7: Create A Customer Health Scale
The thing about the customer health score is that there’s really no standard on what scores are considered good and what’s considered bad.
That’s why it’s important to create your own customer health scale. This will help you decide which customers are healthy and which ones need attention or intervention.
One way to create a customer health scale is to create categories for each specific range of health scores. What’s more, you may also want to add some action plans for each of those categories.
For example, here’s what a customer health scale might look like:
Below 0: “Critical Condition” — Customer is about to churn. They need urgent attention from the customer support and customer success teams.
0 to 25: “Struggling” — Customer is in danger of churning. Some targeted actions may be necessary.
26 to 50: “Stable” — Customer health is steady and doesn’t require any urgent attention.
51 to 75: “Thriving” — Customer is doing well but may be ready for an upgrade. The customer success team may need to perform occasional check-ins or give personalized recommendations to them.
Above 75: “Superstar” — Customer’s health is strong and needs no extra attention. Their customer success manager just needs to continue what they’re doing and find ways to turn the customer into an advocate.
Having a scale like this can serve as a universal guide for interpreting your customer health scores. It will also help you determine which customers need the most attention and prioritize them accordingly.
Step 8: Iterate And Improve Your Customer Health Score Calculation
Since the customer health score is very versatile and personalized, chances are your first customer health score calculations and scales won’t be perfect the first time.
Your assigned impact scores may not accurately reflect the importance of the customer actions you’ve chosen. Or your customer health scale may not be on point in interpreting each health score range.
That’s why it’s important to continuously iterate and improve your customer health score system. You need to track the results of your customer actions over time and compare them against your previous scores.
Use this data to better understand how customers are interacting with your SaaS product and the other services you provide. And adjust accordingly.
Keep refining your process until you have a reliable system that accurately reflects each customer’s health status.
Final Thoughts About The Customer Health Score SaaS Metric
The customer health score is an incredibly useful SaaS customer success metric. It helps you understand how customers are interacting with your product and which customers need attention.
But it’s also important to remember that this isn’t a one-time solution or set-it-and-forget-it kind of metric. You need to constantly update and refine the process over time if you want to get accurate and reliable insights.
By doing so, you’ll gain valuable insights into your customers’ behaviors and needs — which will help you deliver better overall customer experiences and keep them around for longer periods of time.
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